An Overview of the ESG (Environmental, Social, and Governance)

  • 22nd Feb'21
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What is ESG?

Environmental, Social, and Corporate are represented in the short form as ESG where E stands for environment, S stands for social, and G stands for corporate governance. It is otherwise termed as socially responsive investors on the basis of three categories, or areas, of interest. These investors consider it as an important way to incorporating their values and concerns (for example, environmental concerns) while selecting their investments.

It is even referred to as sustainable investing, impact investing, and mission related investing. ESG investors are known to be more active investors who were actively participating in working towards influencing company and policies and practices alongside attending shareholder meetings.

Growth in ESG investing

ESG has been the subject of criticisms, but nevertheless, it has seen some increasing growth in popularity recently. This will most likely be the investment approach that will be adopted by millennials. Even a recent survey has revealed that about 90 percent of millennial investors are interested in pursuing investments. It must be noted that even though ESG metrics are not part of the financial reports for Public trade companies, a lot of companies are proud to include ESG for reporting documents.

 

ESG

 

ESG Criteria

The environmental, social, and corporate governance has been made together by several criteria. All of these criteria are either manifested by the socially responsible investor or companies that are focused on taking a more ECO friendly operational stand.

Even though ESG criteria are mostly subjective such as diversity and inclusion, there are also several objective based ESG criteria such as credit ratings of the company that are based on terms of the company’s performances in the name of ESG Policies and Actions.

ESG- Environmental

ESG environmental criteria have several criteria's such as the company’s use of the renewable source of energy. It even has waste management programs that are used to the tackling problems related to air and water pollution. This air and water pollution is due to the operations involved in it such as the deforestation issues. Other possible environmental issues involve raw material sourcing.

Must Read: Self-Healing ‘Living Concrete’

ESG- Social

Just like ESG Environmental, ESG Social too extensively covers a wide range of potential issues. Most of these issues are all about social relationships. Of the several social relationship criteria, one of the most important social criteria is the company’s relationship with its employees.

ESG- Governance

When it comes to ESG Governance, it is about signifying how a company is being managed by the top executives working in it. From luring stakeholders to the company’s various shareholders and customers ESG Governance helps in managing them.

Even financial and accounting transparency are often considered as the best elements of Corporate Governance.

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Sources/References:

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About the author:

Sunny Samanta, OpenGrowth Content Team

A lone wolf by definition, a writer by heart, and a lost star with ambitions to light up the dark both inside and around me, sometimes by immersing myself into books or video games or traveling with a backpack to an uncertain destination believing that life is all about the choices we make and we don't.


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