Environmental, social and governance – ESG – refers to the three central factors in measuring the sustainability and ethical impact of an investment in a company or business.
These criteria help to better determine the future financial performance of companies (return and risk). ESG concerns are vast, and the list below represents the core areas only:
Environmental
Climate Change – industries are screened as to their impact on climate change
Nuclear Energy – investments are de-selected if aligned with nuclear power
Sustainability – avoiding companies who deplete resources, diminish raw materials and whose products and services may become out-dated or obsolete.
Social
Diversity – The level of inclusion in a company’s recruitment policies is becoming a key concern to investors.
Human Rights – considerations include impact on local communities, the health and welfare of employees and a more thorough examination of a company’s supply chain.
Consumer Protection – consumer protection is a central consideration for those seeking to limit a company’s risk and those examining a company’s credentials with an eye to investing.
Animal Welfare – From the testing of products on animals to the welfare of animals bred for the food market, concern about the welfare of animals is a large consideration.
Governance
Management structure – The system of internal procedures and controls that makes up the management structure of a company is in the valuation of that company’s equity.
Employee relations – From diversity to the establishment of corporate behaviours and values, the role that improving employee relations plays in assessing the value of a company is proving increasingly central.
Executive compensation – Companies are now being asked to list the percentage levels of bonus payments and the levels of remuneration of the highest paid executives are now under scrutiny from investors.
