ESG

ESG stands for environmental, social, and governance criteria used to evaluate corporate behavior and investment risk beyond traditional financial metrics. It encompasses practices, policies, and disclosures that may influence a company’s long‑term value, resilience to risks, and social license to operate.

Environmental criteria assess how a company manages natural resources and the impact of its operations on the climate and ecosystems. Common topics include greenhouse gas emissions, energy use and efficiency, waste and water management, pollution control, and biodiversity.

Social criteria examine a company’s relationships with workers, customers, suppliers, and communities. Key areas include labor practices, health and safety, diversity and inclusion, human rights, data privacy, product responsibility, and community impact.

Governance criteria focus on how a company is led and run, including board composition and independence, executive compensation, audit quality, risk management, internal controls, shareholder rights, and anti-corruption measures.

ESG analysis is used by investors to identify risks and opportunities, inform capital allocation, and support stewardship objectives. Approaches vary from negative or positive screening to integration of ESG factors into financial analysis and impact investing that aims to generate measurable social or environmental benefits alongside financial returns.

Frameworks and reporting standards guide ESG disclosure. Notable examples include the Global Reporting Initiative (GRI), the Sustainability Accounting Standards Board (SASB) framework, and the Task Force on Climate-related Financial Disclosures (TCFD). International and regional developments, such as the IFRS-based ISSB and the EU’s SFDR and taxonomy, seek greater comparability, though standards remain diverse and evolving.

Critics point to inconsistencies in metrics, data quality, and comparability, as well as concerns about greenwashing and the mixed evidence on how ESG factors affect financial performance. Proponents argue that robust ESG practices can reduce risk and support sustainable value creation over time.