ESG (Environment, Social, Governance) regularly refers to a set of criteria that investors use to evaluate companies and determine their potential long-term financial performance. These criteria are becoming increasingly important to investors who are looking to invest in companies that not only generate financial returns, but also have a positive impact on society and the environment.
Environmental criteria consider a company’s impact on the environment. This includes factors such as greenhouse gas emissions, waste management, water use, and energy efficiency. Investors are interested in companies that are actively working to reduce their environmental footprint and are committed to sustainability.
Social criteria consider a company’s impact on society. This includes factors such as labor practices, human rights, community engagement, and diversity and inclusion. Investors are interested in companies that treat their employees fairly, engage with the communities in which they operate, and promote diversity and inclusion.
Governance criteria consider how a company is managed and governed. This includes factors such as board diversity, executive compensation, and transparency in financial reporting. Investors are interested in companies that have strong corporate governance practices and are transparent about their decision-making processes.
Investors are increasingly using ESG criteria as a way to identify companies that are well-managed and have a long-term sustainable business model. Companies that score well on ESG criteria are often seen as less risky investments, as they are less likely to face costly lawsuits or reputational damage due to poor environmental or social practices.
ESG criteria can also be used by companies to identify areas where they can improve their sustainability practices and enhance their reputation. By actively working to improve their ESG performance, companies can attract a broader pool of investors and increase their access to capital.
ESG investing has gained significant momentum in recent years, with a growing number of asset managers incorporating ESG criteria into their investment strategies. According to a report by the Global Sustainable Investment Alliance, sustainable investing assets reached $35.3 trillion globally in 2020, up from $22.9 trillion in 2016.
In summary, ESG criteria are a set of environmental, social, and governance factors that investors use to evaluate companies and determine their potential long-term financial performance. These criteria are becoming increasingly important to investors who are looking to invest in companies that not only generate financial returns, but also have a positive impact on society and the environment. Company Leadership will likely be looking to manage their future strategic thinking towards satisfying the numerical matrix benchmarks of investment markets and the ethics of their practices, services and products to also satisfy all stakeholders and influencing factors on their future successes.
