Environmental, social, and corporate governance (ESG), also known as environmental, social, governance,[1] is a framework designed to be embedded into an organization’s strategy that considers the needs and ways in which to generate value for all organizational stakeholders (such as employees, customers and suppliers and financiers).
ESG corporate reporting can be used by stakeholders to assess the material sustainability-related risks and opportunities relevant to an organization. Investors may also use ESG data beyond assessing material risks to the organization in their evaluation of enterprise value, specifically by designing models based on assumptions that the identification, assessment and management of sustainability-related risks and opportunities in respect to all organizational stakeholders leads to higher long-term risk-adjusted return.[2] Organizational stakeholders include but are not limited to customers, suppliers, employees, leadership, and the environment.[3]
Since 2020, there has been accelerating pressure from the United Nations to overlay ESG data with the Sustainable Development Goals (SDGs), based on their work, which began in the 1980s.[4]
The term ESG was popularly used first in a 2004 report titled “Who Cares Wins”, which was a joint initiative of financial institutions at the invitation of UN.[5] In less than 20 years, the ESG movement has grown from a corporate social responsibility initiative launched by the United Nations into a global phenomenon representing more than US$30 trillion in assets under management.[6] In the year 2019 alone, capital totaling US$17.67 billion flowed into ESG-linked products, an almost 525 percent increase from 2015, according to Morningstar, Inc.[7] Critics claim ESG linked-products have not had and are unlikely to have the intended impact of raising the cost of capital for polluting firms,[8] and have accused the movement of greenwashing.[9]
Source: Wikipedia