Home » ESG Investments » What is sustainability?

What is sustainability?

 

ESG stands for:

• E – Environmental: Climate risk, greenhouse gas emissions, biodiversity, water and waste management.

• S – Social: Reputation risk relating to how companies treat employees, customers, suppliers, and communities. This includes human rights, gender equality, workplace practices, and customer satisfaction.

• G – Governance: Trust and transparency in management. Includes board independence, anti-corruption policies, and tax transparency.

True ESG analysis requires a holistic view. For example, a company that isn’t directly polluting (such as a financial institution) still needs to be assessed across all ESG dimensions.

Why ESG important for…

• the Client:
  The client’s decision is increasingly impacted by whether or not they can ascertain beforehand that the company or the processes used to produce the product meet society’s safety and physiological needs.
• the Employee:
  Employee satisfaction keeps employees with the company and attracts new staff. It is increasingly important for employees that companies make strategic decisions based on ESG considerations. Current or future employees also want to know how the company looks after staff – whether it is involved in helping disadvantaged people; whether it is involved in mitigating environmental damage; whether it looks after employees through various screening programs.
• the Owner:
  Companies are increasingly expected to operate not only on the basis of profitability and financial returns, but also on the basis of sustainability, social and environmental benefits. In the case of listed companies, even the price of the company’s shares can be affected by the application and appropriate communication of its ESG approach.
• the Investor:
  More and more investors are taking ESG into account in their investment decisions, and several analyst firms are producing ESG assessments of listed companies, which are increasingly being used by professionals facing investment decisions. Today, one third of all investments take ESG aspects into account, meaning that companies that underperform in these aspects may face less investor interest in the future.