Record-breaking heatwaves, unexpected floods, and worsening air quality in major cities remind us that climate change is really happening now. As environmental threats intensify, businesses face growing pressure to show how their operations affect the planet.
This is where ESG (Environmental, Social, and Governance) comes into play, especially the environmental pillar, which evaluates a company’s impact on nature. Understanding this aspect is not only important for investors or policymakers but also for the wider public who ultimately feel the consequences of environmental degradation.
What Is the Environmental Pillar in ESG?
The environmental pillar measures how effectively a company manages and mitigates its ecological footprint. It includes issues such as greenhouse gas emissions, energy use, waste management, water consumption, and biodiversity impacts. However, research shows that this pillar is often defined inconsistently. Companies highlight different environmental priorities, and rating agencies use varying sets of indicators, making ESG scores across organizations difficult to compare.
Some researchs argue that the environmental pillar should focus more narrowly on the most urgent issue: climate change and carbon emissions. Because emission sources can be measured objectively, carbon-related metrics provide a clearer picture of a company’s environmental performance. This approach is considered more reliable than using an overly broad set of indicators that do not always reflect actual climate impact.
In sustainability reports, companies typically disclose several key environmental categories. These include greenhouse gas emissions across Scope 1, 2, and 3, total energy consumption, reliance on renewable energy, waste and hazardous material management, water usage, and biodiversity protection. However, studies note significant inconsistency in how rating providers evaluate these disclosures.
Differences arise in the choice of indicators, weighting systems, and the quality of corporate data. In some cases, companies with high environmental scores are found to have higher carbon emissions than lower-scoring peers. Such discrepancies highlight the need for standardized, transparent metrics. Without harmonized methodologies, sustainability reports risk becoming descriptive documents rather than tools for evaluating real environmental risks.
Read more:
A Quick Guide to Understanding the Concept of ESG (Environmental, Social, and Governance)!
Environmental Risk Management
The environmental pillar is being seen as a tangible risks that can threaten a company’s long-term viability. Climate change introduces physical risks such as floods, droughts, wildfires, and severe storms that may damage assets or disrupt supply chains. Transition risks also emerge, driven by stricter regulations, changing consumer behavior, and shifts toward low-carbon technologies.
Companies that fail to adapt face increased operational costs, declining investor confidence, and reputational harm. Meanwhile, businesses that approach environmental issues proactively and disclose their data transparently are better positioned to reduce exposure to risks and seize opportunities in a sustainability-driven market.
If your company wants to ensure environmental compliance while improving the quality of its sustainability reports, IML Research is ready to assist you with AMDAL (Environmental Impact Assessment) and Sustainability Reporting services based on accurate, scientific data. With comprehensive analysis and reliable testing methods, we help you assess environmental risks, validate ESG data, and prepare reports that meet regulatory standards and stakeholder needs. Achieve more responsible environmental management with IML Research.
Author: Ainur Subhan
Editor: Sabilla Rea
Reference:
Halkos, G. E., & Aslanidis, P.-S. C. (2024). Reviewing environmental aspects under the scope of ESG. Munich Personal RePEc Archive.
Senadheera, S. S., Withana, P. A., Dissanayake, P. D., Sarkar, B., Chopra, S. S., Rhee, J. H., & Ok, Y. S. (2021). Scoring environment pillar in environmental, social, and governance (ESG) assessment. Sustainable Environment, 7(1), 1–7.
Trahan, R. T., & Jantz, B. (2023). What is ESG? Rethinking the “E” pillar. Business Strategy and the Environment, 32, 4382–4391