What does ESG stand for in investment contexts?

In investment contexts, ESG stands for Environmental, Social, and Governance. This framework is used to evaluate a company's operations and performance based on sustainability and ethical impact.

The environmental aspect considers how a company performs as a steward of nature, focusing on areas like carbon emissions, waste management, and resource consumption. The social dimension examines how it manages relationships with employees, suppliers, customers, and the communities where it operates, which can include labor practices and community engagement. Lastly, governance deals with a company's leadership, executive pay, audits, internal controls, and shareholder rights, ensuring that the company adheres to laws and ethical norms.

This understanding of ESG is crucial because investors are increasingly recognizing that companies exhibiting strong ESG practices can be more resilient, better positioned for long-term success, and less susceptible to regulatory risks. Consequently, incorporating ESG factors into investment decisions can lead to better risk-adjusted returns.