Environmental, Social and Governance (ESG)

Definition

ESG or Environmental, Social, and Governance refers to certain standards that a company may have adopted to be socially conscious while taking up any new projects or making new investments. A lot of investors are interested in only such companies that may be following these standards.Environmental factors are related to the measures that the company takes to safeguard the environment. Social factors look at how the company manages its relationships with clients, employees, communities, etc. Governance factors talk about the company's leadership, executive pay, internal controls, audits, and shareholder rights.

Example

Some of the common ESG factors that companies and investors focus on are:1. Carbon emissions2. Air and water pollution3. Deforestation4. Green energy initiatives5. Waste management6. Water usage7. Employee gender and diversity8. Data security10. Customer satisfaction11. Company sexual harassment policies12. Human rights at home and abroad13. Diversity of board members14. Political contributions15. Executive pay16. Large-scale lawsuits17. Internal corruption18. Lobbying

Why it matters

Companies and people across the globe are becoming more aware of the impact of their actions on individuals, animals, nature, etc. Companies that focus on ESG and have a plan in place to incorporate ESG in their regular operations are often more valued by investors and stakeholders. Some of the other reasons why ESG matters are:1. It helps improve a company’s reputation and attract more investors.2. It can affect a company's bottom line as governments across the world start implementing various ESG rules.3. Companies are forced to innovate and discover new opportunities.

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