ESG Criteria (Environmental, Social, and Governance) are a set of standards used to evaluate a company's performance in areas related to sustainability, ethical practices, and governance structures. These criteria are increasingly applied by investors to assess the long-term risks and opportunities associated with their investments, beyond traditional financial metrics.
Key Features:
- Environmental (E): Examines a company’s impact on the environment, including its carbon footprint, resource efficiency, waste management, and efforts to combat climate change.
- Social (S): Focuses on the company’s relationships with employees, customers, suppliers, and communities, as well as its commitment to diversity, human rights, and workplace safety.
- Governance (G): Reviews the company’s leadership practices, transparency, executive compensation, and policies to prevent corruption and ensure accountability.
Importance:
- Sustainable Investments: ESG criteria enable investors to align their portfolios with ethical and sustainable values.
- Risk Management: Helps identify potential risks related to environmental damage, social unrest, or governance failures that could impact financial performance.
- Corporate Responsibility: Encourages companies to adopt responsible practices that contribute to long-term societal and environmental benefits.