From the course: Introduction to ESG: Environmental, Social, and Governance

What is ESG?

From the course: Introduction to ESG: Environmental, Social, and Governance

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What is ESG?

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- [Host] ESG is the acronym for environmental, social and governance. Three broad areas of consideration for investors. ESG is a company's performance and risk exposure based on its environmental impact, social responsibility and how it is governed. Although the term ESG is sometimes used as the same thing as sustainability or corporate social responsibility there are a number of differences. The first difference is that ESG ties into financial decision making based on relevant environmental, social, and governance metrics and performance. ESG efforts focus on short, medium and long-term performance and value creation while addressing material, environmental, social and governance risks. On the other hand, CSR and sustainability initiatives are typically voluntary and may focus on environmental leadership and corporate giving and volunteering initiatives without necessarily integrating these into business value creation and risk management. The next difference is that ESG goes beyond initiatives and programs into a strategy that is ideally integrated into a broader corporate strategy to address stakeholder demands primarily from investors and regulators such as climate related disclosure mandates. ESG in practice involves rigorous goal setting, implementation, measuring and reporting on environmental, social and corporate governance activities. While ESG is getting significant attention nowadays, many practices that fall under ESG performance have been managed by many organizations for years such as employee balance and health, resource reduction and governance practices. The difference today is to bring all these efforts that have been taking place in silos under the ESG umbrella in an organized and strategic way and disclosing on them using meaningful metrics. This is especially true for publicly traded companies who are asked by their investors to set clear ESG targets to reduce their negative impact and risks, measure their progress based on a set benchmark and report on these transparently accurately and consistently. Throughout this course, I will provide plenty of examples of the factors under each one of the ES and G pillars and how the performance of a company can be measured under these factors.

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