Definition
ESG determines a framework that helps businesses assess and report in three areas:Â
- Environmental. How a company affects the planet, including its carbon footprint, waste management, and resource use;
- Social. How a company manages relationships with employees, customers, suppliers, and communities, covering aspects like labor practices, diversity, and community engagement;
- Governance. How a company is run, focusing on leadership, executive pay, audits, internal controls, and shareholder rights.
Why it matters
ESG factors offer a deeper understanding of a company’s performance by considering both financial metrics and its impact on the environment, society, and how it's governed. Such an approach helps identify potential risks and opportunities of a company that traditional financial analysis might overlook.Â
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