What is ESG? ESG Explained

ESG Definition & Components

ESG stands for Environmental, Social, and Governance—three critical factors used by investors and companies to evaluate investments and business practices.

Environmental Factors

Environmental factors focus on a company’s impact on the natural environment. Key areas include:

• Carbon emissions
• Waste management
• Energy consumption

There is a growing emphasis from both investors and corporations on reducing environmental footprints.

Social Factors

Social factors concern a company’s impact on people and society. This includes:

• Labor practices
• Human rights
• Community engagement

These factors are gaining importance due to increased consumer awareness around employee treatment and social responsibility.

Governance Factors

Governance factors relate to leadership and management practices, such as:

• Board diversity
• Executive compensation
• Shareholder rights

Strong governance is essential for effective company management and accountability.

Business Implications

• ESG factors are increasingly integrated into investment decisions and corporate strategies.
• Companies adopting strong ESG practices may enhance stakeholder trust and promote long-term sustainability.