ESG is the new favourite word in Finance, why?

Experts have been constantly warning the world of climate change. 

The global climate is going through extreme changes and the increase in global temperatures along with the depletion of the protective ozone layer are causing the ice caps to melt and ultimately, increasing the sea level. The need for an environmental change now is paramount that even the Metronome digital clock located along the south end of Union Square in New York City has been reprogrammed to illustrate a critical window for action to prevent the effects of global warming from becoming irreversible. Along with environmental changes, societal changes like abolishing racism, gender equality and greater minority rights are gaining pace.

The Black Lives Matter movement is one of the most recent and most popular movements to end racism in western countries. The movement is still popular especially amongst athletes and celebrities. Environmental and social causes have become so important that they have now entered the field of finance with a concept known as ESG investing.

Environmental, Social & Governance (ESG) criteria refers to set of factors that look into the business operations, and referred by socially conscious investors to screen potential investments. 

It is also called sustainable investing or responsible investing.

Environmental criteria includes a company’s waste management policy, efficiency of energy use, natural resource utilization and treatment of animals. Investors may also analyse the potential harm the company’s practices might have on the environment, historical environmental accidents, etc.

Social criteria looks at the company’s business relationships and the demographics of the workforce including supplier core values, CSR activities, employee working conditions, employee disputes, etc.

Governance criteria includes accurate and transparent accounting policies, investor voting rights, impartial selection of board members and compliance of legal trade practices.