Environmental, social and governance (ESG) is a term used to represent an organization's corporate financial interests that focus mainly on sustainable and ethical impacts. Capital markets use ESG to evaluate organizations and determine future financial performance. While ethical, sustainable and corporate governance are considered non-financial performance indicators, their role is to ensure accountability and systems to manage a corporation's impact.
ESG issues were first mentioned in the 2006 United Nation’s Principles for Responsible Investment (PRI) report consisting of the Freshfield Report and “Who Cares Wins".
These days, there are many debates (some of political nature) around the term ESG. In some cases we see other terms being used such as Sustainability, Climate or Responsible. Agreeing on taxonomy and terminology is important to make sure we all align but there is some flexibility that is used by different players in the market. These are all fine as long as they reflect the actual motivation behind implementing these practices which should be to build a fair and sustainable business ecosystem that cares about people and our planet.
Environmental factors involve how much an organization considers the protection of natural resources. These factors include the environment, climate change, energy consumption and use and its overall impact.
Examples of environmental factors include:
Social factors address how an organization treats people, including these examples: