What is ESG?
ESG is short for Environment, Social, and Governance. Companies and organisations often have ESG scores, which is an evaluation of their business operations in relation to ESG criteria, as such:
The Environment criterion assesses how a company handles its waste, resources, and environmental impact, such as its carbon footprint. An environmentally sustainable company is more likely to be resource-efficient and accountable for its impact to the environment, which also helps it gain public confidence. As the world pivots towards more climate-friendly policies, circular economies, and sustainable development, these companies are also more likely to thrive in the long run.
The Social criterion assesses how a company interacts with its communities. A socially responsible company would be expected to treat its employees fairly, source for fair labour, maintain proper working conditions, and have diversity policies. Organisations can impact the livelihoods of whole communities and are more likely to thrive when those who come into contact with them - whether as customers or employees - are fairly treated. This has many trickle-down benefits that affect a company’s bottom line: from higher employee retention rates to strong community and industry representation.
The Governance criterion assesses a company’s framework for decision-making and legal compliance. Strong governance ensures that companies distribute their resources fairly, deal appropriately with bribery or fraud, and avoid conflicts of interest at the board level. Companies with robust governance are more likely to practice fairness and transparency across the organisation and be more stable in the long term.