ESG stands for Environmental, Social, and Governance, and refers to the three (3) key factors when measuring the sustainability and ethical impact of an investment in a business or company.
These are called the pillars in ESG frameworks and represent the three (3) main topic areas that companies are expected to report in. The goal of ESG is to capture all the non-financial risks and opportunities inherent to a company’s day-to-day activities.
ESG is a generic term used in capital markets and commonly used by investors to evaluate the behaviour of companies, as well as determine their future financial performance. The Environmental, Social and Governance factors are a subset of non-financial performance indicators which include ethical, sustainable, and corporate governance issues such as making sure there are systems in place to ensure accountability and manage the corporation’s carbon footprint.
Whilst the popularity of ESG has been driven by customers and investors, ESG is also becoming increasingly important as a risk consideration for the long-term viability and success of a company. ESG investment is also seen as a pathway to achieve the UN Sustainable Development Goals.