ESG BASICS: AN EXPLAINER GUIDE

ESG stands for environmental, social, and governance – a set of standards for measuring ethics and impacts in the business operations of a company across these key areas. Tracking performance through ESG frameworks has rapidly gained traction in recent years for benchmarking corporate accountability.

Reporting a wide range of monthly, quarterly and annual metrics within these realms offers transparency into how sustainably and responsibly a company or investment fund approaches resource management, community engagement and leadership oversight. Investors are increasingly applying ESG criteria for screening prospective investments.

On the environmental front, disclosures span greenhouse emissions, water usage, waste disposal, biodiversity impacts and overall carbon footprint monitoring. Social indicators assess diversity policies, employee relations, privacy protections and community investment initiatives. Governance metrics cover anti-corruption, board independence, executive compensation and whistleblowing report rates.

Top ESG frameworks track several hundred total metrics aggregated into various summary scores and performance badges that organizations can leverage to demonstrate commitments to ethics. For example, B Lab’s B Corporation Certification grants badges to businesses meeting thresholds for overall positive ESG performance across operational transparency, employee benefits and ecological stewardship goals.

The ESG investment market has ballooned to over $30 trillion in AUM according to Bloomberg, representing more than a third of all professionally managed assets around the world. This capital flow pressure has nudged more public companies and private funds to expand in-house data reporting capacities. Critics argue maximizing across so many competing indicators leads to blurred priorities. But standardized ratings help condense multidimensional assessments into digestible soundbites for rapid stakeholder comparisons.

Looking forward, disclosures and auditing procedures must continue improving to meet swelling investor demand for credible insights on sustainable management practices. But applied ethically, robust ESG frameworks can align market forces with business ethics to inform more responsible decision making for long-term value creation across both institutional and retail investment activities worldwide.