ESG stands for Environmental, Social, and Governance. These three broad categories are used to evaluate the sustainability and ethical impact of an investment in a company or business. Here’s what each component generally focuses on:

Environmental criteria consider how a company performs as a steward of nature. This includes its energy use, waste, pollution, natural resource conservation, and treatment of animals. The criteria can also help evaluate any environmental risks a company might face and how the company is managing those risks.

Social criteria examine how it manages relationships with employees, suppliers, customers, and the communities where it operates. This can include labor practices, employee health and safety, and the company’s impact on the communities where it operates.

Governance deals with a company’s leadership, executive pay, audits, internal controls, and shareholder rights. This aspect looks into how a company is governed, particularly in terms of transparency, accountability, and business ethics.

These factors are increasingly important to investors, as they can affect a company’s profitability, risk profile, and overall sustainability.