ESG stands for Environmental, Social, and Governance, and it is a set of practices that organizations implement to limit negative impact or enhance positive impact on the environment, society, and corporate governance. ESG investing is used to screen investments based on corporate policies and to encourage companies to act responsibly. ESG frameworks are important to sustainable investing because they can help individuals or other corporations determine whether the company is in alignment with their values, as well as analyze the ultimate worth of a company for their purposes.
To assess a company based on ESG criteria, investors look at a broad range of behaviors and policies. For example, ESG-minded business practices focus on the three pillars of the environment, social, and governance. This means taking measures to lower pollution, CO2 output, and reduce waste. It also means having a diverse and inclusive workforce, at the entry-level and all the way up to the board of directors. ESG may be costly and time-consuming to undertake, but it can also be rewarding into the future for those that carry it through.
ESG strategies can help meet the needs of businesses while providing some guidelines on how to build more resiliency into the corporate universe. ESG frameworks help identify, organize, analyze, prioritize, and accordingly guide decisions on various business risks. These risks, if left unaddressed, can prove costly to the functioning and sustenance of businesses. Some examples of ESG risk management include assessing climate change risks to regular operations, assessing workplace culture, company diversity, etc. .
In conclusion, ESG is an approach to evaluating and operating businesses that goes beyond the sole focus of shareholder return. Instead, ESG in business takes into consideration the ecosystem, both internal and external, that businesses operate in and how they affect each other. ESG principles should be embraced by companies to ensure their long-term survival and their ability to operate responsibly, with transparency and accountability.
