Environmental, Social, and Corporate Governance (ESG) evaluates a business’ collective conscientiousness for social and environmental factors.
ESG ExplainedEnvironmental, Social and Corporate Criteria (ESG)
Environmental, Social, and Corporate Governance (ESG) is a process developed to evaluate a company’s collective conscientiousness for social and environmental factors.
ESG is typically a score compiled from data collected surrounding specific metrics related to intangible assets within the enterprise.
Think of it as a form of a corporate social credit score.
Research shows that such intangible assets comprise an increasing percentage of future enterprise value.
While there are many ways to think of intangible asset metrics, these three central factors together, ESG, comprise a label widely adopted throughout the United States financial industry. The ultimate objective is to measure ESG elements related to sustainability and societal impact on a company or business.
In less than 20 years, the ESG movement has grown from a corporate social responsibility initiative launched by the United Nations into a global phenomenon representing more than US$30 trillion in assets under management.
Last year, a surge of capital totaling US$17.67 billion flowed into ESG-linked products, an almost 525 percent increase from 2015, according to Morningstar.
Why Is ESG and Sustainability Important?
Sustainability is a foundational principle underpinning the current focus of companies, investors, and regulators.
A Foundational Principle
Sustainability is a foundational principle underpinning the current focus of companies, investors, and regulators. ESG is a subset of performance indicators that include sustainable, ethical, and corporate governance issues such as managing a company's carbon footprint and ensuring there are systems to ensure accountability.
An investment
ESG is an investment consideration used in risk assessment strategies incorporated into investment decisions and risk management processes.
Long-Term Success
Companies that use ESG standards are more conscientious, manage risk, and are more likely to achieve long-term success. As a result, many organizations have established ESG initiatives as part of their corporate governance.
Holistic Approach
A TPI consultant can guide your business to a holistic approach to process improvements through a data-driven mindset and provides business insights to increase shareholder value and the long-term viability of an organization.
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