ESG 101

ESG stands for Environmental, Social, and Governance. This refers to three primary factors in the sustainability, measuring, and societal impact of an investment into a business. With the analysis and utilization of these criteria, investors are better able to predict and understand the future potential financial performances and outcomes for companies. ESG can cover everything from climate change to a company’s labor practices, talent management, along with monitoring data security and product safety.


SOCIALLY-CONSCIOUS INVESTORS

The criteria set by ESG is largely utilized by socially-conscious investors and shareholders alike to determine when to make investments into eco-friendly companies based on their initiatives and impact on the environment around the world. As the world progresses towards more green initiatives, shareholders look to ESG more increasingly in US and EU markets for fiduciary duty.


ESG CRITERIA BREAKDOWN

The following ESG criteria affect how a company will gain and retain funds for socially responsible investments. 

  • Environmental: how a company performs in regards to their effect on the environment, including but not limited to:
  • Water usage
  • Climate change initiatives
  • Greenhouse gas emissions
  • Social: how a company manages its relationships with employees, clients, communities, and supplies where applicable. Including but not limited to the following:
  • Health and safety track record
  • Company reputation from employees and clients
  • Labor standards
  • Governance: how a company handles its leadership roles, pay for executives, audits, and shareholder rights. Including but not limited to the following:
  • Tax transparency
  • How does the executive board come to decisions?
  • Are there anti-corruption measures in place


ESG AND PROFIT


The above graph references the three pillars of criteria for ESG broken down. Investors look for high ESG ratings by determining how a company conducts its business and not solely off of profit margins alone. Companies that seek to pursue high ESG performance scores will benefit from the following:

  • Attract more investors
  • Have stronger financial indicators
  • Have better investment performances
  • Technological innovation and advancements to improve efficiency
  • More positive reviews and brand image
  • Company becomes adaptable


When it comes to preparing your company for an ESG rating review, take all of the above into consideration. Moving towards a more environmentally friendly business model will benefit your business and the world in multiple ways. You will garner the attention of investors and leave a better mark on the environment.