The Environmental, Social and Business Governance (ESG) aspects of a company’s activities are the three main evaluation standards utilized to measure a company’s societal and sustainability policies and practices. ESG criteria are applied most frequently by investment firms and individuals who want to direct their money toward companies that are socially responsible. ESG standards are also used to create the “best” and “most progressive” companies lists published by various rating services that impact consumers purchasing patterns.
Each aspect of ESG embraces a broad range of factors and benchmarks. Environmental considerations include sustainability, renewables, pollution mitigation, waste management, climate change, conservation of natural resources, biodiversity, energy efficiency, regulation compliance and recycling.
Social aspects of business policies comprise the company’s working conditions (including child labor and slavery), employee health and safety, human rights, interaction with local communities (including indigenous communities), diversity in supply chains, human capital development, doing business with despots, engagement with third-party activists, product safety and employee benefits.
Business governance implications include equal opportunity, diversity, structure and independence of directors, executive renumeration, donations and political lobbying, tax strategy, shareholder rights, anti-corruption, risk management, stakeholder engagement, conflicts of interest, accident and safety management, supply chain management, and transparent ESG reporting.
ESG considerations provide a framework for responsible investing that incorporate a values-driven approach that balances financial returns with social outcomes. ESG focused investments include environmental, social and governance risks and opportunities into traditional financial analysis based on a systematic approach and appropriate research sources.