Performance measures for sustainability: External perspective

External stakeholders are increasingly demanding that companies include sustainability information in corporate reports, serving both financial audiences and non-financial groups. As ESG factors become integral to banks' and investors' risk assessments and investment strategies, issues like climate change, gender equality, and workers’ rights are gaining importance. These evolving expectations also shape consumer preferences, employee decisions, and regulatory policies. As a result, companies are adopting a more integrated approach to sustainability reporting, providing a unified set of ESG disclosures for all stakeholders. Yet, standardizing sustainability performance measurement is challenging due to differing global requirements, such as the mandatory CSRD in the EU versus largely voluntary reporting in the U.S. Industry-specific metrics further complicate cross-sector comparisons, making universal sustainability reporting standards difficult to establish. These factors have led to the emergence of ESG ratings and certifications that play a crucial role in interpreting and benchmarking sustainability performance. ESG ratings and certifications share the common goal of assessing and communicating an organization’s sustainability performance, helping stakeholders make informed decisions. However, they follow fundamentally different logics. Certifications are awarded based on established standards, offering a clear and stable threshold of compliance. In contrast, ESG ratings are dynamic and relative: they assess performance in comparison to peers, and their benchmarks evolve over time. Understanding one’s current rating is not sufficient; it is equally important to monitor the pace at which one’s peers are advancing. This chapter will discuss ESG ratings and certifications as the main tools for externally assessing sustainability performance and will also explore the role of technology in shaping these assessment processes.