What is ESG?

• ESG is an acronym for Environmental, Social, and Governance. ESG takes the holistic view that sustainability extends beyond just environmental issues. [1]
• It is a management and analysis framework to understand and measure how sustainably an organization is operating. [1]

As a Management Framework

• ESG (environmental, social, and corporate governance) is a framework designed to be embedded into an organization’s strategy that considers the needs and ways in which to generate value for all organizational stakeholders. [3]
• Organizational stakeholders include but are not limited to customers, suppliers, employees, leadership, and the environment. [3]
• It is the consideration of extra-financial information to enable better decisions that, if done properly, should lead to sustainable economic growth. [2]

As an Analytical Framework

• ESG is a framework that helps stakeholders understand how an organization is managing risks and opportunities related to environmental, social, and governance criteria. [1]
• ESG, at its core, is a means by which companies can be evaluated with respect to a broad range of socially desirable ends. ESG describes a set of factors used to measure the non-financial impacts of particular investments and companies. At the same time, ESG also provides a range of business and investment opportunities. [4]

ESG Factors

Environmental

• These are factors that focus on potential or actual changes to the physical or natural environment. They might arise from the company’s operations or through its products and services [40]
• Some of the key Environmental factors [40] -
  • Climate change
  • Carbon management
  • Resource depletion
  • Pollution
  • Energy consumption
  • Land use
  • Loss of biodiversity
  • Water consumption
  • Waste management
  • Innovations or products or services that reduce environmental impact

Social

• These are factors that focus on potential or actual changes in the surrounding community and workers. They look at how the company’s products and services, and operating activities involved in the production, may benefit society or cause harm. [40]
• Some of the key social factors [40] -
  • Job creation and working conditions
  • Equal opportunity
  • Diversity
  • Training
  • Impacts on local communities
  • Health and safety
  • Child and forced labor across supply chains
  • Grievance mechanisms
  • Human rights
  • Social impact of products, services, or company operations
  • Gender-based violence and harassment

Governance

• These factors focus on the corporate governance structures and processes by which companies are directed and controlled including the governance of key environmental and social policies and procedures. [40]
• Some of the key governance factors [40] -
  • Purpose, values and culture
  • Board diversity, structure and oversight
  • Succession planning
  • Executive pay
  • Internal controls
  • Risk governance
  • Ethics and compliance
  • Shareholder rights
  • Governance of stakeholder engagement
  • Disclosure and transparency