Environmental, social and governance (ESG) criteria are a set of standards for a company’s operations that socially conscious investors use to screen potential investments.
- Environmental criteria consider how a company performs as a steward of nature.
- Social criteria examine how it manages relationships with employees, suppliers, customers, and the communities where it operates.
- Governance deals with a company’s leadership, executive pay, audits, internal controls, and shareholder rights.
ESG criteria are an increasingly popular way for investors to evaluate companies in which they might want to invest.
Many mutual funds, brokerage firms, and robo-advisors now offer products that employ ESG criteria.
ESG criteria can also help investors avoid companies that might pose a greater financial risk due to their environmental or other practices.