Environmental, social, and governance (ESG) investing refers to a set of standards for a company’s behavior used by socially conscious investors to screen potential investments.Environmental criteria consider how a company safeguards the environment, including corporate policies addressing climate change, for example. Social criteria examine how it manages relationships with employees, suppliers, customers, and the communities where it operates. Governance deals with a company’s leadership, executive pay, audits, internal controls, and shareholder rights.

Environmental issues may include corporate climate policies, energy use, waste, pollution, natural resource conservation, and treatment of animals. ESG considerations can also help evaluate any environmental risks a company might face and how the company is managing those risks.

Considerations may include direct and indirect greenhouse gas emissions, management of toxic waste, and compliance with environmental regulations.

Examples of the E in ESG criteria could be investing in companies that:

• Publish a carbon or sustainability report
• Limit harmful pollutants and chemicals
• Seek to lower greenhouse gas emissions and CO2 footprint
• Use renewable energy sources
• Reduce waste

Social aspects look at the company’s relationships with internal and external stakeholders.

Does it hold suppliers to its own ESG standards? Does the company donate a percentage of its profits to the local community or encourage employees to perform volunteer work there? Do workplace conditions reflect a high regard for employees’ health and safety? Or does the company take unethical advantage of its customers?

Socially responsible investing (SRI) is an investment strategy that highlights this one facet of ESG. SRI investors seek companies that promote ethical and socially conscious themes including diversity, inclusion, community-focus, social justice, and corporate ethics, in addition to fighting against racial, gender, and sexual discrimination.

Examples of the S in ESG criteria could be investing in companies that:

• Operate ethical supply chains
• Avoid overseas labour that may have questionable workplace safety or employ child labour
• Supports LGBTQ+ rights and encourages all forms of diversity
• Have policies to protect against sexual misconduct
• Pay fair (living) wages

ESG governance standards ensure a company uses accurate and transparent accounting methods, pursues integrity and diversity in selecting its leadership, and is accountable to shareholders.

ESG investors may require assurances that companies avoid conflicts of interest in their choice of board members and senior executives, don't use political contributions to obtain preferential treatment, or engage in illegal conduct.

Examples of the G in ESG criteria could be investing in companies that:

• Embrace diversity on the board of directors
• Embrace corporate transparency
• Appoint someone other than the CEO as chair of the board
• Stagger board elections

Adopting ESG principles means that corporate strategy focuses on the three pillars of the environment, social, and governance. This means taking measures to lower pollution, CO2 output, and reduce waste. It also means having a diverse and inclusive workforce, at the entry-level and all the way up to the board of directors. ESG may be costly and time-consuming to undertake, but can also be rewarding into the future for those that carry it through.