The business case for Environmental, Social, and Governance (ESG) performance has never been clearer. Investment funds with adherence to ESG principles hold more than $18 trillion, and more than three-quarters of companies in the S&P 500 incorporate environmental, social & governance (ESG) performance measures into their executive incentive plans, according to 2024 disclosures, up from two-thirds in 2021.

Beyond investor pressure, the financial benefits are compelling. A 2021 report from NYU's Stern Center for Sustainable Business, which analyzed over 1,000 studies, found that 58% of the research showed a positive relationship between ESG and financial returns, while only 8% found a negative relationship. For business leaders navigating this landscape, tracking the right ESG metrics isn't just about compliance—it's about unlocking sustainable competitive advantage.

Why ESG Metrics Matter More Than Ever

The stakes for ESG performance continue to rise. A staggering 76% of consumers would cease buying from firms that neglect environmental, employee, or community well-being, highlighting the direct impact of ESG practices on consumer behaviour. Meanwhile, 89% of investors when making investment decisions consider ESG factors.

The regulatory environment is also intensifying. The European Commission estimates that the EU's Corporate Sustainability Reporting Directive (CSRD), which rolled out its initial phase on January 1 of this year, will eventually impact 50,000 companies, including thousands of American businesses operating in Europe.

The 7 Essential ESG Metrics for Business Leaders

1. Carbon Emissions (Scopes 1, 2, and 3)

Why it matters: In 2024, 84% of S&P 500 companies and 64% of Russell 3000 companies identified climate change as a risk factor, a significant increase from 67% and 30% in 2021.

What to track:

• Scope 1: Direct emissions from company-owned sources (facilities, vehicles)

• Scope 2: Indirect emissions from purchased energy

• Scope 3: Value chain emissions (suppliers, business travel, waste)

Key insight: Examples of ESG metrics include greenhouse gas emissions, diversity percentages, and tax payments, helping companies measure their sustainability progress. Companies should establish baseline measurements and set science-based reduction targets aligned with global climate goals.

Resources:

• Science Based Targets initiative (SBTi)

• GHG Protocol Corporate Standard

2. Energy Efficiency and Renewable Energy Usage

Why it matters: Energy costs represent a significant operational expense, and renewable energy adoption signals long-term sustainability commitment to stakeholders.

What to track:

• Total energy consumption (kWh)

• Percentage of renewable energy in energy mix

• Energy intensity ratios (energy per unit of production)

• Year-over-year energy efficiency improvements

Best practice: Set targets for both absolute energy reduction and increasing renewable energy percentage, with regular progress reporting.

3. Workforce Diversity and Inclusion

Why it matters: Metrics such as diversity and inclusion ratios, employee satisfaction scores, turnover rates, and employee wellbeing indicators are particularly relevant and commonly tracked.

What to track:

• Gender representation across all levels (especially leadership)

• Racial and ethnic diversity metrics

• Pay equity analysis and gender pay gap data

• Leadership diversity (board and C-suite composition)

• Employee satisfaction and engagement scores

Key insight: 43% of S&P 500 companies still including and highlighting measurable, time-specific DEI goals in their sustainability reports, with almost 80% of these goals remaining consistent compared to the previous year.

4. Employee Health, Safety, and Wellbeing

Why it matters: Strong safety and wellbeing programs reduce costs, improve retention, and demonstrate genuine care for workforce sustainability.

What to track:

• Total Recordable Incident Rate (TRIR)

• Lost Time Injury Frequency Rate (LTIFR)

• Employee turnover rates

• Mental health and wellbeing program participation

• Training hours per employee

Emerging focus: Tracking more challenging measures, such as employee carbon footprint, mental health, gender pay gaps, and social impact (community outreach initiatives and volunteerism), can push your organization to improve its commitment to these areas.

5. Water Usage and Waste Management

Why it matters: Resource efficiency directly impacts operational costs and demonstrates environmental stewardship, particularly important for manufacturing and industrial companies.

What to track:

• Total water consumption and wastewater generation

• Water recycling and reuse rates

• Waste generation by type (general, recyclable, hazardous)

• Waste diversion rates from landfills

• Circular economy initiatives and material recovery

Business impact: Effective waste management programs can significantly reduce disposal costs while improving environmental performance.

6. Supply Chain Sustainability

Why it matters: Supply chain sustainability is a material ESG concern for companies. Tracking metrics like supplier diversity, environmental impact, and labor practices can help you identify potential risks and opportunities for improving ESG performance of supply chains.

What to track:

• Percentage of suppliers with ESG assessments

• Supplier diversity metrics (minority-owned, women-owned businesses)

• Supply chain emissions (Scope 3)

• Supplier code of conduct compliance rates

• Local sourcing percentages

Risk mitigation: Strong supply chain ESG monitoring helps identify potential disruptions and reputational risks before they impact operations.

7. Corporate Governance and Ethics

Why it matters: Strong governance foundations support all other ESG initiatives and build stakeholder trust.

What to track:

• Board independence and diversity metrics

• Executive compensation tied to ESG performance

• Ethics training completion rates

• Whistleblower reports and resolution times

• Data privacy and cybersecurity incident metrics

• Anti-corruption policy compliance

Leadership accountability: 71% of chief executives take personal responsibility for ensuring their company's ESG strategies align with their customers' values, often incorporating circular economy principles to reduce waste and optimise resources.

The Financial Case for ESG Metrics

The evidence linking ESG performance to financial outcomes continues to strengthen. Multiple regression analysis reveals a significant positive correlation between a company's overall ESG score and its financial performance, as measured by ROA and ROE.

Specific financial benefits include:

Lower Cost of Capital: A 2024 study published in MDPI analyzing S&P 500 companies found a negative linear relationship between ESG scores and cost of debt, with a correlation coefficient of -0.17—indicating that companies with higher ESG scores generally benefit from lower borrowing costs.

Superior Returns: A 2024 MSCI analysis revealed that companies in the top ESG quintile (top 20%) outperformed those in the bottom quintile over the 2012–2023 period, highlighting a consistent link between strong ESG performance and superior long-term financial returns.

Risk Mitigation: By the year 2026, it is expected that climate-related weather events will cost suppliers a staggering $1.3 trillion, making ESG risk management essential for business continuity.

Implementation Best Practices

Start with Materiality Assessment

Focus on metrics most relevant to your industry and stakeholder concerns. The selected ESG metrics should align with the company's overall strategy and values. If your company has committed to becoming carbon-neutral, for example, you'll need to track CO2 emissions closely.

Establish Baseline Measurements

Before setting targets, establish clear baseline measurements using consistent methodologies. This enables accurate progress tracking and benchmarking against industry peers.

Set SMART Goals

Create Specific, Measurable, Achievable, Relevant, and Time-bound targets for each metric. DEI is here to stay, with 43% of S&P 500 companies still including and highlighting measurable, time-specific DEI goals in their sustainability reports.

Integrate with Executive Compensation

ESG metrics are primarily applied to annual incentive plans that focus on short-term results within a one-year period—85.8% in the S&P 500 and 89.8% in the Russell 3000 in 2024. This integration ensures leadership accountability for ESG performance.

Invest in Data Infrastructure

Only 29% of companies felt prepared for CSRD and other imminent reporting obligations, highlighting the need for robust data collection and reporting systems.

Looking Ahead: ESG Trends for 2025

Several key trends will shape ESG metrics in 2025:

Mandatory Reporting: In 2025, the EU's Corporate Sustainability Reporting Directive (CSRD) will introduce mandatory ESG and sustainability reporting, marking a significant shift from voluntary, qualitative reports to data-driven ones.

Technology Integration: AI and automation are increasingly used to collect, analyze, and report ESG data, improving accuracy and reducing reporting burden.

Stakeholder Capitalism: 88% of consumers demonstrate increased loyalty to businesses that advocate for social or environmental issues, driving companies to prioritize stakeholder value alongside shareholder returns.

Conclusion

ESG metrics are no longer optional for business leaders serious about long-term success. Around 83% of consumers believe companies are responsible for shaping ESG best practices, while 85% of investors think ESG investments build resilience and unlock better financial returns.

The seven metrics outlined above provide a comprehensive framework for measuring and improving your organization's environmental, social, and governance performance. By tracking these indicators consistently and transparently, business leaders can build more resilient, profitable, and sustainable organizations that create value for all stakeholders.

Remember: ESG isn't just about doing good—it's about doing business better. Companies that master these metrics today will be the market leaders of tomorrow.

Ready to enhance your ESG strategy? Council Fire specializes in helping organizations develop comprehensive sustainability frameworks and measurement systems. Contact us to learn how we can support your ESG journey.