ESG is the abbreviation for Environmental, social, and governance. It provides criteria, especially for investors, to help find companies with values that match their own and to take not only the economic performance but also environmental and social performance into account for their investment decision.
Environmental criteria may include the energy use of a company, the amount of waste and pollution, natural resource conservation, and the treatment of animals. This can also help to evaluate any environmental risks and how the company manages those.
Social criteria focuses on the working conditions, for example, equal opportunities, health and safety at work, human rights, product portfolio social responsibility and supply chain management.
Criteria for governance can include business ethics, compliance, independence of the Supervisory Board, salaries, and shareholder structure. Not a single company will pass every test in every category, so the investors need to decide what their priority is.
ESG investing is sometimes referred to as sustainable investing, responsible investing, impact investing, or socially responsible investing.