Environmental, Social, and Governance (ESG) Framework

Overview

• ESG stands for Environmental, Social, and Governance.
• It serves as an analysis framework to assess an organization's sustainability.
• Helps measure and quantify sustainable practices.

Environmental Assessment (E)

• Evaluates an organization’s impact on the environment and climate.
  • Focuses on greenhouse gas emissions.
  • Management of natural resources (e.g., fresh water).
• Aims to understand environmental risks and impacts.

Social Impact (S)

• Examines the organization's social impact.
  • Management of relationships with stakeholders.
  • Fair wages and positive community outcomes.
  • Accountability for supply chain partners.

Governance (G)

• Focuses on how a firm is led and managed.
• Importance of a healthy corporate governance function.
• Governance can affect progress in environmental and social areas and business operations.

Evolution of ESG

• Evolved from older frameworks:
  • EHS (Environmental Health and Safety)
  • CSR (Corporate Social Responsibility)
• Older frameworks focused on philanthropy.

Unique Aspects of ESG

• Looks at issues through business risk and opportunity.
• Resonates with the investment community.

ESG Landscape Today

• Influenced by changing market and non-market conditions.
• Features:
  • Emergence of ESG rating agencies.
  • ESG scores and mandatory public reporting (ESG disclosure).
  • Sustainability-themed funds and investment strategies.