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WHAT IS ESG?

Promoting sustainable investment in response to non-financial factors such as climate change, human rights and managing financial risk.

There has been awareness of the need for a different approach to financial governance for some time, prompted in part by the global financial crisis in 2007/08. Sustainability and accountability have become increasingly important when it comes to corporate financial behaviour. Environmental, Social and Governance (ESG) factors are key to identifying and analysing not only where is best to invest, but also areas for focus within financial businesses themselves.

Environmental

This is the sustainability factor, which considers the impact that a business has on the environment. This can include such factors as energy consumption, green policies and emission levels of the company, as well as the sustainability of its investments.

Social

This is the people factor or the social responsibility approach. It includes supporting the mental and physical wellbeing of a business’s staff as well as supporting opportunities for the local community and others, through charitable giving or investments.

Governance

This is the corporate responsibility factor, including a business’s approach to ethical decision-making. Staff training, from the leaders down, can help to maintain the right ethical ethos. It also includes areas such as business policies, board diversity, accountancy standards and executive pay.