Explained with Connect Earth: ESG investing

Welcome back to ‘’Explained with Connect Earth’’! Today we will look into what ESG criteria are and how are they used to make investment decisions.

ESG stands for Environmental, Social, and Governance. They are a set of standards that socially conscious investors use to screen companies. This is called ESG investing. You may also hear other referring terms like impact investing, sustainable investing, responsible investing or socially responsible investing (SRI).

So what does each of these criteria embed?

Environmental criteria include aspects like the company’s energy use, waste and water management, or treatment of animals. Things like ownership of contaminated land or compliance with environmental regulations are also taken into account.

Social criteria on the other hand focus on people. Things that investors look at are employee health and well-being, local community support, values of the company’s suppliers, tax avoidance, etc.

Lastly, governance criteria include things like board structure, shareholder voting rules or company’s political contributions.

ESG criteria have long been regarded as a tradeoff between what’s ethical and profitable. Nowadays this narrative changes with more investors realizing that following the ESG criteria is profitable in the long run, and can give a business a competitive edge over the market.

Let us know in the comments what you think about ESG investing and what other things you would like to learn more about. We would love your feedback!

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