Environmental, social and governance (ESG) refers to a collection of corporate performance evaluation criteria that assess the robustness of a company’s governance mechanisms and its ability to effectively manage its environmental and social impacts. It also provides a way to measure business risks and opportunities in those areas
The role of an ESG program is to ensure accountability and the implementation of systems and processes to manage a company’s impact, such as its carbon footprint and how it treats employees, suppliers and other stakeholders. ESG initiatives also contribute to broader business sustainability efforts that aim to position companies for long-term success based on responsible corporate management and business strategies.
As the number of ESG funds for managing investments rises, business and IT leaders in companies increasingly are paying attention to ESG as a functional approach to doing business. Each aspect of ESG plays an important role in the effort to increase a company’s focus on sustainable and ethical practices. Here are details on common ESG criteria used by companies and investors.
Environmental factors involve considerations of an organization’s overall impact on the environment and the potential risks and opportunities it faces because of environmental issues, such as climate change and measures to protect natural resources. Examples of environmental factors that can be ESG criteria include the following:
Social factors address how a company treats different groups of people — employees, suppliers, customers, community members and more. The criteria used include these examples:
Governance factors examine how a company polices itself, focusing on internal controls and practices to maintain compliance with regulations, industry best practices and corporate policies. Examples include the following: