What is ESG?

In brief, ESG is a set of criteria used to assess and measure companies' sustainability and environmental footprint. ESG is made up of three components and is an acronym which stands for environmental, social and governance. The environmental component of ESG measures the environmental impact of firms and looks at factors such as firms' carbon footprints, pollution or commitments to preventing climate change. The social component of ESG looks at how companies treat their employees and customers. This can mean looking at companies' track records on labour practices, human rights and diversity. Lastly, the governance component of ESG assesses how a corporation or company operates and is governed. Examples of such factors that fall under governance are a company's political donations or the structure and diversity of its leadership or board of directors.

Various rating agencies use these three criteria to help give potential consumers, employees and investors a better picture of companies' operations. Now, more than ever, individuals are using ESG scores to make informed decisions about where to work, shop or invest.