In this blog, concepts are always welcome. On this occasion, we talk about the so-called ESG criteria. These are environmental, social and governance factors for organizations. ESG is the acronym for ‘environmental, social and governance’. We will now explain in detail what each of these 3 factors refers to.
Environmental
This encompasses the effect that an organization’s activities have on the environment, directly or indirectly. The actions to be taken should not only reduce the negative effects of the business, but should ideally be proactive.
Examples: actions to reduce pollution and waste generation, the emission of greenhouse gases, the reconversion of the energy matrix or the protection of biodiversity.
Social
This refers to the impact that a given organization has on its social environment, i.e. on the community. This set of criteria emphasizes the protection and promotion of a diverse and inclusive organization, as well as a healthy space for employees and the community in general.
Examples: actions related to working conditions and respect for human rights or the management of relations with the communities in which the company operates.
Governance
Refers to the corporate governance of the organization. An area that encompasses issues related to the corporate governance of organizations, their corporate quality, culture and management processes. It pays particular attention to the development of sound internal policies with clear indicators that include factors such as outsourcing, regulatory compliance and employee competence, among others.
Examples: actions aimed at the composition and diversity of the Board of Directors, transparency policies or codes of conduct.
ESG criteria are increasingly present in companies
The weight that these fundamentals have for investors when making decisions is very relevant. This brings us to another concept: socially responsible investment (SRI). ESG criteria are integrated into this investment philosophy. They influence the process of research, analysis and selection of securities in an investment portfolio.
Investors are therefore increasingly concerned about ESG criteria. In this sense, sustainable investment is one that adds environmental, social and governance concerns to financial criteria. This model discriminates companies on the basis of their sustainability strategy. The data show that this model has been growing significantly in recent years.
Photo credit: AS
