Environmental, social and governance
Environmental, social and governance (ESG) is an umbrella framework for considering how environmental conditions, relationships with people and society, and organizational governance affect or are affected by an entity. ESG is not one universal standard, score, or investment strategy; particular frameworks define different topics, users, methods, and disclosure requirements.
In simple terms
The three letters organize a wide field of information. Environmental topics can include climate, pollution, water, and biodiversity; social topics can include workers, communities, consumers, and human rights; governance topics can include oversight, ethics, controls, and accountability. Organizations, lenders, and investors use ESG information for different purposes, so two assessments may reach different results without either measuring the same thing incorrectly. A user should always ask which framework, boundary, time period, evidence, and decision the ESG label represents.
Why it matters
ESG provides shared shorthand for sustainability-related considerations in management, disclosure, and finance. Used carefully, it can connect corporate sustainability with governance decisions and a materiality assessment, reporting standards, and investment analysis. Used vaguely, it can hide important differences between impacts on people and the environment, financial effects on an organization, and the criteria behind a rating or product claim.
Example
For example, an investor may examine a manufacturer's energy transition risks, worker safety record, board oversight, and anti-corruption controls. Calling that work ESG does not explain the weighting or decision rule, so the investor also documents its methodology, data sources, investment objective, and limitations.
How it differs
Corporate sustainability
ESG is an organizing lens for environmental, social, and governance information used in reporting, management, and investment analysis; corporate sustainability is the broader organizational approach to long-term environmental, social, and economic durability.
Corporate social responsibility
ESG is a broad organizing lens used in reporting, management, and investment analysis. Corporate social responsibility describes an enterprise's responsibility for its impacts and the way it integrates that responsibility into conduct and strategy.