Note

ESG - Three letters, one sustainability approach

Many investors no longer only rely on financial factors when making investment decisions, but also increasingly incorporate ESG (or Environment, Social and Governance) criteria into the process. In general, environmental criteria refer to a company’s environmental stewardship; social factors consider the way a company manages its internal and external relationships; while governance looks at how the business is governed.

Using ESG criteria, investors can identify potential risks within a company that could negatively affect the price of its shares or bonds. These risks, for example lax environmental or health and safety practices, might result in damage to a company’s reputation, but could also lead to considerable fines or other penalties, which would impact an investor’s investment.

However, the increasing focus on ESG can also bring about positive change. As an increasing number of investors are opting for investments in environmentally and socially aware companies, this can encourage companies to prioritise sustainable practices and solutions in their business activities.

 ESG - Sub-aspects