What is ESG investing?
ESG is (Environment, Social, and Governance). Simply, they are categories that help investors decide if a company is good for the world or not. So, an investor will look at a company and give a scores for E, S, and G.
General definitions:
E – how does the company relate to the environment?
S – how does the company relate to its employees, customers, vendors, and geographic community?
G – how is the company’s management structured?
Importantly, there are 2 sides to ESG investing for investors to consider:
1) How does the company contribute to ESG?
2) How well does the company protect itself from risks caused by ESG factors and how well it positions itself to turn those risks into opportunities?
Lastly, ESG investing is different than impact investing.
There is a common trope that says: “ESG investing is value investing, while impact investing is values investing.”
What is the difference?
- Value investing makes decisions based on financially material factors. ESG investing falls into that category. The idea that the ESG criteria are financial material and so considering them in investment decisions helps make better decisions.
- Values investing includes non-financially material factors in decision making. In this case, an investor may favor an investment based on personal choices about how the organization contributes to the world.
I like infographics, so might you. Here are two that list important ESG criteria to consider.
Here are some more:
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