Although ESG investing is very topical, the term remains confusing to most investors. So what are the environmental, social, and governance factors that go into ESG?
The E or environmental in ESG measures a company’s impact on the planet, for example, through carbon emissions. More and more businesses are setting emissions goals. Microsoft has pledged to be carbon-negative by 2030. Google plans to run all data centers on carbon-free power like wind or solar. Other environmental factors include pollution, energy efficiency, and sustainability initiatives like reducing plastic packaging.
The S or social in ESG refers to a company’s relationships with its employees, customers, suppliers, and local communities. ESG investors try to assess how well the company treats its workers and customers. Social issues received a lot of press coverage during the coronavirus pandemic.
Amazon was criticized for running warehouses on a regular schedule at the height of Covid. However, it’s hard to quantify things like employee relations.
The G or governance in ESG measures corporate standards and shareholder rights. Unlike environmental and social metrics, governance has been on top of investors’ minds for a long time. Shareholders already vote on Board appointments and executive compensation each year. Learn more about ESG investing with Sustain Fi.