What is ESG?
ESG stands for Environmental, Social, and Governance, and refers to a framework designed to evaluate a company's sustainability related risks and opportunities. It is used by investors, stakeholders, and other interested parties to assess the impact of a company's operations on the planet, its’ workers, and its’ stakeholders.
Environmental factors are things like a company's carbon footprint, water usage, resource depletion, pollution and waste management.
Social factors include issues like labor standards, human rights, diversity and inclusion, community engagement, and customer satisfaction.
Governance factors refer to the way in which a company is managed, including things like risk management, executive compensation, board independence, and transparent accounting.
The ESG framework is designed to encourage companies to adopt sustainable practices that benefit society and the planet, whilst also generating long-term value for shareholders. It is widely recognised as a key element in responsible investing, which seeks to align investors' values with their investment decisions. ESG investing is gaining popularity as investors look to mitigate the risks associated with climate change, social injustice, and weak governance.
There are a number of different tools and frameworks used to measure ESG performance, including ratings agencies, asset managers and data providers. These tools can be used to evaluate an individual company's ESG performance relative to its peers, or to assess the overall ESG performance of a portfolio or fund.