What is ESG investing?
Environmental, Social, and Governance (ESG) investing is an investing strategy that focuses on a company’s impact on environmental, social, and governance factors on top of traditional financial metrics.
ESG investors tend to be environmentally friendly and socially conscious. They aim to align their portfolios with business practices that they deem to be sustainable, ethical, and overall responsible.
ESG investors use various environmental criteria to evaluate a company’s environmental impact, such as their carbon footprint, energy efficiency, waste and water management, supply chain sustainability, etc.
Socially, ESG investors may also look at a company’s diversity and inclusion efforts, commitment to consumer protection with product safety standards, data privacy and security measures, community impact, conflict of interest policies, and more.
The governance component focuses on how a company is managed, governed, and ensures accountability. Criteria include structure, executive compensation, shareholder rights, stakeholder engagement, ethical business practices, regulatory compliance, and more.
ESG investing integrates these factors to make investment decisions that prioritize long-term sustainability and positive societal impact while still generating favorable financial returns.