Understanding ESG Metrics
What Are ESG Metrics?
ESG metrics are quantitative and qualitative measurements that evaluate an organization’s performance in environmental sustainability, social responsibility, and governance. ESG data covers a range of metrics and disclosures that represent an organization’s sustainability performance and how it manages ESG issues.
The Principal Dimensions of ESG
The three fundamental pillars of ESG are:
- Environmental (E): This dimension assesses a company’s use of natural resources and the impact of its operations on the environment. It focuses on aspects such as biodiversity, carbon emissions, waste management, and pollution.
- Social (S): The social pillar looks at the impact of an organization’s relationships on its people and the communities it operates in. By promoting fair labor standards and respect for human rights, it ensures that people are treated in an ethical and equitable manner.
- Governance (G): This pillar examines a company’s leadership and corporate governance, including board composition, compensation structures, business ethics, and transparency.
Examples of ESG Metrics
While there is no universal set of ESG metrics to follow, some common ESG metrics for the private markets include:
- Environmental: Scope 1-3 emissions, total energy consumption, renewable energy, waste generated and diverted
- Social: Employee retention and turnover, work-related injuries, DEI policies, gender pay gap and diversity
- Governance: Whistleblower policy, Cybersecurity policy, board management and oversight
2025 ESG Metrics Guide
Dive into the top 30 metrics requested by investors on the Novata platform, plus insights from the top 100 across regions.
Why Companies Should Measure ESG Performance
Measuring ESG performance helps companies identify risks, improve operational efficiency, and achieve better financial performance. Additionally, regulatory requirements such as the EU’s Corporate Sustainability Reporting Directive (CSRD) are making sustainability disclosures mandatory for many organizations.
In the private markets, investors are leveraging ESG performance to assess long-term value and business resilience, with many now requiring detailed sustainability disclosures before investing.
Identifying Material Metrics
To identify the metrics that matter most to a company, conducting a materiality assessment is a foundational first step. A materiality assessment is a structured process to determine what ESG issues have the greatest impact on a company’s business outcomes, stakeholders, and financial performance. This typically involves:
- Engaging with internal and external stakeholders to surface the most significant ESG risks and opportunities
- Aligning with sustainability frameworks and regulations for information on how to identify, measure, and report on material topics
- Ensuring that the selected metrics align with the company’s strategy and operational goals to support long-term value creation and success
ESG Data Collection
Tips for Collecting ESG Data
Accurate ESG data collection starts with establishing strong internal controls and processes, such as:
- Building data collection protocols: Map out the types of ESG data to be collected, their sources, frequency of collection, and who owns each data point.
- Standardize metrics and definitions: Align ESG metrics with regulatory requirements to ensure collected data is consistent and compliant.
- Implement internal data validation checks: Regular data audits and verification exercises can surface discrepancies before reporting begins.
- Leverage ESG data management software: A dedicated sustainability platform, such as Novata, acts as a centralized source of truth for ESG data and reporting.
Common Challenges with Collecting ESG Data
Companies new to ESG data collection may encounter several challenges in their sustainability journey, including:
- Tracking too many metrics or non-material metrics to a company’s sustainability goals
- Underestimating resource allocation and utilization
- Lack of standardization on how metrics should be measured and collected
- Collecting inconsistent or low-quality data
- Lack of ownership over data collection and reporting processes
- Not aligning data collection with regulatory requirements
How Novata Supports ESG Data Collection
Novata provides a secure platform with built-in guidance, standardized metric definitions, calculators, and guardrails. The platform and advisory guidance makes it easy to understand exactly what data to collect, streamline data collection and analysis, thereby, reducing guesswork, increasing completion rates, and delivering reliable ESG data without heavy training or added workload.
ESG Benchmarking
What Is ESG Benchmarking?
ESG benchmarking is the practice of measuring a company’s performance on set sustainability metrics relative to peers or industry standards. Comparing against an established standard contextualizes performance and provides insight into how a company is over- or under-performing based on material ESG metrics or priorities.
Benefits of ESG Benchmarking
ESG benchmarking helps organizations understand how performance compares to peers. With benchmarks, private market investors gain visibility into where each portfolio company leads or lags, enabling deal teams to focus on identifying performance gaps and prioritize high-impact improvements. It also strengthens investor reporting, making it easier to showcase sustainability progress to LPs through credible, standardized comparisons.
Benchmarking also helps companies set realistic targets, measure year-on-year progress, and unlock new opportunities to mitigate risks, drive value creation, and improve the financial value.
Explore Novata Benchmarks
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FAQs
How do ESG metrics impact financial performance and investment decisions?
LPs, often large institutional investors, are increasingly expecting GPs and asset managers to integrate climate risk into their investment processes, recognizing that ESG can support business resilience and long-term value creation. There is also a growing body of research indicating that strong ESG performance correlates to enhanced financial performance.
How often should a company measure and report on ESG metrics?
ESG reporting cadences will vary based on a company’s sustainability goals and the regulatory frameworks it needs to comply with, but most organizations will benefit from quarterly tracking and annual reporting. Many companies publish annual sustainability reports covering the previous fiscal or calendar year. Many regulatory disclosures require annual reporting with strict submission deadlines.
What tools and solutions are used to measure ESG data and performance?
Although spreadsheets remain a common way to track ESG data, many organizations are investing in specialized ESG software solutions to streamline data collection and reporting.
A purpose-built sustainability solution, like the Novata platform, has built-in functionality and guardrails that streamline the collection, measurement, tracking, and analysis of ESG data and performance, empowering organizations to confidently report progress and drive meaningful sustainability action.
What is the difference between ESG frameworks, standards, and regulations?
ESG frameworks are voluntary, guidance-based systems that help organizations to identify and report on ESG information. ESG frameworks provide a broad, contextual approach to disclosures, and are not legally binding. The CDP and TCFD are ESG frameworks.
ESG standards are voluntary standards that create a consistent, comparable way to quantify ESG performance or impact. They are more detailed and prescriptive than frameworks. Some examples include the Sustainability Accounting Standards Board (SASB) and Global Reporting Initiative (GRI) Standards.
ESG regulations, such as the Sustainable Finance Disclosure Regulation (SFDR) and Corporate Sustainability Reporting Directive (CSRD), come with a stringent set of mandatory disclosures and deadlines that companies must comply with. Non-compliance can result in legal fines or penalties.
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