ESG (Environmental, Social, Governance)
A framework for evaluating companies on environmental impact, social responsibility, and corporate governance practices.
What is ESG?
ESG stands for Environmental, Social, and Governance — a framework used by investors, analysts, and companies to assess non-financial risks and values. Environmental factors include a company's carbon emissions, energy use, water management, and waste practices. Social factors cover labor practices, supply chain standards, diversity, community relations, and product safety. Governance factors include board composition, executive compensation, accounting transparency, shareholder rights, and anti-corruption policies. ESG data is used to screen investments, assess long-term sustainability risks, and engage with company management. ESG investing has grown rapidly but has also attracted controversy about measurement consistency, greenwashing, and whether ESG criteria improve or harm returns.
Example
BlackRock, the world's largest asset manager with over $10 trillion in assets, uses ESG factors in investment analysis and has engaged hundreds of companies on climate risk disclosure. In 2020, CEO Larry Fink's annual letter declared that climate risk is investment risk — a statement that significantly elevated ESG as a mainstream investment consideration.