What Is ESG?

Author
Alex Bingham
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What does ESG stand for?

Environmental, Social, and Governance.

The term “ESG” stands for environmental, social, and governance. It is a way of measuring an organisation’s impact on society and the environment. ESG is a growing trend as more and more organisations and investors are prioritising companies that make a positive impact in the world through social, environmental and governance means. 

What is ESG?

In simple terms, ESG stands for environmental, social, and governance. It is a set of standards to evaluate a company's sustainability and ethical performance.

What are ESG examples?

  1. Social: child labour, working conditions, human rights 
  2. Environmental: pollution, climate change, water scarcity 
  3. Governance: bribery, corruption, executive compensation 
  4. Stakeholder engagement: community relations, customer satisfaction 
  5. Employee relations: diversity, inclusion, safety 
  6. Product safety: food safety, product recalls, animal welfare 
  7. Data privacy: data security, data breaches, cyber threats 
  8. Financial: predatory lending, credit rating manipulation, insider trading 
  9. Ethics: fraud, money laundering, animal testing 
  10. Sustainability: renewable energy, resource conservation, green building

What is the purpose of ESG?

The purpose of ESG is to promote sustainable, responsible and ethical practices within businesses.

What are the three Pillars of ESG?

  1. Environment: The environmental pillar focuses on a company's environmental impact. This can include a company's carbon footprint, water usage, and waste management. 
  2. Social: The social pillar focuses on a company's impact on society. This includes a company's employee policies, diversity, and community engagement. 
  3. Governance: The governance pillar focuses on a company's internal management and its adherence to best practices. This includes a company's board structure, executive compensation, and shareholder rights.

What is the ESG framework?

The ESG framework is a set of environmental, social, and governance indicators that a company can use to assess their sustainability performance or investment. There are a variety of different ESG frameworks that various organisations have developed. The most commonly used frameworks are the Global Reporting Initiative (GRI) Guidelines, the International Organisation for Standardisation (ISO) 26000, and the Sustainability Accounting Standards Board (SASB) Standards. There is no universal framework, so it can be challenging to compare businesses accurately.

What is ESG data?

ESG data measures a company's environmental, social, and governance performance. This data can come from various sources, including financial data, news reports, and surveys.

Why is ESG important?

First, environmental, social, and governance factors can negatively impact a company's financial performance. For example, a company that pollutes the environment may eventually face high cleanup costs, negatively impacting its bottom line. 

Second, ESG factors can give investors insights into a company's long-term prospects. For example, a company with poor environmental practices may eventually face stricter regulation, which could hurt its profitability. 

Third, ESG investing can help investors achieve their financial goals while also making a positive impact on the world. For example, an investor concerned about climate change may choose to invest in companies working to reduce their carbon emissions. 

Fourth, ESG investing can help to create a more sustainable and equitable world. For example, companies that focus on environmental sustainability may help reduce climate change's negative impact. In contrast, those that focus on social responsibility may help to improve working conditions and access to essential services. 

Finally, ESG investing can help to build trust between companies and their investors. For example, companies that are transparent about their ESG practices and commit to improving them may be more likely to win the trust of their investors.

What are ESG criteria?

The ESG criteria are set to benefit society beyond economic means. Each measure comes with a set of issues. To improve their ESG scores, businesses must go above what is merely acceptable and take action to remedy these issues. 

The environmental criteria address the environmental risks and harm caused by a corporation. Environmental criteria addresses: Climate change and carbon emissions reduction, energy efficiency, water scarcity, pollution, waste management, deforestation and biodiversity protection and loss. 

The social criteria aim to improve the well-being of those involved in the business, such as customers, employees, the local community and suppliers. Companies must ensure fundamental human rights and foster a healthy culture and working conditions. This includes monitoring: Human rights, labour standards, customer satisfaction, data protection and privacy, gender quality, diversity, employee engagement, and community relations. 

The governance criteria involve business leaders and internal structures acting in accordance with ethical standards. This includes procedures for selecting a diverse board of directors, abiding by corporate accounting standards, disclosing executive salaries to the public, and handling conflicts of interest. The standard strictly avoids bribery, corruption, lobbying and unhealthy politics. 

What is ESG investing?

ESG investing is an investment strategy that considers environmental, social, and governance factors when making investment decisions. The goal of ESG investing is to create a positive social and environmental impact while generating financial returns. ESG investing is often used to screen companies for investment, as it can help identify leaders in sustainable and responsible business practices. It can also help investors avoid companies involved in activities that could harm society or the environment. A growing body of evidence suggests that companies with strong ESG practices outperform those that don't, making ESG investing a win-win for investors and the world.

What are the benefits of ESG in an organisation?

1. Increased awareness of environmental, social, and governance issues 

2. Improved communication and engagement with stakeholders 

3. Enhanced risk management and business continuity planning 

4. Increased access to capital 

5. Improved reputation and brand 

6. Attraction and retention of top talent 

7. Enhanced employee morale and engagement 

8. Increased customer loyalty 

9. Increased innovation 

10. Increased competitiveness

To Conclude

In conclusion, ESG is an emerging trend in the investment landscape that can no longer be ignored. As more investors become aware of the impact that their investments can have on the environment, society and corporate governance, they are increasingly looking to incorporate ESG considerations into their portfolios. With the growing demand for ESG investments, companies must be prepared to provide clear and accurate ESG data to investors so that they can make informed decisions. By embracing ESG, companies can position themselves to benefit from the expanding ESG market and unlock meaningful value for shareholders.

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