ESG criteria: what they are, the three pillars and how to apply them in an SME

ESG criteria are a set of environmental, social and governance factors that investors, banks and clients use to assess a company's sustainability and risk beyond its financial results. In Spanish they are also called ASG criteria (ambiental, social y de gobernanza): the exact same concept, only the acronym changes.

The underlying idea is simple: a company is measured not only by what it earns, but by how it earns it. How much it pollutes, how it treats its people and how transparently it is governed are now signals that shape financing, contracts and reputation.

What ESG (or ASG) criteria are

ESG criteria originated in the investment world to measure a company's exposure to non-financial risks and opportunities. Over time they have become a common language: funds use them to decide where to invest, banks to adjust financing conditions and large companies to select suppliers. Frameworks such as the SFDR or socially responsible investing rely directly on them.

The key difference from other approaches to sustainability is that ESG is measurable. It is not about good intentions, but about data, indicators and evidence that can be audited and compared across companies. So when someone asks for ESG information, they are really asking for numbers and proof, not a narrative.

The three ESG pillars explained with examples

Each letter groups a set of concrete topics. Seeing them with examples helps to understand what each pillar actually measures in a company's day-to-day.

Environmental (E): the impact on the environment

The environmental pillar measures how the company's activity affects the planet. It is the best known and usually the starting point. It covers:

• Carbon footprint: the company's greenhouse gas emissions (scopes 1, 2 and 3).
• Energy: electricity consumption, use of renewables and energy efficiency.
• Water: consumption, discharges and management of the resource.
• Waste: amount generated, recycling and circular economy.
• Emissions and pollution: discharges, air quality and other local impacts.

A clear example: a transport company reduces its environmental impact by optimising routes and renewing its fleet to lower fuel consumption and the associated emissions. Everything starts with measuring, and the first indicator is usually the carbon footprint.

Social (S): people and the community

The social pillar assesses how the company relates to people, inside and outside the organisation. It includes:

• Working conditions: fair pay, stability and work-life balance.
• Health and safety: risk prevention and wellbeing at work.
• Diversity and inclusion: gender equality, non-discrimination and equal opportunities.
• Community relations: local impact, employment in the area and social action.
• Supply chain: human rights and working conditions at suppliers.

For example, an industrial company that rolls out a risk-prevention plan, trains its workforce and verifies that its suppliers meet labour standards is managing its social performance in a measurable way.

Governance (G): how the company is run

The governance pillar refers to how decisions are made and risks are controlled. It is the least visible, but the one that gives credibility to the other two. It includes:

• Board structure: composition, independence and oversight.
• Business ethics: code of conduct and regulatory compliance.
• Anti-corruption: policies against bribery and fraud.
• Transparency: clear and truthful information for stakeholders.
• Risk management: identifying and controlling risks, including environmental and social ones.

Environmental governance connects this pillar with the environmental one: without clear policies and owners, sustainability targets remain on paper.

The three pillars at a glance

This table summarises each pillar with example topics and possible indicators to start measuring.

Why ESG criteria matter to an SME (even if not required)

An SME might think ESG is only for large corporations. In practice, it already affects them through three very concrete channels, even without a direct legal obligation.

The CSRD cascade effect

The CSRD (Corporate Sustainability Reporting Directive) requires large companies to report their ESG performance, including their value chain. To comply, those companies ask their suppliers, many of them SMEs, for sustainability data. This is the so-called cascade effect: the obligation of a few is passed on as a commercial requirement to thousands of suppliers. We cover it in detail in our guide on the CSRD and the supply chain of SMEs.

Bank financing

More and more financial institutions incorporate ESG criteria when analysing the risk of a deal. Having sustainability data, starting with the carbon footprint, can influence access to and the conditions of financing, especially in loans linked to sustainability targets.

Clients and tenders

Public tenders and many private ones already reward environmental and social performance. An SME that can demonstrate its ESG data scores points against competitors that cannot, and reduces the risk of being left out of the supply chain of its large clients.

How to apply ESG criteria in an SME step by step

You do not need a large department or a huge investment. The practical approach is to start with the essentials and move forward in an orderly way:

1. Understand what you are asked for. First, find out which ESG data your main clients and your bank request, and in what format. That sets your real priorities.
2. Measure the basics. Start with the carbon footprint, the most requested indicator, and complement it with energy, water and waste data.
3. Do a simple materiality exercise. Identify which ESG topics are truly relevant to your activity; they do not weigh the same for a consultancy as for a factory. The identification of material topics helps you focus your effort.
4. Set targets and a plan. Define concrete, realistic goals (for example, reducing a percentage of emissions over a few years) with actions and owners.
5. Collect data and KPIs. Systematise the collection of sustainability indicators so you can repeat them each year and demonstrate progress.
6. Communicate with data and avoid greenwashing. Share only what you can prove. You can capture your progress in a simple, honest sustainability report.

If you want to go deeper into measurement, this guide on indicators and KPIs for sustainability reporting is a good complement. And to structure the whole process, it helps to have a clear framework for the implementation of ESG strategies.

Common mistakes when implementing ESG

Many companies stumble on the same points. Knowing them in advance saves you time and credibility:

• Confusing ESG with marketing. ESG is not an image campaign, but a way of managing real risks and data.
• Communicating before measuring. Announcing achievements without data to back them up is the gateway to greenwashing, with reputational and legal risk.
• Copying a large company's KPIs. A multinational's indicators rarely fit an SME; it is better to choose those relevant to your size and activity.
• Treating it as a one-off project. ESG is a continuous process, not a report you do once and forget. The value lies in repeating and improving every year.

ESG and CSR are not the same

It is common to confuse ESG with CSR (corporate social responsibility, RSC in Spanish), but they follow different logics. Corporate social responsibility is voluntary, qualitative and reputational in focus: actions by the company to contribute to society. ESG criteria are measurable, data-driven and used by investors, banks and, increasingly, regulation.

In other words, CSR tells what the company does for society; ESG demonstrates with data how it manages its impacts and risks. Both can coexist, but only ESG responds to what clients, banks and regulators ask for today within a strategy of corporate sustainability.

Frequently asked questions

Are ESG and ASG the same?

Yes. ASG is simply the Spanish translation of ESG: ambiental, social y de gobernanza (environmental, social and governance). Both acronyms refer to exactly the same three pillars and are used interchangeably.

Is my SME required to report ESG?

Most SMEs are not directly required to by law. However, many must provide ESG data to large clients that are required, due to the CSRD cascade effect, and banks and tenders increasingly ask for it too.

Where do I start?

By understanding what your clients and your bank ask for, and by measuring the basics. The carbon footprint is the best starting point: it is the most requested figure and the foundation on which to build the rest of your ESG strategy.

Start your ESG strategy by measuring your carbon footprint

The first step of any ESG strategy is having reliable data, and it usually starts with the carbon footprint. With Manglai you can measure and automate your carbon footprint with recognised methodology and reports ready to answer clients, banks and tenders. It is the simplest way to turn ESG criteria into something measurable and actionable for your SME.