Sustainability

What is the meaning of ESG?

ESG stands for Environmental, Social and Governance and refers to three key factors people consider when measuring sustainability and ethical impact.


What is the meaning of ESG?

Over the past 18 months, the topic of ESG has blown up.

Besides NFTs, crypto, and the metaverse, it’s all people seem to be talking about.

The term ESG stands for Environmental, Social and Governance and refers to three key factors people consider when measuring sustainability and ethical impact.

People consider ESG as a framework that helps assess qualitative and quantitative factors relating to both sustainable and non-sustainable companies.

You can use the framework to better understand how a company is performing with respect to the environment and the communities it serves.

Although there is no global definition of ESG, I break down the meaning of ESG and provide examples of questions to consider when evaluating an organization and your personal ESG.

Breaking down ESG

Environmental

The “E” in ESG stands for environmental. It examines how organizations perform with respect to the environment.

Examples of environmental characteristics to consider when evaluating an organization:

          • Waste and pollution

“Is the company using nuclear energy to make their sustainable toothbrush?”

          • Resource depletion

“How much bycatch does the company produce when at sea?”

          • Greenhouse gas emission

“Does the product emit more CO2 than its perceived benefit?”

          • Climate change

“Is the company contributing to deforestation?”

Social

The “S” in ESG stands for social. This refers to how an organization interacts with its community.

Examples of social characteristics to consider when evaluating an organization:

          • Employee relations & diversity

“Does the company pay fair wages?”

          • Suppliers

“Is the company outsourcing to countries that rely heavily on child labour?”

          • Community impact

“Does the organization donate to local and global initiatives?”

Governance

Governance risk is often overlooked by examiners but is critical in understanding opportunities and threats in an organization.

Poor corporate governance practices have stood at the core of some of the biggest corporate scandals in history.

Volkswagen’s emissions tests scandal caused shareholders to lose approximately 46% in value (Fortune, 2020).

Facebook’s misuse of data and other recent incidents also caused significant financial damage to shareholders.

S&P Global assesses companies’ governance performance by examining the following four factors (S&P Global, 2020):

          • Structure and oversight

“Does the company have support to make viable business decisions?”

          • Code and values

“Does the company practice what they preach?”

          • Transparency and reporting

“Does a third-party audit and validate the books of the company?”

          • Cyber risk and systems

“Was the company a victim of any cyber-attacks?”

Using ESG to make sustainable choices in your personal life

ESG is characterized and broken down in various ways. Foundationally, everything comes back to Environmental, Social and Governance.

Although people use ESG to analyze companies, I challenge you to use ESG to analyze the decisions you make daily.

How much do your daily habits impact the environment?

Are you supporting any NGOs to make an impact in your community?

Are you a shareholder in a company that was scrutinized for its practices?

Through everyday actions, we impact the planet whether we like it or not. Use the ESG framework to help evaluate businesses and the decisions you make daily.

 

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