ESG investing is a form of socially responsible investing that prioritizes financial returns alongside a company’s impact on the environment, its stakeholders, and the planet. Socially responsible investing has taken the world by storm, and providers and investors alike are scrambling to jump aboard the sustainable bandwagon.

Unfortunately, the arena of “sustainable” has a lot of gray areas. ESG, or environmental, social and governance investing, is looking to change that. ESG investing uses particular criteria to grade investments in an attempt to clarify exactly what sustainable should look like.

• Who Started ESG?
• What is ESG and Examples?
• What Does ESG Stand for in Business?
• What is ESG in a Nutshell?
• What is ESG in Australia?
• What are the 3 Pillars of ESG?
• How is ESG Different From Sustainability?
• 5 Ways That ESG Creates Value
• What is ESG Investing?
• ESG Investing Trends
• Why is ESG Important?
• What are ESG Products?
• What are Some ESG Issues?
• What are ESG Strategies?
• ESG Stocks
• ESG Companies
• ESG Index
• Is ESG Investing Good?
• Which ESG Stocks to Buy?
• What are the Top 3 ESG Stocks?
• Which ESG ETF is Best?
• What is the Largest ESG ETF?
• ESG Framework
• ESG Score
• ESG Investment
• ESG Goverance
• ESG Meaning in Business
• Growth of ESG Investing
• Who is Responsible for ESG in a Company?
• ESG Investing Companies in India
• ESG Investing Companies UK
• ESG Investing Statistics
• ESG Investing Jobs
• ESG Investing Certificate
• ESG Fund
• ESG Policy
• ESG Investment Managers

Who Started ESG?

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. 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.

Read Also: What is Green Marketing and Its Importance?

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, and have accused the movement of greenwashing.

What is ESG and Examples?

ESG stands for environmental, social and governance. These are non-financial factors investors use to measure an investment or company’s sustainability. Environmental factors look at the conservation of the natural world, social factors examine how a company treats people both inside and outside the company and governance factors consider how a company is run.

Here are some other things ESG looks at:

Environmental	Social	Governance
Carbon emissions. Air and water pollution. Deforestation. Green energy initiatives. Waste management. Water usage.	Employee gender and diversity. Data security. Customer satisfaction. Company sexual harassment policies. Human rights at home and abroad. Fair labor practices.	Diversity of board members. Political contributions. Executive pay. Large-scale lawsuits. Internal corruption. Lobbying.

What Does ESG Stand for in Business?

ESG stands for Environmental Social and Governance, and refers to the three key factors when measuring the sustainability and ethical impact of an investment in a business or company. Most socially responsible investors check companies out using ESG criteria to screen investments.

It is a generic term used in capital markets and commonly used by investors to evaluate the behavior of companies, as well as determining their future financial performance.

The Environmental Social and Governance factors are a subset of non-financial performance indicators which include ethical, sustainable and corporate government issues such as making sure there are systems in place to ensure accountability and managing the corporation’s carbon footprint.

The number of investment funds that incorporate ESG factors has been growing rapidly since the beginning of this decade, and is expected to continue rising significantly over the decade to come.

ESG’s three central factors are:

Environmental criteria, which examines how a business performs as a steward of our natural environment, focusing on:

• waste and pollution
• resource depletion
• greenhouse gas emission
• deforestation
• climate change

Social criteria, which looks at how the company treats people, and concentrates on:

• employee relations & diversity
• working conditions, including child labor and slavery
• local communities; seeks explicitly to fund projects or institutions that will serve poor and underserved communities globally
• health and safety
• conflict

Governance criteria, which examines how a corporation polices itself – how the company is governed, and focuses on:

• tax strategy
• executive remuneration
• donations and political lobbying
• corruption and bribery
• board diversity and structure

What is ESG in a Nutshell?

ESG focuses on three specific, foundational pillars that are crucial to today’s corporate management and investors alike. Environmental issues can include greenhouse gas emissions, energy management, water consumption, waste management, and impact on land and biodiversity.

Social issues can include human rights, customer privacy, data security, conflict risk, employee safety and labor practices, diversity and inclusion, as well as community engagement. Governance issues can include factors such as business ethics, litigation risk, supply chain management, business lifecycle management, accounting standards compliance, succession planning, and anti-competitive behavior.

When making investment decisions, these criteria are supposed to assist investors in taking into account the “unmeasured” or “unrepresented” ESG concerns. They reveal information that standard financial analysis often misses and speak to a company’s long-term viability in the broadest sense.

To be deemed a good ESG stock, a company must have a history of aligning its operations to support programs that benefit the environment, employees, local communities, and shareholders.

Ultimately, the purpose of ESG investing is to increase profits by backing well-managed, socially responsible companies.

What is ESG in Australia?

ESG is one of the most important problems facing Australian companies across all industries today. ESG goes beyond environmental issues like climate change and resource scarcity – it encompasses all non-financial topics that are not typically captured by traditional financial reporting.

ESG consulting offers specific value when navigating the shift of expectations on businesses from being more focused on corporate social responsibility (CSR) to predominantly ESG-focused. CSR has been on the business radar for many years and provides a qualitative measurement of a businesses impact on society and its stakeholders. On the other hand, ESG is a way to quantifiably measure a company’s impact on society and the environment, using metrics that deliver long-term stakeholder value.

More than ever, organizations are developing sustainability strategies that focus on creating value amongst a broad group of stakeholders – including employees, customers, suppliers, investors and community groups – whilst managing their broader obligations to society and the environment. Stakeholders are also demanding companies be more and more transparent about their performance.

What are the 3 Pillars of ESG?

The three pillars of ESG are:

1. Environmental – this has to do with an organizations impact on the planet
2. Social – this has to do with the impact an organization has on people, including staff and customers and the community
3. Governance – this has to do with how an organization is governed. Is it governed transparently? Does it report honestly and clearly on its activities?

When creating or implementing an ESG strategy, a few key factors must be kept in mind.

First and foremost, boards must ensure the strategy aligns with the company’s overall business goals. ESG initiatives can significantly impact how consumers perceive a brand, so it’s essential to ensure that ESG efforts are consistent with the image the company wants to project.

Additionally, they will need to consider the financial costs and benefits of the ESG strategy. While some environmental and social initiatives may require an upfront investment, others can save a company money in the long run.

Finally, the board will need to consider how they will measure the success of the ESG strategy. Will they track employee engagement? Decreases in energy consumption? Customer satisfaction?

By identifying key metrics upfront, a board can gauge whether or not the ESG strategy is genuinely compelling.

How is ESG Different From Sustainability?

ESG and Sustainability have some similarities in that they address the environmental and social aspects. However, there are some differences; while sustainability may mean different things to different entities, ESG is about the specific set of criteria denoting environmental, social, and governance.

ESG is an acronym standing for the environment, social, and governance, where environment denotes the reduction of carbon and other greenhouse emission or generally protecting the environment. Social criteria look into how entities manage the relationship between and among stakeholders, while governance denotes practising fairness and transparency in the management as well as actively disclosing information to the relevant stakeholders.

Differences 

Comparing the scope of each, it is evident that there is a difference. The distinction between the two is well marked and arguably relevant in the sphere of investment.

Sustainable investment is based on the selection of projects or programs that have a positive impact on social and environmental aspects where an entity is ready to sacrifice profits for a clean environment.

On the other hand, ESG bases investment decisions on a broader level where in addition to the promotion of socially and environmentally conscious practices it screens out investments based on given criteria such as treatment of workers, animal testing, child labour among others.

In general terms, ESG seeks the identification and ranking of undertakings that show desirable characteristics. These characteristics are broader than what is considered in sustainability, they extend to directors’ pay, diversity of stakeholders, treatment of the workers, community engagement, and health and safety issues among others.

5 Ways That ESG Creates Value

1. Reduction of energy and water consumption

The notion that behaving in an environmentally conscious fashion is an inherently more expensive way to do business is outdated. Companies with a focus on ESG typically spend less on energy and resources by reducing their usage and boosting efficiency. This might mean moving to an all-electric fleet or improving infrastructure to reduce water use.

2. Higher employee engagement and more productivity

Clean investors aren’t the only ones who care about an ESG rating—employees do too. Companies that take a responsible approach to socially important matters such as racial justice, environmental protections, and fair governance are better positioned to attract the best employees and retain the talent they have.

3. Increased sales with more loyal clients

The values that make a company an appealing investment are the same that attract and keep hold of new and existing customers. Today, clients and customers are actively choosing to work with and buy from companies that are reducing their environmental impact, protecting workers’ rights, and championing good causes.

4. Deregulations and government support

In many countries, what began as generous subsidies for companies willing to invest in expensive decarbonization efforts has evolved into penalties and red tape for the companies that don’t. A focus on ESG means moving away from the potential costs and restrictions of future government interventions and toward vital support from the state.

5. Long-term investment returns

The phasing out of fossil fuels has left the energy industry holding on to hundreds of billions of dollars worth of potentially stranded assets—oil and gas reserves that are unlikely to provide an economic return and which now must be left in the ground.

By shifting capital away from short-term returns and toward more sustainable long-term business goals, a company can protect itself from enormous, climate-related write-downs and ensure cleaner investments long into the future.

What is ESG Investing?

ESG Investing (also known as “socially responsible investing,” “impact investing,” and “sustainable investing”) refers to investing which prioritizes optimal environmental, social, and governance (ESG) factors or outcomes. ESG investing is widely seen as a way of investing “sustainably”—where investments are made with consideration of the environment and human wellbeing, as well as the economy. 

It is based upon the growing assumption that the financial performance of organizations is increasingly affected by environmental and social factors.

The principles of ESG investing are nothing new. Hundreds of years ago, religious and ethical beliefs influenced investment decisions. Muslims established investments that complied with Sharia law, which included prohibitions on weapons.

The first ethical unit trusts in the US and UK were developed by Quakers and Methodists. Today, the growing prominence of corporate social responsibility (CSR) and social sustainability has led to increased investor awareness about ethical participation in the market.

ESG investing may have officially entered mainstream investing discourse following the release of the Principles for Responsible Investments (PRI) in 2006 – a set of United Nations guidelines for the incorporation of ESG factors into business policy and strategy. The PRI have over 2,000 signatories and are widely considered the official point of reference for all things ESG investing.

ESG Investing Trends

Sustainable investments received a $120 billion inflow in 2021, more than doubling the $51.1 billion received by ESG funds in 2020 and setting another new annual record. And it appears the upward trend will continue. Global ESG assets are expected to hit $53 trillion by 2025, according to Bloomberg, accounting for more than a third of the $140.5 trillion in total assets under management.

As ESG investing becomes more deeply integrated into the investment world, several clear trends are emerging. Here are some of them.

Trend 1: Climate change

According to the World Economic Forum’s Global Risks Report, climate action failure and extreme weather have dominated global risk concerns over the past 10 years. Natural resource depletion, biodiversity loss, forced migration, and livelihood crises are all potential dangers of these two threats.

S&P Global’s Trucost released research detailing how unchecked global warming will affect properties and assets owned by the world’s largest corporations, such as mining, utilities, and processing plants. 60% of companies in the benchmark S&P Index own physical assets across 68 countries (with a market valuation of $18 trillion) that are susceptible to at least one type of climate change physical risk, according to the report.

As a result, climate change has become our world’s most pressing systemic concern, one that has been driving ESG trends for more than a decade. That trend is expected to continue as we search for new and innovative tools to help us develop climate risk-aware investment strategies.

While there are many complex facets of climate change, the current environmental conversation is revolving around two critical areas: greenhouse gas (GHG) emissions and biodiversity.

Carbon offsetting will become the norm
According to a recent study, climate change is currently responsible for five million deaths per year, and the World Bank estimates that over the next 30 years, climate change could impact 143 million climate migrants. Climate change is expected to have a profound impact on economic output as well. The Swiss Re Institute estimates climate change may wipe out up to 18% of global GDP by 2050 if global temperatures rise by 3.2°C.

So, what’s driving global temperatures to increase? The Intergovernmental Panel on Climate Change has reached a unanimous conclusion that human activities, such as burning fossil fuels and deforestation, are causing the Earth’s temperature to rise, consequently warming the globe.

GHG emissions have increased by more than 30% since the industrial revolution and the planet’s surface temperatures are approximately 1.0°C warmer than the pre-industrial period.

These facts have made carbon offsetting, compensating for CO₂ or other GHG emissions, a critical area of focus for governments, regulators, and investors. Companies, in particular, are heavily focused on reducing their overall GHG emissions as well as looking into various carbon offsetting options like planting trees, recovering damaged land, and using carbon capture and storage technology to remove CO₂ from the atmosphere.

Biodiversity loss
Biodiversity loss has negative consequences for livelihood and economies that are just as devastating as climate change. And biodiversity loss, the loss of diversity of living organisms on the globe, has dramatically increased around the world.

With over half of global GDP moderately or severely reliant on nature, according to the World Economic Forum, the mass extinction of species has become an increasingly serious concern for businesses and investors.

While voluntary disclosure of biodiversity impacts is currently uncommon, some countries are now requiring investment corporations to declare their environmental footprints. On January 1, 2022, the European Union Sustainable Finance Disclosure Regulation (SFDR) went into effect, requiring investment firms to declare activities that have a negative impact on biodiversity-sensitive areas.

Trend 2: Social inequalities

Social factors have gained the spotlight as the COVID-19 crisis created significant challenges that heightened social gender and pay inequalities. Millions of women left the job market to care for their children during the pandemic as schools and day cares closed to prevent the spread of disease.

The pandemic also greatly affected industries dominated by women of color, including food service, leisure, hospitality and retail. Consequently, awareness of and action around diversity and inclusion has never been more important, especially as economic recovery allows for the inclusion of displaced groups.

When it comes to building financial resilience, taking social hazards into account can make a profound impact. Health and safety regulations, for example, are an upfront cost for businesses, but they lower the chance of costly lawsuits. Diversity and inclusion are becoming increasingly important for ESG investors, particularly in two significant areas: equal gender pay and CEO remuneration.

Equal gender pay
A gender pay gap is a measure of the difference in average compensation between men and women throughout an entire organization, business sector, industry, or the economy as a whole, regardless of the nature of their work. According to an analysis of full- and part-time workers’ median hourly wages in 2020, women earned 84% of what men earned. This means it would take an extra 42 days of work for women to earn what men did in a year.

This wage disparity between men and women is a contentious issue that’s gaining traction. Those who believe the gender wage gap is a pressing problem have growing opportunities to invest in companies that prioritize being on the forefront of this issue, and companies that actively improve gender equality represent a buying opportunity for ESG investors.

Companies risk losing the very leaders they need right now if these issues aren’t addressed quickly. Teaching company leaders to close gender pay gaps, recognize the individual talents of their team members, create a diverse workplace, and reward employees for good work can help build trust and a more inclusive, happy, and productive work environment.

Executive compensation
The polarization of race and gender isn’t the only source of inequality in today’s society. The epidemic worsened economic wealth gaps, resulting in substantial pay discrepancies between workers and executives, for which companies have been increasingly criticized.

The Economic Policy Institute found that CEO pay has skyrocketed 1,322% since 1978. In 2020, a year when 114 million jobs were lost due to the COVID-19 pandemic, CEOs were paid 351 times as much as a typical worker. This surge in CEO pay has aided the expansion of the incomes of the top 1%, leaving fewer economic growth opportunities for ordinary workers and widening the income gap between the top 1% and the bottom 90%.

As a result, many are advocating for policy changes that would both reduce incentives for CEOs to extract economic concessions and limit their ability to do so, for example, reinstating higher marginal income tax rates. Linking CEO pay to ESG targets is another strategy that has gained traction in recent years.

Trend 3: Better ESG data

The number of companies reporting on sustainability efforts has increased as more investors demand detailed ESG reports. According to the Governance & Accountability Institute, 92% of companies in the S&P 500 Index issued sustainability reports in 2020.

However, ESG data can be inconsistent, composed of a patchwork of reporting frameworks that make it difficult to collect and compare. While many companies are likely to boast about the ESG goals they are achieving, clear and uniform reporting standards are still in their infancy stage as regulations and investor preferences evolve.

Better data is the key to improved transparency and stronger ESG integration. The good news is the quality and quantity of ESG data are improving as reporting standards are transitioning from voluntary to mandatory and companies begin to compete for sustainability-focused investment capital.

As the need for data requirements grow, certain reporting frameworks, such as the Value Reporting Foundation’s SASB Standards, the Global Reporting Initiative (GRI), and the Task Force on Climate-related Financial Disclosures (TCFD) are emerging as leaders.

Uniform data requirements will make it easier for companies to report on progress toward their ESG commitments and goals, and for market participants to identify, compare, and act on ESG risks and opportunities.

Why is ESG Important?

There are continuous parallels being drawn between the unforeseen risks of a pandemic and the climate crisis, with both impacting the global economy substantially. This has made many investors and policymakers realize a greater need to accelerate investments and progress on businesses which prioritize ESG.

After all, our society is no longer only dependent on the government but also on well-functioning businesses which meet its needs, ranging from employment creation, equitable growth, protection of natural resources, and safeguarding consumers interests, among others.

In the US, ESG focused funds have seen more than a double jump to USD 51.1 billion from USD 21.4 billion, and a nearly tenfold increase from USD 5.4 billion in 2019. In Asia excluding Japan, managed sustainable fund assets almost tripled to USD 36.7 billion in March 2021 from a year earlier.

The pandemic has also made corporate governance a very nuanced task, which requires making important decisions related to business strategies, employee well-being, risk mitigation and managing stakeholders in an unprecedented environment.

More and more businesses are being introduced to the multi-faceted and all-permeable benefits of ESG like attracting talent, targeting future consumers, facilitating brand-enhancement and innovation. Overall, ESG equips the business to become resilient in the current and possible future scenarios. Let us break down its major benefits in detail to understand why ESG is more important now than ever:

Adds to the top-line growth

It’s easier for businesses to enter new markets and expand their operations in the existing markets if they have a strong ESG approach. Governments facilitate access by giving licenses and issuing permissions to such companies.

As per GreenPrint’s Business of Sustainability Index report released in March 2021, 75% of Millennials are willing to pay more for an environmentally sustainable product in the US and 77% of the overall sample size are concerned about the environmental impact of products they buy.

Leads to reduction in the costs

Companies which switch to more sustainable methods of production tend to be more efficient and reduce their costs. One such example is Nestlé, which announced that it will invest up to USD 2.1 billion by 2025 to shift from virgin plastic packaging to food-grade recycled plastics and the development of other sustainable packaging solutions.

This will not only help it cut its carbon footprint but also save it from non-compliance costs among different geographies where it operates and have stricter laws related to the use of plastic packaging.

Effective management of regulatory compliances and stakeholders

All businesses are affected by some or other forms of regulations depending upon the markets they operate. The business with strong ESG measures, especially on Governance, invite less scrutiny from the regulators and have greater operational freedom. They also face less pressure from climate change from activists, employee unions etc. The consumers also prefer such brands too.

For example, Starbucks introduced “Starbucks China Parent Care Program” in 2017 which provided health coverage to over 10,000 parents of Starbucks’ employees in China. It was seen as a strategic move as Starbucks planned to expand in China amid the growing trade dispute between USA & China.

Attracting talent and boosting employee’s productivity

It is noted that strong companies with good ESG scores attract better talent and have longer retention. Having a clear sustainability agenda generates an internal sense of pride among employees. The younger generation prefers to work for companies with stronger commitments towards society.

As per a study by Cone Communications on Millennial Employee Engagement in 2016, 64% of Millennials consider a company’s social and environmental commitments when deciding where to work.

What are ESG Products?

An ESG investment product should contain only those securities with a high sustainability score and would exclude companies with, for example, poor records on pollution, labor relations or management practices. It would also exclude the sovereign bonds of governments with similar poor records. 

Research has shown that the use of ESG in security selection leads to better-informed investment decisions, and that sustainability funds can perform better than non-sustainable ones, partly because of better risk management over contentious issues. Companies with a lower carbon footprint, for example, would face lower regulatory or societal risk than a polluter, and so its shares should be less volatile over time.

ESG funds are growing in popularity among investors who want to be seen to be making a contribution to cutting global warming and adding to human development, without compromising on financial returns.

What are Some ESG Issues?

1. Climate Change and the Environment

Organizations are looking inward at their carbon footprint and how they tie directly to climate change around the world. With financial regulators making it a huge priority under the Biden administration and organizations pledging various green standards and clean energy commitments, the focus on climate change has made it even more apparent that taking a stand on this issue, and opening up the books to show transparency, will become more pressing. 

With organizations across all industries aligning their lobbying efforts with the Paris Agreement and taking their cue from the European Union, climate change has become a defining component of ESG strategies.

2. Lobbying Transparency and Accountability

Since Citizens United vs. FEC paved the way for money and resources to be given toward political initiatives, a greater call for transparency and accountability in lobbying and advocacy has been ongoing and even more so after the Jan. 6 attacks on Congress. Organizations are being asked by their employees and investors to address where their lobbying efforts and political action committee money is going, and more importantly, why? 

For organizations that are directly tied to legislative and regulatory risk, modern ESG strategies are looking into the financial implications of lobbying and using employee-funded PAC money on political candidates and causes with greater transparency.

3. Worker Safety and Human Capital Management

There is immense investor pressure, an SEC proposal, and growing shareholder interest to monitor and affect the lives of workers as an ESG strategy. Look for companies to begin following employee turnover, recruitment costs, employee engagement survey responses, and training and development more and more throughout the upcoming years. 

The conditions that employees work under are now being viewed as tantamount to their longevity at the organization and if there is upward mobility from their entrance to the company to their current position.

4. Board and Executive Diversity 

One of the most important trends in the ESG space right now is looking at an organization’s diversity on its executive teams and their corporate hierarchy. What was once an opaque process for deciding who gets promoted and elevated to executive positions, now has a push for more transparency and accountability by every level of the company. Investors are measuring the success of companies not just on the dollars and cents, but on who is running them, and what their diversity makeup is.

5. Supply Chain Pressures

With the COVID-19 pandemic, companies have undergone enormous pressure around supply chains and how dependent on foreign countries they are. Additionally, companies that do business in countries with lax labor standards, or severely undervalue their employees, are being met with heightened public scrutiny.

One of the growing trends around ESG and supply chains is an emphasis on due diligence and making sure supply chains do not harbor risk to small businesses or the labor force that creates it.

6. Protests and Social Movements

Despite a global pandemic, in many ways, 2020 was defined by the social movements that gained new traction. Anti-racism and anti-discrimination policies are being prioritized and positioned in new ways at organizations that were previously left up to an HR department or outside consulting. 

Now, taking stances on the latest social movement has become common practice for organizations of all sizes to make their voice and opinion heard. Organizations are facing increasing pressure from the public to address what is going on in the news and to make changes internally as a result.

7. Social Media and Youth Engagement

Younger audiences care about where they are getting their products from, and what their environmental and social footprint is, more than any previous generation. And they’re more vocal about it. Add to that the fact social media has allowed unprecedented access to the inner workings of organizations and given the public a direct voice in the boardroom. Social media now directly impacts public perception faster than legislation and regulations can attempt to catch up.

8. Biodiversity and Exogenous Factors

With COVID-19, many of the structural flaws around parts of the economy are being taken into consideration for strategic decisions going forward. Investors are looking at how much the biodiversity of the planet will be affected by corporate goals, and similarly, how these goals can be diverted by exogenous and unforeseen factors like a global pandemic or natural disaster.

Organizations of all sizes around the globe are addressing the interdependence between expanding their business across borders and the direct toll it will take on the environment.

What are ESG Strategies?

ESG (Environmental, Social, Governance) provides a view of a company and its long‑term value potential and relevance to its stakeholders. An ESG rating measures environmental and social impacts and the effectiveness of corporate governance in managing them.

Organizations create ESG strategies to help them act on and measure what is mutually good for profits, people, and the planet.

By following the right steps, companies can see the beneficial results of an ESG plan as they grow in their environmental, social and governance responsibilities.

Here are six steps to implementing an ESG strategy:

1. Consult with stakeholders: An ESG strategy must include items stakeholders care about. In today’s market, investors want to use their money to grow companies that have similar values to their own. Define the beliefs and values of stakeholders to start mapping out objectives with your ESG strategy.
2. Choose the right ESG framework: Once businesses have the necessary information from their stakeholders, it’s time to choose the right ESG framework to guide their strategies. These guidances include the United Nations Sustainable Development Goals, the Global Reporting Initiative Standards and the Sustainability Accounting Standards Board Standards, to name a few.
3. Conduct a materiality assessment: A materiality assessment is a crucial part of successful ESG strategy implementation because it reveals the relevant topics an ESG plan should focus on. These are the topics stakeholders, investors, employees, peers and competition care about. A materiality assessment like the ones TRC offers helps businesses prioritize the right actions to take to meet their goals.
4. Appoint the right people for management: A company is only as good as the people who comprise it. Hire or appoint the right people to manage ESG efforts — people who devote themselves to the ESG strategy’s success.
5. Collect data toward key performance indicators (KPIs): Once the ESG plan is up and running, it’s time to start collecting data. ESG processes benefit businesses because they provide objective metrics that prove the success of social responsibility efforts. Use the data you gather to track KPIs, measuring success along the way.
6. Reassess over time: As companies continue gathering data related to ESG efforts and track KPIs, they have the benefit of being able to reassess their strategies over time. It’s OK for said strategies to change — businesses should strive to achieve new levels of success, but they can only do that by seeing the honest data and making necessary adjustments. Acknowledge strong areas and continue what’s been working. Note weaker areas, and take the next right steps to improve.

ESG Stocks

The following is a look at 10 examples of the most popular and highest-rated ESG stocks from a wide variety of sectors and industries. If you’re considering building a portfolio based on ESG stocks, these companies might be a good place to start. 

1. BlackRock

BlackRock, Inc. is an American multi-national investment company based in New York City. Founded in 1988, initially as a risk management and fixed income institutional asset manager, BlackRock is the world’s largest asset manager, with US$10 trillion in assets under management as of January 2022. BlackRock operates globally with 70 offices in 30 countries and clients in 100 countries.

BlackRock has sought to position itself as an industry leader in environmental, social and corporate governance (ESG). The company has faced criticism for worsening climate change, its close ties with the Federal Reserve System during the COVID-19 pandemic, anticompetitive behavior, and its unprecedented investments in China.

2. MSCI

MSCI, Inc. engages in the provision of investment decision support tools including indices, portfolio risk and performance analytics and corporate governance products and services. The company operates through the following business segments: Index, Analytics, Environmental, Social, and Governance (ESG), Real Estate, and Burgiss.

The Index segment is involved in index-linked product creation and performance benchmarking, as well as portfolio construction and rebalancing, and asset allocation. The Analytics segment offers risk management, performance attribution and portfolio management content, applications, and services. The ESG segment offers products and services that help institutional investors understand how ESG factors can impact the long-term risk of investments.

The Real Estate segment includes research, reporting, market data and benchmarking offerings that provide real estate performance analysis for funds, investors, and managers. The Burgiss segment provides investment decision support tools for private capital. The company was founded by Andrew Thomas Rudd in 1998 and is headquartered in New York, NY.

3. Morningstar Inc.

The Company is a provider of independent investment research to investors around the world. It offers a line of Internet, software and print-based products for individual investors, financial advisors and institutional clients.

Morningstar, Inc. engages in the provision of investment research. It offers Morningstar data, direct, investment management, advisor workstation, workplace solutions, pitchbook data, enterprise components, research, credit ratings and indexes. The company was founded by Joseph D. Mansueto on May 16, 1984, and is headquartered in Chicago, IL.

4. IDEXX Laboratories

IDEXX Laboratories, Inc. engages in the development, manufacture, and distribution of products and services for the animal veterinary, livestock and poultry, dairy and water testing markets. It operates through the following segments: Companion Animal Group (CAG), Water, Livestock, Poultry and Dairy (LPD), and Other.

The CAG segment provides diagnostic and information management-based products and services for the companion animal veterinary industry, including in-clinic diagnostic solutions, outside reference laboratory services, and veterinary software and services. The Water segment offers innovative testing solutions for easy, rapid, and accurate detection and quantification of various microbiological parameters in water.

The LPD segment develops diagnostic tests, services, and related instrumentation that are used to manage the health status of livestock and poultry, to improve producer efficiency, and to ensure the quality and safety of milk and food.

The Other segment is composed of products for the human point-of-care medical diagnostics market with its out-licensing arrangements. The company was founded by David Evans Shaw on December 19, 1983, and is headquartered in Westbrook, ME.

5. Lam Research

Lam Research Corporation is a global supplier of wafer fabrication equipment and services to the semiconductor industry. The Company designs, manufactures, markets, refurbishes, and services semiconductor processing equipment used in the fabrication of integrated circuits (ICs). The Company operates through the manufacturing and servicing of wafer processing semiconductor manufacturing equipment segment.

The Company’s products and services are designed to help its customers build smaller devices that are used in a variety of electronic products, including mobile phones, personal computers, servers, wearables, automotive vehicles, and data storage devices.

Its customer base includes semiconductor memory, foundry, and integrated device manufacturers that make products, such as non-volatile memory, dynamic random-access memory, and logic devices. It offers its services in areas like nanoscale applications enablement, chemistry, plasma and fluidics, and advanced systems engineering.

6. London Stock Exchange Group

London Stock Exchange Group Plc engages in the provision of global financial markets infrastructure services. It operates through the following segments: Information Services, Post Trade Services-LCH, Post Trade Services-CC&G and Monte Titoli, Capital Markets, Technology Services, and Other. The Information Services segment refers to subscription and license fees for data and index services provided.

The Post Trade Services-LCH segment refers to CCP and clearing services provided, non-cash collateral management, and net interest earned on cash held for margin and default funds. The Post Trade Services-CC&G and Monte Titoli segment is responsible for trades and contracts clearing, and relates to net interest earned on cash, securities held for margin and default funds, and settlement and custody services.

The Capital Markets segment pertains to admission fees from initial listing and further capital raises, annual fees charged for securities traded on the group’s markets, and fees from secondary market services. The Technology Services segment comprises capital markets software licenses and related information technology infrastructure, network connection, and server hosting services. The Other segment covers events and media services. The company was founded in 1698 and is headquartered in London, the United Kingdom.

7. Intuit Inc.

Intuit, Inc. engages in the provision of business and financial management solutions. It operates through the following segments: Small Business and Self-Employed, Consumer, Credit Karma, and ProConnect. The Small Business and Self-Employed segment offers QuickBooks financial and business management online services and desktop software, payroll solutions, payment processing solutions, and financing for small businesses.

The Consumer segment includes do-it-yourself and assisted TurboTax income tax preparation products and services. The Credit Karma segment serves consumers with a personal finance platform that provides personalized recommendations of credit card, home, auto and personal loan, and insurance products, and online savings and checking accounts.

The ProConnect segment serves professional accountants in the U.S. and Canada, who are essential to both small business success and tax preparation and filing. The company was founded by Scott D. Cook and Thomas A. Proulx in March 1983 and is headquartered in Mountain View, CA.

8. Applied Materials Inc.

Applied Materials, Inc. provides manufacturing equipment, services and software to the semiconductor, display and related industries. It operates through the following segments: Semiconductor Systems, Applied Global Services, and Display & Adjacent Markets.

The Semiconductor Systems segment includes semiconductor capital equipment for etch, rapid thermal processing, deposition, chemical mechanical planarization, metrology and inspection, wafer packaging, and ion implantation. The Applied Global Services segment provides solutions to optimize equipment, performance, and productivity.

The Display & Adjacent Markets segment offers products for manufacturing liquid crystal displays, organic light-emitting diodes, equipment upgrades, and other display technologies for TVs, monitors, laptops, personal computers, smart phones, and other consumer-oriented devices. The company was founded on November 10, 1967 and is headquartered in Santa Clara, CA.

9. Vanguard ESG US Stock ETF

The Vanguard ESG U.S. Stock ETF tracks an index of U.S. stocks that are screened based on environmental, social, and governance (ESG) criteria. ESG funds are an increasingly popular segment of the ETF marketplace, offering values-driven investors a diverse portfolio of U.S. stocks without compromising their conscience. Vanguard’s is one of dozens, if not hundreds, of similar funds that have debuted in recent years.

ESGV invests in hundreds of U.S. companies, including small-, medium-, and large-cap equities, but eschews the so-called sin stocks such as adult entertainment, alcohol, tobacco, and gambling. ESGV also excludes weapons makers, fossil fuel companies, and nuclear power.

Not surprisingly, the elimination of fossil fuels giants means ESGV has a bit more of a tilt toward tech stocks than an S&P 500 fund, and has less of its portfolio in energy stocks. For investors looking to align their portfolio with their values, ESGV is a good low-cost option for U.S. equity exposure, though rivals also offer competitively priced options.

10. NextEra Energy

NextEra Energy, Inc. is an electric power and energy infrastructure company. It operates through the following segments: FPL and NEER. The FPL segment engages primarily in the generation, transmission, distribution, and sale of electric energy in Florida. The NEER segment produces electricity from clean and renewable sources, including wind and solar.

It provides full energy and capacity requirements services, engages in power and gas marketing and trading activities, participates in natural gas production and pipeline infrastructure development, and owns a retail electricity provider. The company was founded in 1984 and is headquartered in Juno Beach, FL.

ESG Companies

Finding companies with strong stocks and growth needn’t be a trade-off with environmental, social and governance values. All of these top ESG companies mix profitability with ethical and social responsibility.

1. Nvidia

Nvidia makes graphics processing units (GPUs) used in gaming consoles, supercomputers, robots, and self-driving cars.

Business highlights: Nvidia is the major GPU supplier in the gaming segment. The company is also well-positioned for long-term growth outside of gaming with its strongholds in artificial intelligence and autonomous cars.

Nvidia’s 10-year total annualized return to shareholders exceeds 50%. Revenue for the 2022 fiscal year grew 61% to $26.91 billion, and GAAP EPS grew 123% to $3.85.

ESG highlights: Nvidia’s ESG initiatives include treating people fairly, strengthening diversity and inclusion, and pursuing social change with its products. Key actions taken under these goals include:

• Continued paying vendors and contractors even while facilities were closed due to COVID-19.
• Tripled the number of Black employees in the Nvidia workforce.
• Developed the DGX SuperPOD, ranked as the fifth most efficient supercomputer in the world.

2. Microsoft

Microsoft is the world’s largest software company and a dominant cloud platform provider.

Business highlights: Microsoft has strong, growing subscription revenue from its software products. The company is also the No. 2 leader in cloud computing with its Azure platform. Azure’s success and Microsoft’s active acquisition pipeline should support strong future growth.

Over the past 15 years, Microsoft shareholders have enjoyed total annualized returns of 25%. In the fiscal year ending June 30, 2021, Microsoft increased revenues 18% to $168 billion and diluted EPS by 40% to $8.05.

ESG highlights: Microsoft earns its status as a prominent ESG company for its leadership in energy conservation. Supported by its partnership with Black-owned solar company Volt Energy, Microsoft is working toward 100% renewable energy by 2025.

By 2050, the company plans to offset all the carbon emissions it’s produced since 1975.

3. Accenture

Accenture is a leading global IT-services firm that provides consulting, strategy, and technology and operational services. These services run the gamut from aiding enterprises with digital transformation to procurement services to software system integration.

The company provides its IT offerings to a variety of sectors, including communications, media and technology, financial services, health and public services, consumer products, and resources. Accenture employs just under 500,000 people throughout 200 cities in 51 countries.

ESG Index

The S&P ESG Index Family offers investors exposure to companies according to their ESG profile in the context of country-specific and regional indices. The index family is based on S&P DJI ESG Scores, based on the results of the annual S&P Global Corporate Sustainability Assessment (CSA).

The index family includes broad market indices like the S&P 500 ESG, S&P Europe 350 ESG, S&P Global 1200 ESG, and S&P Japan 500 ESG, designed to closely track their parent indices with similar risk and return profile and low tracking error.

The key criteria for constituent eligibility and selection in the S&P ESG Index Family are the S&P DJI ESG Scores. The scores contain a total company-level ESG score for a financial year, comprising individual environmental (E), social (S), and economic & governance (G) dimension scores, beneath which there are on average 21 industry-specific criteria scores that can be used as specific ESG signals.

The criteria scores are weighted to eliminate biases among different industries and companies that complete the CSA versus companies that are assessed on the basis of publicly available information. The methodology of the S&P ESG Index Family is constructed to be simple, with a selection process meant to keep index’s industry weights in line with S&P broad market indices.

The index methodology results in improved composite ESG scores, and offers improved ESG performance across each industry group. Learn more about the S&P 500 ESG methodology and the calculation of S&P DJI ESG Scores.

Is ESG Investing Good?

In recent years, ESG, or environmental, social and (corporate) governance investing has taken off, largely due to high investor demand. This approach, while still focusing on fundamental analysis, places an extra emphasis on a business’ impact on the environment and social issues as well as ethical corporate decision-making.

And while it’s great to see the industry shift to morally conscious investing, there are very real pitfalls investors should be aware of.

ESG mutual funds and index funds seem like an easy way to gain exposure to ethical businesses. The problem is they are typically built by looking at top-performing, non-ESG funds and then reducing the exposure to companies with the worst ESG ratings.

So, while investors might be thinking they own slices of the most ethically and socially conscious companies, they probably just own less of the worst. For example, the Blackrock Sustainable Advantage Large Cap Core Fund which is “focused on sustainable ESG characteristics” has ExxonMobil among its top 10 holdings.

Peter Krull, chief executive officer of Equity Earth Advisors, recently wrote the following in a Kiplinger article:

“An ESG portfolio that reduces its allocation in ExxonMobil is less bad. A portfolio that eliminates it entirely is better, but a portfolio that buys First Solar in its place is both sustainable and responsible.”

Unfortunately, right now a lot of ESG funds are just “less bad.” If investors decide to go the fund route, it’s incredibly important to look under the hood at the underlying investments to see if the portfolio is built around ethical business practices or simply one that removed some bad apples.

The best way to invest sustainably is to directly buy the stock of companies with ethical missions and culture as well as a track record of backing it up with measurable results. For investors serious about ESG, the goal shouldn’t be to buy companies that say they are environmentally and socially ethical, but rather ones that show you how they are doing that.

Which ESG Stocks to Buy?

ESG investing is based on the principle of only putting capital into companies that meet high standards in how they treat the environment, their employees and their stakeholders. By giving capital to good companies and depriving poor-scoring companies of capital, over time, it should offer a serious boost to the fortunes of the companies that treat the environment and society well.

Chipotle (CMG)

Chipotle (NYSE:CMG) makes a great burrito, sure. But what makes Chipotle a great ESG investment? Chipotle has long been a leader in sourcing its ingredients from organic sustainably raised sources.

In the past, this has led to supply chain issues, as it has been difficult to source enough meat safely without running into contamination and hygiene issues. Regardless, Chipotle has persisted in its quest for higher-quality ingredients. In 2021, Chipotle bought 8 million pounds of certified humane pork, 11 million pounds of Global Animal Partnership (G.A.P.) certified beef and a whopping 77 million pounds of certified humane chicken.

It’s not just meats, either. The company purchased more than 35 million pounds of locally-grown produce in 2021, along with sourcing its sour cream from pasture-raised dairy cows. The company is also well-known for partnerships with farmers. This has helped repair Chipotle’s reputation following its food safety scandals while also setting a more sustainable path for the restaurant industry as a whole.

Waste Management (WM)

Waste Management (NYSE:WM) is one of the world’s largest waste collection, disposal and recycling companies. This is an area fraught with risk as far as the environment goes. A company that mishandles trash can cause a great deal of harm in terms of runoff and other forms of contamination.

Waste Management, however, is known for its ESG chops. This comes down to a few factors. One, it builds what it deems “modern landfills,” which are designed for a second use. Once a landfill reaches capacity, it can be covered with terrain and turned into a park, solar farm or other adaptive use.

Waste Management also uses its properties to produce solar power, renewable methane gas and other such green energy sources. On top of that, Waste Management has invested in building a green fleet of vehicles to reduce its fossil fuel consumption. With the surge in gasoline and diesel prices lately, Waste Management’s efforts have saved the company money. That’s doing good for the planet and doing good for shareholders at the same time.

Costco (COST)

Companies don’t just make the ESG lists for their environmental efforts. There are also the other two pillars: Social and governance.

Costco (NASDAQ:COST) stands out for its social elements. For decades, Costco has paid its employees far-above-market wages and fat benefits packages. This has given the company an incredibly low turnover rate among its employees. This is a rare feat in the retail industry. It’s not uncommon to find Costco employees who have worked there for ten years or more.

This committed and loyal workforce paid off for the company in spades. During the pandemic, when so many retail companies had trouble finding a capable staff, Costco was able to carry on its business seamlessly. Its commitment to strong labor practices both safeguarded the company’s operations during a crisis and also ensured that Costco would be there to deliver essential goods to communities at the time of highest need.

Thermo Fisher Scientific (TMO)

Thermo Fisher Scientific (NASDAQ:TMO) is the world’s largest life sciences supplies and equipment manufacturer. The company makes an extensive range of products for academic research, biotech and pharmaceutical studies and government orders among other customers.

Thermo Fisher highlighted its importance to national security in 2020 when it was among the first to market with a fast, reliable Covid-19 test. It also provided countless lab supplies and equipment to biotech companies that helped develop the novel Covid-19 vaccines.

While Thermo Fisher is far more than just a Covid-19 company, its exemplary performance during the pandemic demonstrated the importance of having a large capable life sciences company to turn to during a crisis. Even with supply chains breaking down internationally, Thermo Fisher was able to get essential goods to the right places on time. Combine that with a good reputation with its workforce, and Thermo Fisher is a top-notch ESG investment.

Microsoft (MSFT)

Microsoft (NASDAQ:MSFT) often tops ESG lists, as it scores highly in all three categories. And, in ESG-themed exchange-traded funds (ETFs), Microsoft is often the largest holding as well.

Microsoft isn’t a flashy ESG pick by any means. But it gets the little stuff right. It treats its employees well and is known for having a diverse workforce. It has done a lot in terms of lowering the carbon emissions of its offices and server facilities.

And its core products, such as the Office software suite, have arguably done more to reduce paper waste than just about any other invention. Microsoft checks all the right boxes to be a core ESG stock holding in the technology space.

Texas Instruments (TXN)

Texas Instruments (NASDAQ:TXN) is one of the world’s largest semiconductor companies, and quite possibly the largest in analog semiconductors. This field is important because it helps power a variety of niche applications vital to powering forward key innovations such as automation.

The company’s chips for sensing and processing real-world information such as weather data serve various applications integral for making remote work, security and monitoring systems possible. These reduce the amount of transportation that humans have to engage in physically to oversee properties and industrial processes.

Perhaps most vitally, Texas Instruments has built a huge franchise in chips for smart cars. You’ll find Texas Instruments gear in everything from the dashboard entertainment system to radar units and chipsets for remote communications and monitoring.

As cars become autonomous and electric, they rely more on the sorts of equipment that Texas Instruments makes to operate safely and efficiently. Given that electric cars are one of the pieces of low-hanging fruit humanity can harvest on the path to a more sustainable society, Texas Instruments plays a key role in ESG portfolios.

Ball Corp (BLL)

Ball is one of the world’s leading packaging companies, along with having aerospace operations. Investors know the company for making aluminum cans and other such beverage receptacles.

Historically, people drank something and then threw the bottle or can in the trash. It’d then rust away in a landfill. Ball is aiming to change that. The company’s 2030 sustainability goals include reaching 85% recycled content in Ball’s aluminum cans, and helping consumers hit a 90% recycling rate on said cans as well. In addition, Ball will be using all renewable energy at its facilities by 2030 as well.

Ball is an example of how seemingly mundane companies can make a big difference for the environment. Today, far too many beverages are sold in plastic bottles that often cause terrible consequences for the environment. Ball is working to help reduce plastic waste while supporting infinitely recyclable aluminum-based alternatives instead.

What are the Top 3 ESG Stocks?

No company has a perfect ESG profile, just as no company has a perfect balance sheet. In fact, many companies that now lead environmental efforts started out at the back or the middle of the pack. ESG investors can take some credit for many of these glow-ups, filing shareholder proposals on thorny environmental issues, demanding better ESG disclosure and creating an investing milieu that favors sustainability for long-term growth.

Below, we look at the top 3 ESG-friendly stocks

1. NextEra Energy (NEE)

NextEra is the largest electric utility by market cap. Over the last few decades, the company has consistently reduced its emissions through increased renewable energy use. As a result, its CO2 emissions are 55% less than those of an average US utility. NextEra has now set an ambitious goal of reducing CO2 emissions, 2025, by 67% from its 2005 base levels.

This goal effectively means that absolute CO2 emissions would go down by 40% even while NextEra’s energy production would double during that time. To its credit, the company received a best-in-class preparedness assessment by S&P Global Ratings’ ESG Evaluation last year. NextEra has, essentially, received the highest ranking given by S&P to a company within the utility sector.

2. NVIDIA (NVDA)

NVIDIA is well-known for making graphic cards and also for supplying chips to cryptocurrency miners. Minerals are something that NVIDIA uses extensively for its chips and cards; thus, NVIDIA is closely linked to environmental and social issues related to mining.

NVIDIA is a highly-rated ESG company because it has a stringent policy regarding conflict minerals. The company has specific due diligence procedures to ensure that it never uses conflict minerals in its products. The company is also big on the governance aspect as it trains nearly 100% of its customer/supplier/partner-facing workforce for anti-corruption and anti-bribery.

4. Microsoft (MSFT)

Microsoft has taken the lead in its commitment towards carbon mitigation by becoming the first company among its peers to target a “carbon negative” status by 2030. In addition, it has created a $1 billion fund to reduce emissions and start clearing carbon. This ambitious commitment is unprecedented and sets Microsoft apart from its entire sector. As a result, Microsoft received the highest ESG rating of AAA from MSCI ESG Research in September 2019.

Which ESG ETF is Best?

ESG investing is a strategy that channels dollars to companies that meet stringent environmental, social and governance standards. Investing in the best ESG mutual funds, index funds and exchange-traded funds (ETFs) can help you support responsible corporate behavior without sacrificing performance or incurring excessive fees.

While ESG investing alone cannot solve the problems of climate change, social injustice and income inequality, backing companies that actively work to address these challenges is a great place to start.

There are dozens of ESG funds to choose from. Here are the top options.

• Vanguard FTSE Social Index Fund (VFTAX)
• iShares MSCI USA ESG Select ETF (SUSA)
• Parnassus Core Equity Investor (PRBLX)
• iShares Global Clean Energy ETF (ICLN)
• Shelton Green Alpha Fund (NEXTX)
• 1919 Socially Responsive Balanced Fund (SSIAX)
• AllianceBernstein Sustainable Global Thematic Fund (ATEYX)

What is the Largest ESG ETF?

Below is a review of the three largest ESG ETFs available.     

iShares ESG Aware MSCI USA ETF (ESGU)

• Return: -19.21%
• TER: 0.15% 
• AUM: USD$21.6 billion
• Inflows: USD$1.3 billion
• Strategy: General Integration 

ESGU seeks to replicate the MSCI USA Extended ESG Focus Index. The index uses an optimization process to select constituent securities from the MSCI USA Index, its parent index, while maximizing exposure to environmental, social, and governance factors. The tracking error between the index and its parent is capped at 50 basis points under certain constraints.

The ETF follows a holistic approach incorporating ESG considerations in every step of the investment decision-making process and excludes exposure to tobacco, controversial weapons, producers of or ties with civilian firearms, controversial weapons, thermal coal, and oil sands. ESGU holds 307 companies selected from the MSCI USA Index, including large and mid-cap U.S. companies totaling USD21.6 billion of assets under management.  

As with many ESG funds, ESGU has a substantial weighting towards the technology sector, with 28% of the fund allocated to Information Technology securities. Three of the top ten holdings are technology giants, including Apple Inc, Microsoft Corp, Alphabet Inc. (Google’s parent company), and Nvidia Corp.

Despite that, the ETF remains diversified, holding 14.00% of its assets in the Healthcare sector, 10.75% in Financials, and 10.44% in Consumer Discretionary, while the remaining assets are spread across seven different sectors.

iShares MSCI USA SRI UCITS ETF (SUAS)

• Return: -19.04%
• TER: 0.20% 
• AUM: USD$7.9 billion
• Inflows: USD$327 million
• Strategy: Best-In-Class

SUAS seeks to replicate the MSCI USA SRI Select Reduced Fossil Fuels Index. This is an index providing exposure to US large and mid-cap companies exhibiting high minimum levels of environmental, social and governance performance relative to their peers. The index, and inherently the fund, follows a Socially Responsible Investing (SRI) approach while positively screening for companies with strong sustainability profiles from the parent MSCI USA Index.

It avoids companies incompatible with the values screen or those with exposure to fossil fuels through extraction and production activities, power generation activities, or reserves ownership. SUAS invests in 161 holdings totaling USD7.9 billion of assets under management spread across 11 sectors. The fund invests 18.26% of its assets in the Healthcare sector, 14.86% in Information Technology, 14.85% in Financials, and 14.12% in Consumer Discretionary.

The fund applies a 5% cap on each individual issuer’s weight while screening out businesses involved in tobacco, alcohol, gambling, adult entertainment, nuclear power and weapons, conventional and controversial weapons, civilian firearms, and genetically modified organisms.

SUAS is aligned with the 13th Sustainable Development Goal (SDG) and considered an article 8 Fund under the Sustainable Finance Disclosure Regulation (SFDR) – a European regulation where an article 8 fund promotes, among other characteristics, environmental or social characteristics, or a combination of those characteristics, provided that the companies in which the investments are made follow good governance practices.

iShares ESG Aware MSCI EAFE ETF (ESGD)

• Return: -16.77%
• TER: 0.20% 
• AUM: USD$6.6 billion
• Inflows: USD$507 million
• Strategy: General Integration

ESGD follows a holistic approach similar to that of ESGU while seeking to replicate the performance of the MSCI EAFE Extended ESG Focus Index. An optimization process is employed to select constituent securities belonging to the parent index (MSCI EAFE Index) with a budgeted tracking error of 50 basis points.

Companies operating in tobacco, civilian firearms, thermal coal, oil sands, and controversial weapons are not eligible for inclusion. The fund invests in developed market securities, excluding the United States and Canada. 

Most of ESGD’s assets are in the Financials sector with a weight of 17.33%, followed by 14.94% in Industrials and 12.90% in Healthcare.

ESG Framework

ESG frameworks are sets of guidelines that help companies manage their ESG commitments. They also provide direction on how to create ESG reports, which are used to document and disclose ESG progress.

ESG frameworks are created by various organizations including NGOs, stock exchanges, think tanks, and governments. These groups represent the developers and regulators of the ESG ecosystem and act as an intermediator between companies and other ESG stakeholders such as investors and the public.

With greater urgency to ensure ESG commitments are met, these ESG frameworks have been created to standardize the process of ESG reporting. Although there isn’t one standard as of now, efforts are being made to consolidate the frameworks for better consistency, as is the case with financial reporting.

ESG frameworks offer insight into: 

• What ESG metrics you should track and report. For instance, environmental metrics such as air pollution or social metrics such as employee engagement.
• How to structure your ESG report in terms of content.
• How to think about your ESG strategy, processes, tools, and people you will need for the fulfilment of ESG commitments.

Another concept related to ESG frameworks is ESG standards. Whereas ESG frameworks represent a set of guidelines and best practices to follow, ESG standards are the benchmark of ESG commitment companies must achieve.

In some industries where there are greater consequences for ESG failure – like oil and gas for instance – ESG standards may be stricter and have regulatory bodies enforcing the standards.  

ESG Score

Simply explained, an ESG score is a measure of a company’s exposure to long-term environmental, social, and governance risks that are often overlooked during traditional financial analyses. These risks include things like energy efficiency, worker safety, and board diversity, all of which can have significant financial consequences.

A strong ESG rating indicates that a company manages its ESG risks well in comparison to its peers, whereas a poor ESG rating indicates that the company has comparatively higher unmanaged ESG risk exposure. ESG evaluations and scores, when combined with financial analysis, can help investors gain a better understanding of a company’s long-term potential.

ESG rating agencies are third-party companies that specialize in ESG scoring. While there are hundreds of rating agencies that provide ESG scores, some of the prominent ESG score providers include Bloomberg ESG Data Services, Dow Jones Sustainability Index, MSCI ESG Research, Sustainalytics, Thomson Reuters ESG Research Data, S&P Global, ISS ESG, Vigeo/EIRIS, Fitch Ratings, and Moody’s Investors Service.

ESG scores are based on environmental, social, and governance factors and assess issues such as energy use, employee satisfaction, business ethics standards, and executive pay.

Environmental issues include can include factors such as:

• Carbon emissions
• Climate change vulnerability
• Water sourcing
• Biodiversity & land use
• Toxic emissions & waste
• Packaging material & waste
• Electronic waste

Social scores include issues such as:

• Labor management
• Worker safety training
• Supply chain labor standards
• Product safety & quality
• Consumer financial protection

Governance issues can include:

• Composition of the board in terms of diversity & independence
• Executive compensation
• Accounting practices
• Business ethics
• Tax transparency

ESG rating companies also consider the opportunities within different ESG categories. For example, environmental opportunities can include clean technology, green building, and renewable energy while some social opportunities can be better access to communication, finance, or healthcare.

Ultimately, all of these risks and opportunities offer insights into the company that reveals a comprehensive picture of an organization’s environmental footprint and green initiatives, how much the company invests in the community, and how well they’ll hold up against relevant laws and regulations and any legal controversies.

Investors can compare a company’s performance to that of industry peers and companies from other sectors by assigning an ESG score, which can range from 0-100. A score of less than 50 is regarded as poor, while a score of more than 70 is considered excellent.

Ratings can also be described as either excellent, good, average, or bad:

• An excellent ESG score indicates that best practices are being followed in all ESG areas and a company has little to no internal or external problems.
• A good ESG score signifies that a company is meeting best practices in each ESG category and has a low negative impact on people or the planet.
• An average ESG score indicates that companies are not on track to meet ESG benchmarks or actively working toward meaningful ESG goals.
• A poor score indicates that no best practices are being followed and are indicative of a company that is negatively impacting the environment and has employees who are being poorly treated.

ESG Investment

ESG has really gone mainstream because of how important the framework has become in the investment community. There are a growing number of ESG rating agencies and reporting frameworks, all of which have evolved to improve the transparency and the consistency of the ESG information that firms are reporting publicly.

The Capital Markets can be a powerful tool to create change. By restricting access to capital (or making the terms under which it’s available less favorable), bad actors may be incentivized to improve performance across E, S, or G measures. Conversely, rewarding companies and their management teams that are performing well against ESG factors has an equally positive impact on encouraging continuous improvement.

Many ESG investment vehicles have emerged, including green bonds, mutual funds, ETFs, and index funds (among others). These publicly traded instruments make it easier for investors to align their investment decisions more closely with their own beliefs and values around E, S, or G criteria.

ESG Goverance

The “G” in ESG pertains to the governance factors of decision-making, from sovereigns’ policymaking to the distribution of rights and responsibilities among different participants in corporations, including the board of directors, managers, shareholders and stakeholders.

Governance factors indicate the rules and procedures for countries and corporations, and allow investors to screen for appropriate governance practices as they would for environmental and social factors. A corporation’s purpose, the role and makeup of boards of directors, shareholder rights and how corporate performance is measured are core elements of corporate governance structures.

S&P Global research on governance factors has shown that companies that rank well below average on good governance characteristics are particularly prone to mismanagement and risk their ability to capitalize on business opportunities over time. S&P Global assesses companies’ governance performance by assessing four factors: structure and oversight, code and values, transparency and reporting, and cyber risk and systems.

Understanding the “G” in ESG is critical, as governance risks and opportunities will likely increase as social, political, and cultural attitudes continue to evolve. S&P Global evaluates governance factors in all of its ESG Solution offerings.

Notably, in addition to determining whether the entity is actively and effectively managing its exposure to governance risks and opportunities, the S&P Global Ratings ESG Evaluation weighs potential environmental and social risks to determine an entity’s capacity to operate successfully.

ESG Meaning in Business

ESG is a collective term for a business’s impact on the environment and society as well as how robust and transparent its governance is in terms of company leadership, executive pay, audits, internal controls, and shareholder rights.

It measures how your business integrates environmental, social, and governance practices into operations, as well as your business model, its impact, and its sustainability.

The three components that make up ESG are environmental, social and governance.

Growth of ESG Investing

Global investor demand for ESG products continues to provide opportunity for organic AUM growth. Recent surveys indicate that client demand continues to be a catalyst for investment managers’ consideration of sustainability investment metrics in their decision-making processes.

At their current growth rate, ESG-mandated assets (defined here as professionally managed assets in which ESG issues are considered in selecting investments or shareholder resolutions are filed on ESG issues at publicly traded companies) are on track to represent half of all professionally managed assets globally by 2024

In the United States, fund managers launched 149 mutual funds and ETFs with ESG characteristics or objectives in 2021, comprising about 22% of all fund launches. The one-year growth rate of ESG fund launches in the United States is more than twice that of funds without, 80% versus 34%, respectively.

Who is Responsible for ESG in a Company?

ESG is a key part of today’s corporate governance landscape, but who (or what) has primary responsibility at the board level to oversee environmental, social, and corporate governance matters? With investors laser-focused on ESG, boards must consider and evaluate differing ESG oversight philosophies and decide, based on the businesses they oversee and the work needed to discharge board oversight, the most sensible approach for assignment of ESG responsibilities within each board entity.

Should each board member assume all ESG responsibilities? Should ESG responsibilities be assigned to an existing committee? Or should the board create a new committee with specific ESG assignments and roles?

The answers to these questions will depend upon each company’s board structure and responsibilities. For some companies, that may mean creating a new and separate ESG committee. For others, the right approach may be to delegate oversight of some ESG issues within existing board committees. One size will not fit all boards.

No matter how well equipped the board and subcommittees are in their ESG oversight, company management also bears responsibility for implementing ESG. Having a strong ESG program at the management level enables proper board oversight and evaluation, and also allows sufficient and appropriate responses to investor queries.

If, for example, an investor questions the origins of a company’s supply chain, the makeup of human capital, or a report concerning carbon emissions, the board must be able to rely upon management’s ability to report the relevant metrics to the appropriate board subcommittee (or the board itself).

While the board, and its subcommittees, provide business oversight, these entities do not have the independent capability to gather material facts (absent the hiring of independent counsel). Having a program in place that provides appropriate reporting to the board is a critical aspect of a functional ESG organizational reporting structure.

There is no “one size fits all” approach with respect to board responsibility for ESG oversight, and each board must evaluate its own circumstances, expertise, industry and composition to determine how best to discharge its ESG responsibilities. Investors are raising the stakes on ESG matters. Companies should examine ESG assignments within their boards to ensure compliance with the new mandates, and to ensure future ESG resiliency.

ESG Investing Companies in India

Along with social prosperity and environmental sustainability, an efficient environmental, social, and governance (ESG) proposition leads to higher value creation for the organization. This is the reason why ESG-oriented investments have experienced an accelerated exponential growth.

ESG funds are funds that allocate their corpus in stocks of companies that are evaluated on the basis of environmental, social, and governance factors. These companies are highly sustainable in their operations and attract investors.

List of Esg Mutual Funds in 2022

Fund name	AUM

Aditya Birla Sun Life ESG Fund (G)	1012.437 Cr	-10.8%	–	11.6%
SBI Magnum Equity ESG Fund (G)	4670.396 Cr	-2.9%	13.9%	11.9%
HDFC Housing Opportunities Fund (G)	1239.336 Cr	1.7%	12.2%	5.9%
Mirae Asset Nifty 100 ESG Sector Leaders Fund of Fund (G)	136.578 Cr	-5.4%	–	14.8%
Quantum India ESG Equity Fund (G)	62.042 Cr	-5.3%	16.9%	16.8%
Axis ESG Equity Fund (G)	1801.514 Cr	-15%	–	15%
Invesco India ESG Equity Fund (G)	748.825 Cr	-9.7%	–	12.4%
ICICI Prudential ESG Fund (G)	1416.493 Cr	-7.6%	–	14.3%
Quant ESG Equity Fund (G)	99.609 Cr	17.6%	–	51.7%
Kotak ESG Opportunities Fund (G)	1440.073 Cr	-8.8%	–	8.1%

ESG Investing Companies UK

Zouk capital

Zouk Capital is a private equity and infrastructure fund manager dedicated to investing in the sustainable economy. Zouk’s investment strategy focuses on the opportunities emerging at the intersection of infrastructure, technology and sustainability that stem from some of the most pressing environmental and social challenges facing the world today.

Based in London, Zouk manages approximately £1bn, including the £420m Charging Infrastructure Investment Fund (CIIF), sponsored by the UK Government and focused on the public EV charging market.

ULEMCo

Amanda Lyne and Paul Turner formed ULEMCo in 2014. The idea behind this Liverpool-based company was to commercialise intellectual property and capability in hydrogen combustion engine technology.

They convert vehicles to run on commercially available hydrogen and work with HGV and LGV fleet operators with zero-emission hydrogen vehicles. With HGV’s accounting for 18% of the UK’s greenhouse gas emissions, their work is an important landmark in the future of delivering goods sustainably.

Jigsaw24

Founder and CEO Whittle focuses on enriching Jigsaw24’s company culture by driving diversity, wellbeing, sustainability and community. Besides ensuring they meet ESG frameworks, he encourages every individual across the company to lead with their own passionate initiatives.

This has resulted in amazing business firsts, such as partnering with a local university to create a bursary for a female computer science student, a small but real way of addressing the lack of women in tech. He also oversees the firm’s carbon reduction plan including offsetting 800 tonnes CO₂e via 3,413 native trees.

They also switched their HQ to 100% green energy, gaining ISO Energy and Environmental Management credentials, and setting up EV purchase schemes and charge points for staff. Jigsaw24’s goal is to achieve net zero carbon by 2025.

bClear communications

bClear Communications has recently gone carbon neutral, having first reduced and now offset its annual carbon emissions. The company has always held an environmentally conscious stance, emitting minimal emissions since it was founded in 2005 and through its ESG policy has been able to achieve its carbon neutral status early. Its offsetting scheme enables the Portishead-based Specialist PR agency to support safe water projects implemented throughout five districts in the Northern and Eastern regions of Uganda.

Best.Energy

For 10 years, Wrigley has been the CEO of South West based Best.Energy – driving them from a small start-up in Cornwall to a flourishing international business; with over 100 active distributors worldwide, and installed technologies producing 2.1 billion data points every day globally.

The company’s stated mission is to help people around the world to ‘switch on to efficiency’. His commitment to spreading that message has taken Best.Energy around the world; with big brands like 7-Eleven, Wates, and McDonald’s – all on their rapidly growing client list.

Everflow Water

After setting up the business in 2015, Gill has driven his team to work with other industry leaders to ensure fair pricing, and lobby for reform change for the water industry. Under his leadership, Everflow Water has even created software to improve quoting, billing, and the overall experience for customers.

He is now on a mission to encourage other business leaders to make a difference to the environment by pledging to save water within their companies through the #100Pledges campaign.

ESG Investing Statistics

Global ESG assets may surpass $41 trillion by 2022 and $50 trillion by 2025, one-third of the projected total assets under management globally, according to a new report by Bloomberg Intelligence (BI). This trend continues the rise of ESG assets after they surpassed $35 trillion in 2020.

According to BI, ESG assets surpassed $35 trillion in 2020, up from $30.6 trillion in 2018 and $22.8 trillion in 2016, to become a third of the total global assets under management, according to the Global Sustainable Investment Association, in line with Bloomberg Intelligence’s base-case scenario. The report highlights that, assuming 15% growth, a third of the pace of the past five years, ESG assets could exceed $41 trillion by 2022 and $50 trillion by 2025.

Europe accounts for half of global ESG assets and dominated the market until 2018. The U.S., however, is taking the lead with more than 40% growth in the past two years and is expected to exceed $20 trillion in 2022, even if its pace of growth halves this year.

ESG Investing Jobs

There are many possible careers in ESG within just about every industry. Jobs that deal with assessing performance, ethics, governance and risk related to the environment and social realm can be considered holistically ESG related.

This can range from responsible ESG investing jobs to sustainability jobs in the government sector. Social governance jobs are also ESG as they are tasked with managing human risks and creating sustainable, ethical returns.

ESG professionals are critical in accurately measuring the sustainability and societal impact of an investment, professional operation, government program, or environmental initiative before they are put into effect.

Here are some great options that will lead to even more important roles in the sustainability sector down the line.

Environmental Protection Specialist

Have you ever wanted to be a bodyguard but lacked physical strength? If so, an ESG career path may be your second chance. The role of an environmental protection specialist is protecting the earth, but the main difference is that you use mental brawn to accomplish your goals.

They work to identify, prevent, and repair damage caused by human pollution. This entails collecting samples from the environment and creating detailed reports that reveal potential or actual threats to the environment.

The reports are used to help repair the damage from pollution and also restore irrigation in key areas. The processes also seek to change local behaviors in the community or even by reclaiming polluted areas.

As a cherry on top, they can also expect to make 70k per year.

Urban Planner

With an average salary of around 60k per year, not only is this sustainability-focused job a way to shape change, but it is also lucrative. ESG-based urban planners work with organizations, companies, and even governments.

They help plan how to use the land to benefit the project while also working to mitigate the negative impact on the surrounding environment. Road systems, communities, retail parks, city layouts, and even green areas are all mapped out by an urban planner.

In addition to planning the design of an area, they will also create complementary programs that account for population growth in the area. An ESG urban planner can coordinate restoration projects, building modernization, and even new construction.

ESG Energy Manager

ESG Energy managers are tasked with auditing the use of environmental and financial, and resources. Both the private and the public sectors use these types of managers in a variety of situations. Most municipality planning, new development, and government contracts will have an energy manager assigned to each project.

They are also in charge of designing energy-efficient projects that help control water and energy usage. Design specifications, budget restrictions, and legal requirements set forth at the start of a project that an ESG manager will be tasked with ensuring are enforced.

Manufacturing is also very labor and energy-intensive. As such, the majority of ESG energy managers will find a diverse range of positions available in the sector, making it one of the best-paying jobs in energy.

Certification is required on a regular basis as well. Being that these positions require an in-depth knowledge of resource management, it is a great way to set a strong foundation for a career in sustainability.

Environmental Consultant

For those looking to work on a contractual basis in both the private and public sectors, a career as an environmental consultant is a great way to get a head start in the sustainability field.

Their duties tend to be geared towards working with water treatment facilities and other environmental agencies with services or products that affect the environment.

An environmental consultant will help target, identify and recommend solutions for common concerns such as soil contamination, water pollution, and air quality control.

A consultant will ensure that laws and regulations are being met and that the environmental protocol of the area is part of the planning process. In some cases, an ESG environmental consultant may work with groups, companies, or organizations to come into complaints to prevent fines or avoid legal action.

ESG Air Quality Engineer

Air quality is a critical part of the environment. Sustainability efforts as an ESG Air quality engineer work with the environmental effects of factory emissions, smog, natural fires, and more.

In this role, you will be tasked with using highly efficient and carefully calibrated monitoring practices to study air quality and create a detailed analysis or computer model of the results.

In addition to monitoring, they are also in charge of creating standards for air equity which is an essential part of environmental sustainability.

When hired by government agencies, ESG Air quality engineers are responsible for tracking pollution in a specific area and, in many cases enforcing fines and triggering legal action against those who are breaking the rules.

ESG Air quality engineers can also be hired privately by commercial or industrial clients to help monitor emissions and create solutions to help reduce or mitigate their pollutant output.

Energy & ESG Analyst

Energy & ESG Analysts have complex jobs that are in high demand. This is one of the best jobs to take if you want to have a successful career in the sustainability field.

This job covers everything regarding energy efficiency, clean power, renewable solutions, and more. As an Energy & ESG Analyst, your job will be data-oriented, and the bulk of your time will be spent analyzing reams of collected data.

Once the data is analyzed, you will be responsible for recommending improvements and creating energy models for communities, buildings, planned projects, and more. In most cases, you will also need to provide technical support to contractors and perform various tests to ensure energy efficiency.

In terms of moving on to a career in sustainability, working as an Energy & ESG Analyst is one of the best foundations to have when building your eco-centered resume.

ESG Investing Certificate

The CFA Institute Certificate in ESG Investing offers you both practical application and technical knowledge in the fast-growing field of ESG investing — an opportunity to both accelerate progress and demonstrate purpose.  

The certificate and learning materials were developed by leading practitioners for practitioners, and have been recognized by the UN Principles for Responsible Investment (PRI), an independent body that seeks to encourage investors to use responsible investment to enhance returns and better manage business risks. 

The Certificate in ESG Investing is owned, administered, and awarded globally by CFA Institute having previously been developed and awarded by CFA Society UK.

An independent evaluation found the following levels of comparability for the Certificate in ESG Investing:

Country	Comparable To
USA	Associate degree standard
UK	RQF Level 4
Canada	OQF Level 7
India	NSQF Level 6
Hong Kong	HKQF Level 4
Singapore	Singaporean Polytechnic Diploma standard
Australia	AQF Level 5
Brazil	Curso Superior de Formação Especifíca (Higher Education Diploma of Specific Training)
China	Preparatory Technician Certificate standard
Japan	Associate degree standard
South Africa	S.A. NQF Level 6
France	NQF Level 4

ESG Fund

ESG funds are portfolios of equities and/or bonds for which environmental, social and governance factors have been integrated into the investment process. This means the equities and bonds contained in the fund have passed stringent tests over how sustainable the company or government is regarding its ESG criteria.

In 2022, global financial regulators (most prominently in the US and EU) created and implemented more stringent disclosure requirements around portfolio construction. It was an effort to reduce false representations or otherwise misleading ESG claims made by fund managers. The act of misrepresenting ESG claims is known as greenwashing.

Disclosure around fund performance is also required; this is to protect retail investors. In that sense, ESG funds aren’t all that different from traditional funds.

ESG Mutual Funds

ESG mutual funds are professionally managed funds that contain stocks and bonds with predetermined ESG criteria. They offer investors the benefits of diversification, liquidity, and professional management. 

Just like companies being traded on a stock exchange, mutual funds are required by law to disclose their performance and associated fund activities publicly.

ESG ETFs

ESG Exchange Traded Funds (ETFs) are similar to mutual funds in the sense they contain a variety of ESG-centric stocks, bonds, and other financial instruments. However, unlike a mutual fund (which is bought and sold from the issuer), ETFs are traded freely on stock exchanges.

In general, ETFs tend to have lower fees, including MERs (management expense ratios), than mutual funds.

ESG Index Funds

An ESG Index fund is a type of ESG mutual fund. While ESG mutual funds are actively managed by a portfolio manager, an ESG index fund passively tracks the ESG-centric companies that trade on an index, such as the S&P 500.  

Examples of ESG index funds include Vanguard’s FTSE Social Index Fund (VFTAX) and Fidelity U.S. Sustainability Index Fund (FITLX).

ESG Policy

If your ESG strategy is the bedrock of your ESG ambition, your ESG policies are the building blocks you use to achieve it. Setting ESG goals is one thing; devising a strategy to achieve them another. But it’s via your processes, procedures and policies that ESG is brought to life. As with any other area of business, policy management is vital to good governance.  

Read Also: What are Cross Border Payments?

ESG, as a relatively recent addition to the business lexicon, may be lagging behind some other areas when it comes to setting, documenting and measuring compliance with corporate policy. But that’s all the more reason to prioritize ESG policy setting.

A corporate ethos that prioritizes ESG is:

• Recognized as being the right thing to do
• Increasingly acknowledged as sound commercial sense, with investor pressures and trends towards ESG disclosures and risk scores setting the agenda
• In line with an increasingly ESG-focused business landscape

Today, ESG considerations drive investment decisions (sustainable investments now total $35.3 trillion, accounting for roughly a third of all global assets under management) and corporate direction. A dedicated strategy for tackling your ESG challenges and evidencing your progress is vital.

Organizational leaders know that vague aspirations and ill-defined aims don’t lead to tangible success. You need to set clear and measurable objectives and put in place policies that define and guide the path to success.  

ESG Investment Managers

With investors expressing frustration over the lack of quality and consistency when it comes to environmental, social, and governance information, being an effective communicator can help ESG managers stand out.

The best of these is BNP Paribas, followed by Robeco and Schroders, according to the latest ESG Report by Peregrine Communications. These managers received the highest Message Penetration Scores, ratings developed by Peregrine to assess the effectiveness of money managers’ ESG communication strategies. 

Other top players included NN Investment Partners, Pictet Asset Management, abrdn, and Amundi Asset Management, according to the report. European managers dominated the list, accounting for all of the top-ten spots. Alliance Bernstein, Nuveen, and PIMCO were the only U.S.-based managers among the 25 best ESG marketers.

An ESG consultant’s work falls under the umbrella of Sustainable Investing. Their job is to identify any opportunities that exist in a company’s portfolio for them to make further investments as well as divest from those which are not environmentally or socially responsible.