ESG stands for Environmental, Social, and Governance in investment discussions. This framework is used to evaluate how ethical and sustainable a company or investment is, taking into account a variety of factors that impact not just financial performance but also social and environmental outcomes.
The environmental aspect considers how a company performs in relation to environmental conservation and sustainability practices. This includes assessing its carbon footprint, waste management, and resource usage. The social aspect focuses on the company’s relationships with employees, suppliers, customers, and the communities where it operates, emphasizing human rights, labor practices, and community engagement. Governance refers to how a company is managed and controlled, looking at corporate governance practices, board diversity, executive pay, and shareholder rights.
Understanding ESG is crucial for investors today, as there is an increasing demand for investment strategies incorporating sustainability and social responsibility. This focus is increasingly seen as integral to long-term investment returns, as it can help mitigate risks associated with poor environmental and social practices.