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ESG (Environmental, Social, and Governance) criteria made simple

Updated: Feb 4


Simply put Environmental, Social, and Governance (ESG) criteria are a set of standards for a company’s operations that socially conscious investors use to screen potential investments.


Environmental criteria consider how a company performs as a steward of nature.


Social criteria examine how it manages relationships with employees, suppliers, customers, and the communities where it operates.


Governance deals with a company’s leadership, executive pay, audits, internal controls, and shareholder rights.


A successful ESG program is authentic, grounded in data, and aligned with the company’s overarching strategy as well as the needs of key internal and external stakeholders.


We build ESG social investment programmes that generate shared impact for not only investors but also for communities, employees, customers, and business partners.


Investopedia frames examples of ESG criteria as follows:


Environment

  • Companies that put out carbon or sustainability reports

  • Limits harmful pollutants and chemicals

  • Seeks to lower greenhouse gas emissions

  • Uses renewable energy sources


Social

  • Companies that operate an ethical supply chain

  • Invests in diversity

  • Has policies to protect against sexual misconduct

  • Pays fair wages


Governance

  • Companies that embrace diversity on their board

  • Embraces corporate transparency

  • Employs a CEO independent of the board chair


Investors are increasingly applying these non-financial factors as part of their analysis process to identify material risks and growth opportunities. ESG metrics are not commonly part of mandatory financial reporting, though companies are increasingly making disclosures in their annual report or in a standalone sustainability report.


Additionally, KPMG reports some examples of long term benefits created by ESG activities.

  • Adaptability. Evolving business models minimise the impact of disruption from technology or regulation.

  • Prepared for Regulation. The adoption of or investment in renewable energy infrastructure and technology to reduce carbon emissions and costs arising from environmental tax or payments for offsetting carbon emissions.

  • Innovation. Technological advancements in fostering a sharing economy that promotes innovation and improves efficiency.

  • Positive brand image. Companies with high ESG values may experience better retention rates and a more positive brand recognition amongst their staff and customers


Engage GrowZA to align and position your social investment portfolio to ESG principles.


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