ESG & Trends

Environmental, social, and governance (ESG) criteria are a set of standards for a company’s behaviour used by socially conscious investors to screen potential investments. Environmental criteria consider how a company safeguards the environment, including corporate policies addressing climate change, for example. Social criteria examine how it manages relationships with employees, suppliers, customers, and the communities where it operates. Governance deals with a company’s leadership, executive pay, audits, internal controls, and shareholder rights.

It is a generic term used in capital markets and commonly used by investors to evaluate the behaviour of companies, as well as determining their future financial performance.

ESG standards are gradually becoming a significant part of the alternative investment world. ESG issues are not only important when measuring the sustainability of the non-financial impacts of investments – they may also have a material impact on the return profile and long-term risk of investment portfolios. It has been found that businesses that adopt ESG standards tend to be more conscientious, less risky and consequently more likely to be successful in their long-term commercial aims.

Traditional investors are becoming increasingly interested in the ESG framework, and many have begun using its criteria for assessing risk in the investment decision-making process. ESG standards provide another level of due diligence, which is in the best interest of shareholders.