ESG stands for Environmental, Social, and Governance. ESG factors are used to assess a company's overall sustainability and ethical practices.
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Environmental (E):
- This aspect assesses a company's impact on the environment. It includes factors such as a company's carbon footprint, energy efficiency, water management, waste management, and overall environmental sustainability efforts. ESG factors related to the environment often focus on issues like climate change, resource conservation, and pollution control.
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Social (S):
- The social dimension of ESG encompasses a company's relationships with its employees, customers, communities, and other stakeholders. It involves evaluating issues like labor practices, employee diversity and inclusion, human rights, community engagement, and product safety. Social ESG criteria often consider topics like employee well-being, fair wages, and ethical supply chain practices.
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Governance (G):
- Governance refers to the way a company is managed and how it upholds ethical and legal standards. It includes factors like board composition, executive compensation, shareholder rights, and transparency in financial reporting. Governance ESG criteria focus on issues such as the independence and expertise of the board of directors, ethical leadership, and accountability.