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GovernanceAlso: Environmental Social Governance

What Is ESG?

Definition

ESG stands for Environmental, Social, and Governance — three categories of non-financial factors used to evaluate a company's sustainability performance and ethical impact.

ESG Explained

ESG is a framework used by investors, regulators, and companies to measure sustainability beyond traditional financial metrics. The three pillars cover:

  • Environmental: Climate impact, emissions, resource use, waste management
  • Social: Labor practices, diversity, community impact, human rights
  • Governance: Board composition, executive pay, transparency, ethics

As of 2024, over $35 trillion in assets globally are managed under ESG-integrated strategies, according to the Global Sustainable Investment Alliance.

Why ESG Matters

ESG performance increasingly correlates with financial performance. Companies with strong ESG practices tend to have lower cost of capital, better operational performance, and more resilient stock prices during market downturns.

Related Terms

Net Zero

Net zero means achieving a balance between the greenhouse gases emitted into the atmosphere and those removed, resulting in no net increase in atmospheric CO₂ levels.

Scope 1, 2, and 3 Emissions

Scope 1, 2, and 3 are categories defined by the GHG Protocol that classify greenhouse gas emissions by their source: direct operations (Scope 1), purchased energy (Scope 2), and value chain activities (Scope 3).

Sustainability Score

A sustainability score is a numerical rating that quantifies an individual's or organization's environmental, social, and governance performance across multiple dimensions on a standardized scale.

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