Environmental, Social, Governance
ESG is an acronym for Environmental, Social, and Governance. ESG takes the holistic view that sustainability extends beyond just environmental issues.
ESG is best characterized as a framework that helps stakeholders understand how an organization is managing risks and opportunities related to environmental, social, and governance criteria.
While the term ESG is often used in the context of investing, stakeholders include not just the investment community but also customers, suppliers, and employees. All of them are increasingly interested in how sustainable an organization’s operations are.
ESG is best characterized as a framework that helps stakeholders understand how an organization is managing risks and opportunities related to environmental, social, and governance criteria.
While the term ESG is often used in the context of investing, stakeholders include not just the investment community but also customers, suppliers, and employees. All of them are increasingly interested in how sustainable an organization’s operations are.
Environmental
Environmental criteria refer to an organization’s environmental impact(s) and risk management practices. These include direct and indirect greenhouse gas emissions, stewardship over natural resources, and the firm’s overall resiliency against physical climate risks (like climate change, flooding, and fires).
Social
The social pillar refers to an organization’s relationships with its stakeholders. Examples of factors that a firm may be measured against include Human Capital Management metrics (like fair wages and employee engagement metrics) but also an organization’s impact on the communities in which it operates and on supply chain partners, particularly those in developing economies where environmental and labor standards may be less robust.
Governance
Governance refers to how a company is led and managed. ESG analysts will seek to better understand how leadership’s incentives are aligned to stakeholder expectations, how shareholder rights are viewed, and what types of internal controls exist to promote transparency and accountability by leadership.
Environmental criteria refer to an organization’s environmental impact(s) and risk management practices. These include direct and indirect greenhouse gas emissions, stewardship over natural resources, and the firm’s overall resiliency against physical climate risks (like climate change, flooding, and fires).
Social
The social pillar refers to an organization’s relationships with its stakeholders. Examples of factors that a firm may be measured against include Human Capital Management metrics (like fair wages and employee engagement metrics) but also an organization’s impact on the communities in which it operates and on supply chain partners, particularly those in developing economies where environmental and labor standards may be less robust.
Governance
Governance refers to how a company is led and managed. ESG analysts will seek to better understand how leadership’s incentives are aligned to stakeholder expectations, how shareholder rights are viewed, and what types of internal controls exist to promote transparency and accountability by leadership.