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What Is ESG Investing?

Views 27782022.08.03

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Key takeaways

  • ESG stands for environmental, social and governance, which are the three criteria for evaluating a company's sustainability performance.

  • ESG investing is increasingly gaining in popularity, and global sustainability has become more prominent and important than ever.

  • ESG investing pays attention to financial returns and efforts for a better society and the world.

Understanding ESG investing

Global sustainability has suffered huge challenges from the food crisis, energy crunch, rising sea levels, and much more. Sustainable development becomes more important than ever that investors start to reevaluate their traditional investment methods.

What do renewable energy use, plant-based milk, employee benefits, company board diversity, and CEO independence have in common? They are all aspects of ESG investing.

ESG investing, sometimes called sustainable investing, is an investment method that combines investment returns with concerns for the planet and world we live in. ESG investing is gaining in popularity in recent years, and many fund companies have issued related products.

Three criteria

Let's start with the ESG acronym itself. ESG stands for environmental, social and governance, which are three criteria to evaluate a company’s sustainability performance.

  • E is for environmental. This criterion is used to evaluate a company’s environmental protection effort. When worries about the climate, pollution, energy crisis are imminent, environmental protection has become a key topic in the era of clean energy.

  • S is for social. This standard is applied to measure a company’s business relationships with its employees, customers, partners and the community. This aspect is becoming increasingly important because the gig economy also draws more attention, that is, Uber and Lyft drivers’ consistent protest against poor pay and conditions.

  • G is for governance. Corporate governance usually involves board independence, leadership effectiveness, business ethics and transparency. This part comes down to the company's operations.

Example

Apple claims to be a company dedicated to ESG. Tim Cook, Apple's CEO, once said "We believe that business, at its best, serves the public good, empowers people around the world, and binds us together as never before."

Their advocacy has been confirmed in a media event in September 2021. Greg Joswiak, Apple's senior vice president of Worldwide Marketing, noted that Apple has redesigned the packaging for the iPhone 13 lineup to eliminate the traditional outer plastic wrap on the box, a change that will avoid creating 600 metric tons of plastic waste. 

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The company's efforts can be found in Apple's ESG Report. Generally speaking, when a company initiates its ESG plan, it outlines measurable goals and progress, which can be announced in its regular reports.

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