Environmental, social and governance (ESG) is a term used to represent an organization’s financial interests that focus mainly on sustainable and ethical impacts. Capital markets use ESG to assess institutions and determine future financial performance.

Environmental social and governance and refers to the three key factors when measuring the sustainability and ethical impacts of an investments in a business or company. Most socially responsible investors check companies out using ESG criteria to screen investments.

Environmental, social and governance factors are a subset of non-financial performance indicators. They include ethical sustainable and corporates government issues such as making sure there are systems in place to ensure accountability and managing the corporation’s carbon footprint. The number of investment funds that incorporates ESG factors has been growing rapidly since the beginning of this century. The number is expected to continue rising significantly over the decade to come but simply environmental social and governance are the three main factors that socially responsible investors measure when deciding whether to invest in a company. It is a generic term used in capital markets to determine how far advanced companies are with sustainability

ESG three most central factors are:

• environmental criteria – which examines how a business performs as a steward for our natural environment focusing on:
  • waste and pollution, greenhouse gas emissions, resource depletion, deforestation and climate change
• social criteria – which looks at how a company treats people and concentrates on:
  •  employee relations and diversity, local communities, working conditions, health and safety and conflict
• governance criteria – which examines how a corporation policies itself how the company is governed and focuses on:
  •  tax strategy, executive pay, donations and political lobbying, corruption and bribery and board diversity and structure

If you are an investor and would like to buy ESG-screen securities you should consider Socially Responsible Mutual Funds and Exchange-traded Funds.

Experts say that’s what constitutes an appropriate set of ESG criteria is subjective and it depends on what your priorities are. You need to do the research yourself if you want to seek out invest that precisely match your values.

The notion that socially responsible investing comes as a cost that you will make less money, is a myth. In fact the opposite is often the case. Studies have shown that investors who adopt an ESG approach tend to get a better return than their non ESG counterparts

ESG Alternatives

While ESG is the present of sustainable investing, it is not the only option for those who are interested in the way.  Although some differences exist while ESG is considered as interchangeable.

Socially responsible investing (SRI).

SRI is a values-based investment approach built on socially responsible investing. It is known as social investment that is considered socially responsible due to the nature of the business the company conducts. It is one that views successful investment returns and responsible corporate behavior. It focuses on investments in portfolio that match an investor’s environmental and social values. It avoids companies that profit from harmful practices that oppose ESG criteria. SRI targets the investor’s values above a company’s policies and procedures.

Corporate social responsibility (CSR)

CSR focuses on a company’s impact on society across social, economic, environmental and operational factors. CSR maintains doing good and providing positivity.  Businesses want to gain customer trust and ensure they’re involved in fair and ethical business practices. It’s often true that customers will feel more linked to brands that engage in CSR activities. The way corporations interact with surrounding community and larger world, there is a specific theory which CST is composed of four obligations.

1. The economic responsibility to make money.

2. The legal responsibility to stand by to rules and regulations.

3. The ethical responsibility to do what’s right even when not required by the letter or spirit of the law.

4. The philanthropic responsibility to contribute to society’s projects even when they’re independent of the particular business.