Environmental, Social, and Governance (ESG) refers to three key factors that investors consider when evaluating the sustainability and societal impact of an investment. These factors help investors assess a company's performance in relation to environmental protection, social responsibility, and corporate governance.
Environmental factors include a company's carbon footprint, waste management practices, and efforts to reduce pollution. Social factors include a company's policies and practices on issues such as diversity and inclusion, labor rights, and human rights. Governance factors include a company's transparency, accountability, and ethical behavior.
Investors who prioritize ESG considerations believe that companies that perform well in these areas are more likely to generate long-term value and stability, and that they may avoid negative consequences, such as fines or reputational damage, that could arise from poor ESG performance. ESG investing has become increasingly popular in recent years, and there are now a growing number of financial products that focus specifically on ESG criteria.