What is ESG? Environmental, social, and governance commitment explained

What is ESG and why is it important?

Environmental, social, and corporate governance (ESG) is a strategic framework for identifying, assessing, and addressing organizational objectives and activities ranging from the company’s carbon footprint and commitment to sustainability, to its workplace culture and commitment to diversity and inclusion, to its overall ethos regarding corporate risks and practices. It’s an organizational construct that’s become increasingly important, especially to socially responsible investors who want to invest in companies that have a high ESG rating or score.

The three main pillars of ESG include:

• Environmental commitment: This includes everything around a company’s commitment to sustainability and the impact it has on the environment, including its carbon emissions and footprint, energy usage, waste, and environmental responsibility.
• Social commitment: This covers a company’s internal workplace culture, employee satisfaction, retention, diversity, workplace conditions, and employee health and safety. Companies with happy and healthy employees perform better and are viewed as a stronger investment.
• Corporate governance: A company’s commitment to governance includes compliance, the internal corporate culture, pay ratios, the company ethos, and transparency and accountability in leadership. Investors are interested in companies that can keep up with changing laws and regulations, and that have a commitment to equity and equality in the workplace.

Your company’s environmental efforts will only become more important as the effects of climate change continue to grow. Companies that are more prudent with resources, such as water, coal, oil, and electricity, are predicted to fare better in a future where those resources may be limited in certain areas. Similarly, a company’s social profile is more important than ever in a time where a single Tweet can negatively impact an entire brand or company’s reputation. And as more laws and regulations arise around technology,...