ESG Audit
Environmental, Social, and Governance (ESG) refers to a set of criteria used to evaluate a company’s impact on the environment, its social responsibility, and the quality of its corporate governance. It is increasingly used by investors, companies, and stakeholders to assess how sustainable, ethical, and well-managed a business is. Let’s break down the three components:
ENVIRONMENTAL
– This aspect focuses on a company’s impact on the environment, including its carbon footprint, waste management, energy use, natural resource conservation, pollution, and efforts to address climate change.
– Key considerations include greenhouse gas emissions, water usage, waste management, deforestation, biodiversity, and compliance with environmental regulations.
SOCIAL
– This component examines a company’s relationships with its employees, customers, suppliers, and the broader community.
– Areas of focus include labor practices, diversity and inclusion, employee welfare, community engagement, customer satisfaction, human rights, and product safety.
GOVERNANCE
– Governance looks at the structure and practices of a company’s leadership, focusing on issues like board diversity, executive compensation, transparency, ethical practices, shareholder rights, and compliance with laws and regulations.
– Good governance promotes accountability, fairness, and transparency in a company’s decision-making processes.
ESG investing has grown in popularity as investors increasingly seek to align their portfolios with their values, focusing on sustainability and ethical business practices. Companies with strong ESG performance are often viewed as more resilient, better managed, and more likely to succeed in the long term, making ESG considerations an essential aspect of corporate strategy and investment analysis. Additionally, ESG criteria play a critical role in risk management, as businesses with poor ESG practices may face reputational damage, legal issues, or operational risks.