Learn ESG with CFI

ESG stands for “environmental, social, and governance,” which is a framework to understand the extent to which organizations are operating in a sustainable manner, including environmental stewardship, social factors that consider how companies treat employees and customers, and governance factors related to how a company is managed and operated. Some of these include carbon emissions, green energy initiatives, corporate culture policies, fair labor practices, and diversity of board members.

ESG, or environmental, social, and governance investing, is a way to build a more ethical and sustainable portfolio. Capital providers and investors are becoming increasingly interested in sustainability, and ESG considers non-financial factors that assess an investment or company’s sustainability. Aside from having a more sustainable portfolio, ESG investments may even outperform conventional portfolios while demonstrating lower risk.

ESG disclosures, also known as ESG reporting, sustainability reporting, or corporate social responsibility (CSR) reporting, refer to the disclosure of data relating to the environmental, social, and governance performance of an organization. These disclosures allow investors to assess organizations and make informed decisions about their sustainability or ESG measures. While not every jurisdiction has rules on ESG disclosures, the corporate landscape is moving toward transparency and the expectation of disclosures is only likely to grow.

Whether looking through the lens of an investor or a corporate, no matter the size, clear ESG disclosure and reporting practices have become table stakes. In the wake of the pandemic and ongoing climate change concerns, ESG has taken on greater significance and companies are taking a more active role in building a sustainable and resilient future. As ESG grows and evolves, more investors are looking to incorporate ESG factors into their capital allocation decisions.