The Ultimate Guide to Understanding ESG in 2024

What is ESG all about?

ESG is the acronym for Environmental, Social, and Governance.
ESG is defined as a company process that involves environmental, social, and governance practices.
ESG is considered a non-financial factor applied in the investment analysis process by investors.
Investment management in recent years has considered ESG a very important topic.
The three broad categories are generally termed ‘socially responsible investors’.
These investors (ESG) are not only concerned with investment profitability and risk.
They are concerned about the importance of adding value and incorporating this value into their section of investment.

In the last few years, ESG has grown exponentially and has become increasingly popular.
It is most likely to be considered an investment approach used by millennials.
The financial service industry in response to the growing demand for ESG investment has offered ESG exchange-traded funds.
The two largest ESG providers known are:
- Black Rock and Vanguard
- They both offer clients an option of ESG funds.

The terms Environmental (ES), Social (SO), and Corporate Governance (CG) are often used interchangeably, but they have specific meanings.

Environmental factors

The environment includes everything from the air we breathe to the water we drink.
Companies that pollute or damage the environment can face fines and lawsuits.

Social Factors

Social factors include things like human rights and labor practices.
Companies that mistreat their workers or violate human rights can face negative publicity and boycotts.

Corporate Governance

Corporate governance includes things like board independence, executive compensation, and shareholder rights.
Poor corporate governance can lead to accounting scandals and bankruptcies.