Environmental, Social and Corporate Governance (ESG) indicators allow measuring the extent to which a company or an investment project complies with environmental, social, and governance standards and therefore how sustainable its performance is.
This concept of having sustainability criteria at the time of investing has antecedents in the 1960s when ethical investments began to be demanded as a result of the Vietnam War. Its development has a relevant point in 2005 when the United Nations (UN) established the Principles for Responsible Investment.
But what are the ESG criteria that a company or an investment must meet to be considered sustainable?
Environmental: these are all the activities carried out by the company that has an impact on the environment. These include mitigation actions such as waste reduction, recycling, reuse, decontamination, and reduction of greenhouse gas emissions. Also proactive actions such as the conversion of the energy matrix to clean energy and biodiversity protection.
Social: Considers the different stakeholders related to the organization. Respect for human rights and labor conditions are among the social criteria to be respected by the company. The company’s insertion in the communities where it operates, labor inclusion policies, and fair trade, among others, are also included in this concept.
Corporate Governance: the company’s corporate governance must comply with attributes of excellence in aspects such as management, governing bodies, corporate culture, transparency plans, anti-corruption practices, accountability, and lobbying.
Investment entities (banks, venture capital, private equity, etc.) are increasingly using these criteria for the selection of their projects under the philosophy of Sustainable and Responsible Investment (SRI).