ESG, which stands for Environmental, Social, and Governance, is a set of standards that socially conscious investors use to screen investments. It is an acronym that represents the three main topic areas that companies are expected to focus on for sustainability and long-term success
. ESG investing aims to align investment choices with personal values and considers how well public companies safeguard the environment, communities, and corporate governance
. The three main pillars of ESG are:
- Environmental : This pillar focuses on a company's impact on the environment, including emissions, resource use, and waste management. It also considers the company's efforts to lower pollution, CO2 output, and reduce waste
- Social : This pillar evaluates a company's efforts to promote social equity, human rights, and the well-being of its workforce and the communities it serves. It also includes factors such as having a diverse and inclusive workforce at all levels of the organization
- Governance : This pillar assesses a company's corporate governance practices, including board diversity, executive compensation, and shareholder rights. It also considers the company's efforts to ensure transparency and accountability in its operations
ESG investing has gained popularity in recent years, with investors holding $17.1 trillion in assets chosen according to ESG principles in 2020, up from $12 trillion just two years earlier
. ESG-specific mutual funds and ETFs reached a record $400 billion in assets under management in 2021, up 33% from the year before
. This growth is driven by the increasing demand for companies to be more socially responsible and the belief that ESG factors can impact a company's overall performance
. To identify ESG investments, investors can use financial firms' ESG ratings and scoring systems, such as MSCI's ratings scheme covering more than 8,500 companies worldwide
. Additionally, investors can conduct their own research using websites and publications that produce "best of" lists of top ESG-rated stocks
