Defining ESG: Evolution not revolution

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ESG investing seems all the rage, but what does this focus on environmental, social and governance criteria actually mean?

ESG practices among investors and institutions vary widely, and what is seen to constitute ESG investing has evolved over time; today’s approaches to ESG investing range from simple exclusion lists to activist strategies.

What is ESG? What is ESG?

Finding an answer to that question is much harder than it ought to be. Environmental, social and governance factors cover an extremely broad range of issues from avoiding investing in tobacco companies to financing clean water initiatives. The fact that different labels such as sustainable, responsible, ethical and impact investing all fit under the ESG umbrella complicates finding a definition that encapsulates all the different facets of ESG.

Environmental

  • Climate Change
  • Greenhouse gas (GHG) emissions
  • Resource depletion, including water
  • Waste and pollution
  • Deforestation

Social

  • Working conditions, including slavery and child labour
  • Local communities, including indigenous communities
  • Conflict regions
  • Health and safety
  • Employee relations and diversity

Governance

  • Executive pay
  • Bribery and corruption
  • Political lobbying and donations
  • Board diversity and structure
  • Tax strategy