ESG refers to environmental, social, and governance factors, each of which is regarded as a central factor in measuring and evaluating sustainability of a company. Now, the financial industry is taking nimble steps to incorporate ESG principles into investments and business management.
- Environmental criteria considers the impact of a company’s operation on the environment, in light of energy use, waste disposal and pollution, among others. Regulatory compliance should be also taken into consideration.
- Social criteria reflects a company’s relationships with suppliers, customers, and communities as well as its labor-management relations.
- Governance criteria takes into account management transparency, shareholder protection (e.g. voting system), and conflict of interest in the choice of board members, etc.