What is ESG?
ESG stands for Environmental, Social, and Governance. It is a framework used by investors, companies, and other stakeholders to evaluate and measure the sustainability and ethical impact of a business.
The ESG framework is used by investors to assess the non-financial risks and opportunities associated with a company’s operations. Companies that prioritize ESG considerations are often seen as more sustainable, ethical, and better positioned for long-term success. Many investors and financial institutions integrate ESG criteria into their decision-making processes to align their investments with environmental and social values.
Each of the three components in ESG represents a different aspect of a company’s operations:
- Environmental (E): This refers to a company’s impact on the environment. It includes factors such as energy efficiency, carbon footprint, waste management, pollution, and conservation efforts. Investors and stakeholders are increasingly concerned about a company’s commitment to environmentally sustainable practices.
- Social (S): This dimension focuses on how a company manages its relationships with people, both within the organization and in the broader community. Social factors include issues such as labor practices, human rights, diversity and inclusion, employee well-being, and community engagement.
- Governance (G): Governance relates to the systems and structures that guide and control a company. It involves aspects such as the composition of the board of directors, executive compensation, shareholder rights, transparency, and ethical decision-making. Good governance ensures that a company is managed in a responsible and accountable manner.
