"ESG is a company's performance and risk exposure based on its environmental impact, social responsibility and how it is governed."
Diving deeper into each of the ESG pillars, Fulya Kocak Gin shared the below definitions from the World Economic Forum on Environmental & Social, with additional details on Governance:
1. E for Environmental
a. Climate Change
b. Nature Loss
c. Freshwater Availability
d. Air Pollution
e. Water Pollution
f. Solid Waste
g. Resource Availability
2. S for Social
a. Dignity and Equality
b. Health and Well-being
c. Skills for the Future
3. G for Governance
a. Board and management structures
b. Corporate governance policies
c. Executive pay
d. Shareholder rights
e. Board diversity
f. Tax and accounting practices
g. Cybersecurity
"ESG ties into financial decision making based on relevant environmental, social, and governance metrics and performance."
One of the 1st things I learnt about Sustainability is that ESG is geared towards the financial industry. They are one of the early adopters, playing a critical role in ensuring funds are invested in the right places through one of these ESG Investment approaches:
1. Screening
a. Most widely used
b. Negative screening: Exclude highest greenhouse gas emitters
c. Positive screening: Include best-in-class companies or investments
2. ESG integration
a. Incorporate ESG data, research and insights into investment decisions
b. Lower risk while generating returns
3. Thematic investing
a. Investment in specific solutions to ESG-related issues
b. Identify a specific ESG-related area to invest
4. Engagement/Active Ownership
a. Investors are actively engaged with the companies
b. Encouraging attention in ESG factors considered important to them
5. Impact Investing
a. Target companies and projects for their potential social, and environmental benefits
b. These companies and projects may not usually secure funding
Wrapping things up, Fulya Kocak Gin also touched on the following ESG reporting options in Introduction to ESG: Environmental, Social, and Governance, some of which were also covered in previous Sustainability posts:
1. GRI Guidelines
2. Sustainability Accounting Standards Board (SASB) Standards
3. Task Force on Climate-Related Financial Disclosures (TCFD)
4. International Sustainability Standards Board (ISSB)
5. Carbon Disclosure Project (CDP)
6. S&P Global Corporate Sustainability Assessment (CSA)
7. ESG Ratings
a. MSCI ESG Ratings
b. Sustainalytics ESG Risk Ratings
c. Bloomberg ESG Scores
d. FTSE Russell’s ESG Ratings
e. ISS Ratings and Rankings
f. S&P Global ESG Score
g. Moody’s ESG Assessments and Climate Risk Scores
