What does ESG stand for in the context of investing?

In the context of investing, ESG stands for Environmental, Social, and Governance. This framework is used by investors to evaluate companies based on their ethical impact and sustainability practices.

The "Environmental" aspect refers to how a company interacts with the natural environment, encompassing issues like resource depletion, waste management, carbon emissions, and overall ecological impact.

The "Social" component considers how a company manages relationships with employees, suppliers, customers, and the communities in which it operates, addressing factors such as labor standards, community engagement, and human rights records.

The "Governance" element pertains to the internal systems and processes that govern a company, including board diversity, executive compensation, inherent risks, and shareholder rights.

Adopting an ESG perspective helps investors identify potential ethical and sustainable opportunities while also mitigating risks associated with environmental and social issues. This comprehensive approach has gained traction as many investors recognize that these factors can significantly impact long-term financial performance.