The New ESG Wave

Environmental, social, and governance (ESG) is a broad and not well-defined term that seems to have become associated with non-financial factors investors use to measure an investment or a company’s sustainability. Companies that may have ignored, resisted, or ‘green-washed’ ESG disclosures may be forced into such disclosures by large investors or the government. It may prove impossible to not be caught up in the coming wave of ESG requirements, both private and public.

As its name implies, there are three ‘pillars’ of ESG. An exact definition of each is difficult as each has been generally described to include any number of factors or criteria. The environmental pillar relates to the impact a company may have on the environment, such as its carbon footprint, including its direct and indirect greenhouse gas emissions, the chemicals involved in its manufacturing processes, or its overall stewardship of natural resources. The social pillar relates to a company’s relationships with its stakeholders or how it deals with people within the company and in the broader community, including diversity programs, hiring practices, and even how a company advocates for social good with its supply chain partners or in the wider world. The governance pillar refers to how a company is led and managed, including how leadership’s incentives are aligned with stakeholder expectations and the types of internal controls which exist to promote transparency and accountability by leadership.

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