ESG Metrics Decoded: The Critical Context You Might Be Missing

As a new ESG analyst, I see the transformative potential of Environmental, Social, and Governance (ESG) metrics every day. These metrics are more than just numbers on a report; they represent the values we hold dear and the impact companies have on the world around us. But here is the thing—while ESG metrics are powerful, they are not always straightforward. And that is where our role comes in: to make sure these tools are used wisely, with a full understanding of their complexities.

Comparing Apples to Oranges: The Case of Two Industry Giants

Let us take a closer look at two companies—one a retail giant, the other a tech powerhouse. Both are evaluated through the lens of ESG, but they operate in very different ways. Imagine a scorecard that asks about the “volume of fossil fuels used.” For the retail company, this captures all the fuel burned by its fleet of trucks delivering goods across the country. It is a straightforward calculation, and the company reports every drop. But the tech company, which outsources much of its delivery, might show a lower carbon footprint simply because those emissions are counted elsewhere. On paper, it might look like the tech company is more sustainable, but is that really the whole story?

The Nuances Behind the Numbers

This is where things get complicated—and where we need to be careful. The retail giant has a hands-on approach to reducing its carbon footprint. They have redesigned their packaging, optimized their shipping processes, and invested in greener technologies. These efforts have not only reduced emissions but also saved billions of dollars. But when you compare this to the tech company’s numbers, which do not fully account for outsourced emissions, it can be easy to overlook the bigger picture.

Now, I am not saying ESG metrics are flawed—they are essential for driving change. But they require a nuanced understanding. For example, a Bain study shows that the carbon efficiency of a delivery model depends on how many items a shopper buys at once (Source: Bain & Company, 2023). In-store shopping, where people often purchase multiple items in a single trip, can result in a lower carbon footprint per item than individual online purchases. This kind of context is critical when you are comparing ESG scores across different business models.

Looking Beyond the Surface: The Full Carbon Footprint

And let us not forget that 90 percent of the carbon footprint for consumer goods comes from manufacturing and usage, not the method of purchase (Source: Environmental Defense Fund, 2022). The retail company has worked with over 1,000 suppliers to reduce a gigaton of carbon emissions—yes, a gigaton—while also saving costs. This is a huge achievement, yet the tech company, with its different approach, has not made the same strides in influencing its suppliers’ carbon footprints.

The Role of the ESG Analyst: Bringing Humanity to the Data

For investors, this is where the challenge lies. ESG metrics are incredibly valuable, but they do not tell the whole story on their own. To truly understand a company’s impact, you need to look deeper, ask the tough questions, and consider the context behind the numbers. It is about more than just comparing scores—it is about understanding what those scores mean in the real world.

This is where I see my role as an ESG analyst: to bring that human touch, to help investors see beyond the numbers. My job is to interpret the data, to highlight the nuances and the stories behind the metrics. It is about making sure that when you invest, you are doing so with a full understanding of what those investments represent—not just in terms of profit, but in terms of impact.

Investing with Heart: Aligning Portfolios with Values

In the end, ESG reporting is not just about tracking corporate behavior—it is about aligning our investments with our values. It is about making sure that the companies we support are truly contributing to a better world. And while the numbers are important, it is the stories behind those numbers that really matter. By approaching ESG with empathy and expertise, we can ensure that our investments make a difference—not just for our portfolios, but for the world we all share.

Lau Zheng Zhou Sharifah Bakar Ali Kevin Tan Mathias Varming Joe Aouad Korkut Yavuz Uzair Amir Khairull Hafiz Ismail Fe Jazzareen Khan Azfar Mohamed Syahirah Taha Bryan Paul WeiRen Lim Majid Mirza Shaheen Mansori, PhD/FCMI Mohd Rusydi Izzat Abdul Rashid Luma Saqqaf Mohd Fadzli Mohamed Mohd Faiz Nor Sallehi Melvin Tong Hafizullah Irfan Mohamad Farook SUNITA DEVI Aravin Pillai Luqman Raof Ayu Akmal Yusnidar Binti Mohd Jayus Amirul Safuan Mohd Ishak Afiqah Fatin Jamaludin Faraz Khan MBE Mazrul Shahir Najlaa Aqilah Mohammad Nizam Hazik Mohamed, Ph.D Ali AlGhofiqi Maya Puspa Rahman Dr Dayana Change Communication Specialist Pauline Goh Dr Ziyaad Mahomed Prof Dr. Zulkarnain Muhamad Sori, ICDM Suhairah Maimun Aqsha Abdul Hadi Jusoh CPIF