Environmental, social and governance – usually referred to as “ESG” – represents a set of three criteria for measuring the sustainability and ethical impact of a company. ESG is a cousin of Corporate Social Responsibility, but it is a more specific – and intended to be a more directly measurable – set of standards used to measure a company’s operations and performance.
ESG is often used as a reference for investment strategies that focus on socially responsible companies. Think of ESG as a more refined or focused investment strategy than its predecessor acronymn, SRI (socially responsible investing). For example, a mutual fund might be created that holds only assets meeting a certain set of ESG criteria. In January 2018, Larry Fink, the head of the world’s largest asset management company, BlackRock, made headlines in his annual letter to Corporate CEOs when he emphasized that BlackRock would be evaluating investments increasing on a company’s ability to increase longer term value for its shareholders, and that ESGs were part of that equation.
Examples of ESG concers:
- Environmental concerns: nuclear energy, pollution, sustainability.
- Social concerns: animal welfare, consumer protection, human rights.
- (Corporate) Governance concerns: employee relations, legal compliance, board and management structure.