ESG Data in Media and Advertising: Explained

Many conversations around sustainability in advertising focus specifically on carbon emissions. As such, a lot of effort has been put into measuring the carbon emissions generated by the creation and distribution of ads.

This is certainly a good thing in terms of reducing the industry’s impact on the environment. But sustainability goes beyond just carbon emissions.

‘ESG’ – environmental, social, and governance – frameworks used within the finance sector look at sustainability much more broadly. They takes into account factors like employment practices, environmental factors beyond carbon emissions, and business impact on wider global issues like poverty and war.

While ESG is primarily an investment concept, investment has great power to sway other industries, including advertising. As such, ESG is increasingly becoming a part of agencies’, media companies’, and ad tech businesses’ vocabulary too.

The Basics

ESG in the investment world is used to measure how exposed to certain sustainability risks individual businesses are. The core idea is that businesses which lag behind on societal, environmental, and governance issues face risks as a result, and thus make for more risky investments.

For example, a financial institution might be considering investing in a business which is a major polluter. Given global efforts to reach net-zero, that company faces a significant regulation risk which could make its business less viable. Or if a company has poor diversity across its workforce, that company may struggle to attract talent, and sales could be harmed due to negative perceptions generated by that lack of diversity.

ESG frameworks look at all these factors and assign businesses an ESG score, rating how exposed to these kinds of risks each company is. The better the ESG score, the less exposed to risk that company is.

As ESG investing grows in popularity, publicly traded companies are increasingly being required to report on how they’re handling ESG factors. Thus publicly traded media and advertising businesses are working to improve their ESG scores, in order to continue to attract investment.

And given that businesses’ supply chains can affect their ESG scores, businesses which aren’t publicly traded are becoming increasingly mindful of ESG factors too. For example, publicly traded brands have to be mindful of where they’re spending their ad dollars – spending heavily with highly pollutant media companies, for example, would have a negative impact on their ESG score. So any media companies looking to attract ad spend from those brands also need to be mindful of their performance against ESG metrics.

The Technical Detail

There is no global agreement on what business practices and factors come under sustainability, and indeed which things should influence a business’s ESG score. So it’s hard for a business to definitively know which parts of their businesses they need to look at.

One useful framework is the UN’s Sustainable Development Goals (SDGs). These 17 goals, set by the United Nations General Assembly in 2015, represent a blueprint for “peace and prosperity for people and the planet now and into the future” according to the UN. They are primarily designed as goals which UN member states should be working towards. But they also provide a grid for thinking about sustainability holistically, and can apply to businesses as much as they apply to countries.

The 17 SDGs are:

1. No poverty
2. No hunger
3. Good health
4. Quality education
5. Gender equality
6. Clean water and sanitation
7. Renewable energy
8. Good jobs and economic growth
9. Innovation and infrastructure
10. Reduced inequalities
11. Sustainable cities and communities
12. Responsible consumption
13. Climate action
14. Life below water
15. Life on land
16. Peace and justice
17. Partnerships for the goals

It’s easier to see how some of these factors might apply to an advertising or media business than others. But the UN has published resources explaining how even some of the loftier goals, such as ending poverty, might apply to an individual company. For example, through poverty-alleviating employment practices, helping to deliver vital goods and services in deprived areas, and building a supply chain which promotes the development of poorer economies, a media or advertising company could help build towards a poverty-free future.

So a media or advertising company would need to consider all of these factors, and how it can make positive progress towards each of them, in order to improve its ESG score.

There is a caveat here. There is no standardised methodology for how investors analyse a business’s ESG score. While ESG ratings agencies often consider many of the same factors as the UN’s SDGs, they won’t necessarily look at all of them, and might weight them differently. Different ESG ratings providers can give the same business very different ESG scores, depending on their methodology.

But given there is no alternative framework which companies can use to ensure they’re maximising their ESG score across ratings providers, the SDGs are a good place to start.

Generally, ESG ratings providers will look at a range of data sources to calculate their scores. This will include any sustainability reporting provided by the company itself, as well as public news stories relating to the company, and sector analysis from independent organisations. The ESG ratings agency will then weigh up all these data against whichever criteria they use, and calculate a score for each company. This can be used as a standalone figure, and also to compare a business against its sector average.

As mentioned earlier, ESG scores can be influential in determining partnerships and investment in media and advertising. But there are currently limited formal frameworks for applying ESG scores in media, and use of ESG data is far from mainstream. We are seeing some change on this front though. Some companies, such as Legacy Media, are working to improve the quality of ESG data’s application in the media industry. And there are now examples of this data being made available in buying tools and platforms, allowing brands to optimise spend based partly on ESG scores.

The Pros and Cons

ESG factors are playing an ever growing role in the investment world. PwC predicts that asset managers globally will increase their ESG-related assets under management up to $33.9 trillion by 2026, accounting for more than 20 percent of total assets under management.

Thus, it will be increasingly important for all publicly traded companies to be mindful of their ESG scores. And as described above, they in turn will be looking at their partners sustainability credentials, which will have a big impact in the advertising and media space.

So understanding ESG factors, and how to improve an ESG score, will be imperative.

The difficulty is that doing this in the media and advertising world is currently complicated. As already mentioned, ESG data isn’t commonly directly applied in media deals, with much more focus currently being given specifically to carbon emissions. And assessing the ESG impact of partnerships, given the sprawling complex supply chains which are common in digital advertising, is very tricky. It’s possible to look at large companies’ ESG scores from ratings agencies, and many publicly owned companies now publish sustainability reports. But for smaller businesses, its much harder to gauge their sustainability credentials, and thus measure how partnering with those businesses might impact an ESG score.

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