Environmental, social and governance (ESG) criteria are a set of standards for a company’s operations that socially conscious investors use to screen potential investments. Environmental criteria consider how a company performs as a steward of nature. Social criteria examine how it manages relationships with employees, suppliers, customers, and the communities where it operates. Governance deals with a company’s leadership, executive pay, audits, internal controls, and shareholder rights.ESG criteria can also help investors avoid companies that might pose a greater financial risk due to their environmental or other practices.
- Environmental, social, and governance (ESG) criteria are an increasingly popular way for investors to evaluate companies in which they might want to invest.
- Many mutual funds, brokerage firms, and robo-advisors now offer products that employ ESG criteria.
- ESG criteria can also help investors avoid companies that might pose a greater financial risk due to their environmental or other practices.
In recent years, as younger investors, in particular, have shown an interest in putting their money where their values are, brokerage firms and mutual fund companies have begun to offer exchange-traded funds (ETFs) and other financial products that follow ESG criteria. Robo-advisors such as Betterment and Wealthfront have also used them to appeal to these investors. According to the most recent report from US SIF Foundation, investors held $11.6 trillion in assets chosen according to ESG criteria at the beginning of 2018, up from $8.1 trillion just two years earlier.