What is ESG?

Definition

ESG is an abbreviation for Environmental, Social, and Governance and constitutes three overarching categories of criteria used to evaluate an organization's sustainability performance and social responsibility.

Three overall criteria

Within the framework of sustainability reporting, the concept of ESG has gained increasing importance for companies that strive to integrate principles for responsible business. ESG represents three overarching areas - Environmental, Social and Governance – and constitutes a holistic strategy for measuring and reporting companies' impact on society and the planet. The three areas can be described as:

Environmental

Means that the company considers and reports on its impacts on the environment and its efforts to reduce carbon footprint, energy use and other negative impact on nature.

Social

Focuses on the company's relationships with its employees, customers and the community it operates in. It includes working conditions, diversity, human rights issues and involvement in community issues.

Governance

Includes effective and transparent governance structures, ethics and transparency. It is about ensuring that the company is managed in a way that benefits all stakeholders through, for example, sustainability reporting, regulatory compliance and whistleblower systems.

A popular concept

By actively reporting on Environmental Concerns, Social Responsibility and Corporate Governance, companies can not only meet the growing expectations of stakeholders but also position themselves as sustainable players in a complex global economy. The ESG criteria provide a compass for companies that strive to create value in a way that respects the environment, promotes social justice and is based on transparent and effective governance structures. That more organizations are increasing their focus on this is noticeable and a general shift in focus is clearly visible from three different perspectives.

Increased investments

Investors and asset managers integrate ESG criteria into their decisions to minimize risk and promote sustainable investments.

Consumer awareness

Conscious consumers demand products and services from companies that actively practice sustainability and social responsibility.

Regulating pressure

Regulations and standards, such as the EU's Corporate Sustainability Reporting Directive (SFDR), require increased transparency about how companies integrate sustainability into their operations.

ESG goes beyond being a trend; it is a necessity for companies striving to be relevant and sustainable in today's business world. By embracing ESG as an integral part of their decisions and strategies, companies are positioning themselves for a future where sustainability is not just a word, but a way of life. So, when we talk about ESG, let's not just see it as three letters, but as the building blocks for a more sustainable and responsible business future.