ESG stands for Environmental, Social, and Governance. It is a framework used to evaluate the sustainability and ethical impact of an investment, company, or business. Each of the three components represents a different aspect:
Environmental: This refers to a company’s or investment’s impact on the natural environment. It includes factors such as carbon emissions, resource usage, pollution, waste management, and efforts to mitigate climate change.
Social: The social aspect involves evaluating a company’s relationships with its employees, customers, suppliers, and the communities it operates in. This encompasses issues like labour practices, employee well-being, diversity and inclusion, community engagement, and human rights.
Governance: Governance focuses on the structure and practices of a company’s leadership and management. It includes elements like board composition, executive compensation, transparency, accountability, and adherence to ethical standards.
ESG factors have gained significant attention in recent years as investors and stakeholders increasingly recognise the importance of responsible and sustainable business practices. Companies that prioritise ESG considerations are seen as more likely to manage risk effectively, build long-term value, and contribute positively to society and the environment. This framework helps investors make decisions that align with their values and goals, beyond just financial returns.