View source for Finance:Environmental, social, and corporate governance

{{Short description|Business framework}}
{{Governance|Related topics}}

'''Environmental, social, and corporate governance''' ('''ESG'''), also known as '''environmental, social, governance''',<ref>{{Cite news |last=Gelles |first=David |date=2023-02-28 |title=How Environmentally Conscious Investing Became a Target of Conservatives |language=en-US |work=The New York Times |url=https://www.nytimes.com/2023/02/28/climate/esg-climate-backlash.html |access-date=2023-03-02 |issn=0362-4331}}</ref> is a business framework for considering environmental issues and social issues in the context of [[Finance:Corporate governance|corporate governance]]. 
It is designed to be embedded into an organization's strategy that considers the needs and ways in which to generate value for all organizational stakeholders (such as employees, customers, suppliers, and financiers).

Since 2020, there has been accelerating incentives from the {{wipe|United Nations}} (UN) to overlay ESG data with the Sustainable Development Goals (SDGs), based on their work, which began in the 1980s.<ref>{{Cite web |title=17 Goals for People, for Planet |url=https://www.un.org/sustainabledevelopment/development-agenda/ |access-date=2022-05-21 |publisher=United Nations |language=en-US}}</ref>
The term ESG was popularly used first in a 2004 report titled "Who Cares Wins", which was a joint initiative of financial institutions at the invitation of UN.<ref>{{Cite web |title=Who Cares Wins –The Global Compact Connecting Financial Markets to a Changing World |url=https://www.unepfi.org/fileadmin/events/2004/stocks/who_cares_wins_global_compact_2004.pdf |access-date=2022-05-21 |publisher=UN Environment Programme – Finance Initiative |language=en-US}}</ref>  In less than 20 years, the ESG movement has grown from a [[Philosophy:Corporate social responsibility|corporate social responsibility]] initiative launched by the United Nations into a global phenomenon representing more than US$30 trillion in assets under management.<ref>{{Cite web |title=Global sustainable investing assets surged to $30 trillion in 2018 |url=https://www.greenbiz.com/article/global-sustainable-investing-assets-surged-30-trillion-2018 |access-date=2021-08-09 |website=Greenbiz}}</ref> 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 [[Company:Morningstar, Inc.|Morningstar, Inc.]]<ref>Juliet Chung and Dave Michaels, "ESG Funds Draw SEC Scrutiny", ''Wall Street Journal''. December 16, 2019.</ref> 

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,<ref>{{Cite journal |last1=Berk |first1=Jonathan |last2=van Binsbergen |first2=Jules H. |date=2021-08-21 |title=The Impact of Impact Investing |url=https://papers.ssrn.com/abstract=3909166 |location=Rochester, NY |publisher= |doi=10.2139/ssrn.3909166 |ssrn=3909166 |s2cid=239707705}}</ref> and have accused the movement of [[Social:Greenwashing|greenwashing]].<ref>{{Cite news |last=Armstrong |first=Robert |date=2021-08-24 |title=The ESG investing industry is dangerous |work=Financial Times |url=https://www.ft.com/content/ec02fd5d-e8bd-45bd-b015-a5799ae820cf |access-date=2022-01-15}}</ref>

== Dimensions ==
#Environmental aspect: Data is reported on [[Earth:Climate change|climate change]], [[Earth:Greenhouse gas emissions|greenhouse gas emissions]], [[Biology:Biodiversity loss|biodiversity loss]], deforestation/[[Biology:Reforestation|reforestation]], pollution mitigation, [[Physics:Efficient energy use|energy efficiency]] and water management.
#Social aspect: Data is reported on employee safety and health, working conditions, [[Social:Diversity, equity, and inclusion|diversity, equity, and inclusion]], and conflicts and humanitarian crises,<ref>{{Cite web|title=ESG (Environmental, Social, and Governance)|url=https://corporatefinanceinstitute.com/resources/knowledge/other/esg-environmental-social-governance/ |access-date=2022-01-22| publisher =Corporate Finance Institute|language=en-US}}</ref> and is relevant in risk and return assessments directly through results in enhancing (or destroying) [[Finance:Customer satisfaction|customer satisfaction]] and [[Social:Employee engagement|employee engagement]].
#Governance aspect: Data is reported on [[Finance:Corporate governance|corporate governance]] such as preventing bribery, corruption, Diversity of Board of Directors, executive compensation, cybersecurity and [[Privacy|privacy]] practices, and management structure.

== History ==
Historical decisions of where financial assets would be placed were based on various criteria with financial return being predominant.<ref name=Coleman>Coleman, James S, "Social Capital in the Creation of Human Capital", ''American Journal of Sociology'', Vol. 94, 1988.{{page needed|date=July 2022}}</ref> However, there have always been many other criteria for deciding where to place money—from political considerations to heavenly reward. It was in the 1950s and 60s that the vast pension funds managed by the trades unions recognised the opportunity to affect the wider social environment using their capital assets<ref>Roberts, B.C., ''Trade Union Government and Administration in Great Britain'' (Harvard University Press, 1958){{ISBN?}}{{page needed|date=July 2022}}</ref>—in the {{wipe|United States}} the International Brotherhood of Electrical Workers (IBEW) invested their considerable [[Finance:Capital (economics)|capital]] in developing [[Finance:Affordable housing|affordable housing]] projects, whilst the United Mine Workers invested in health facilities.<ref>Gray, Hillel, ''New Directions in the Investment and Control of Pension Funds'', Investor Responsibility Research Center, 1983.{{ISBN?}}{{page needed|date=July 2022}}</ref>

In the 1970s, the worldwide abhorrence of the apartheid regime in {{wipe|South Africa}} led to one of the most renowned examples of selective [[Finance:Disinvestment|disinvestment]] along ethical lines. As a response to a growing call for [[Finance:International sanctions|sanctions]] against the regime, the Reverend Leon Sullivan, a board member of [[Company:General Motors|General Motors]] in the United States, drew up a Code of Conduct in 1977 for practising business with South Africa.<ref>{{Cite web|title=ESG Investing Comes of Age|url=https://www.morningstar.com/features/esg-investing-history|access-date=2022-01-19|website= Morningstar}}</ref> What became known as the Sullivan Principles  (Sullivan Code) attracted a great deal of attention and several reports were commissioned by the government to examine how many US companies were investing in South African companies that were contravening the Sullivan Code. The conclusions of the reports led to mass disinvestment by the US from many South African companies. The resulting pressure applied to the South African regime by its business community added great weight to the growing impetus for the system of apartheid to be abandoned.<ref>{{cite web|url=http://www.thesullivanfoundation.org/ |title=The Leon H. Sullivan Foundation |access-date=11 November 2018|archive-url=https://web.archive.org/web/20170619122409/http://thesullivanfoundation.org/|archive-date=19 June 2017|url-status=dead|df= dmy-all}}</ref>

In the 1960s and 1970s, [[Biography:Milton Friedman|Milton Friedman]], in direct response to the prevailing mood of philanthropy argued that social responsibility adversely affects a firm's financial performance and that regulation and interference from "big government" will always damage the macro economy.<ref>Freidman, Milton and Rose, ''[[Finance:Free to Choose|Free to Choose: A Personal Statement]]''. Harcourt, 1980.{{ISBN?}}{{page needed|date=July 2022}}</ref> His contention that the valuation of a company or asset should be predicated almost exclusively on the pure bottom line (with the costs incurred by social responsibility being deemed non-essential), underwrote the belief prevalent for most of the 20th century (see [[Philosophy:Friedman doctrine|Friedman doctrine]]). Towards the end of the century, however, a contrary theory began to gain ground. In 1988 James S. Coleman wrote an article in the ''[[Social:American Journal of Sociology|American Journal of Sociology]]'' titled "Social Capital in the Creation of Human Capital", the article challenged the dominance of the concept of 'self-interest' in economics and introduced the concept of [[Social:Social capital|social capital]] into the measurement of value.<ref name=Coleman/>

There was a new form of pressure applied, acting in a coalition with environmental groups: it used the [[Finance:Leverage|leveraging]] power of its collective investors to encourage companies and capital markets to incorporate environmental and social challenges into their day-to-day decision-making.

Although the concept of selective investment was not a new one, with the demand side of the investment market having a long history of those wishing to control the effects of their investments, what began to develop at the turn of the 21st century was a response from the supply-side of the equation. The investment market began to pick up on the growing need for products geared towards what was becoming known as the Responsible Investor. In 1998 [[Biography:John Elkington (business author)|John Elkington]], co-founder of the business consultancy SustainAbility, published ''Cannibals with Forks: the Triple Bottom Line of 21st Century Business'' in which he identified the newly emerging cluster of non financial considerations which should be included in the factors determining a company or equity's value. He coined the phrase the "[[Social:Triple bottom line|triple bottom line]]", referring to the financial, environmental, and social factors included in the new calculation.<ref name="Elkington 2018">{{cite web | last=Elkington | first=John | title=25 Years Ago I Coined the Phrase “Triple Bottom Line.” Here’s Why It’s Time to Rethink It. | website=Harvard Business Review | date=13 September 2018 | url=https://hbr.org/2018/06/25-years-ago-i-coined-the-phrase-triple-bottom-line-heres-why-im-giving-up-on-it | access-date=26 May 2023}}</ref><ref name="Elkington 1999">{{cite book | last=Elkington | first=J. | title=Cannibals with Forks: The Triple Bottom Line of 21st Century Business | publisher=Capstone | series=A Capstone paperback | year=1999 | isbn=978-1-84112-084-3 | url=https://books.google.com/books?id=Fl1gQgAACAAJ | access-date=25 May 2023}}</ref> At the same time, the strict division between the environmental sector and the financial sector began to break down. In the [[Finance:City of London|City of London]] in 2002, Chris Yates-Smith, a member of the international panel chosen to oversee the technical construction, accreditation, and distribution of the Organic Production Standard and founder of one of the City of London's leading branding consultancies, established one of the first environmental finance research groups. The informal group of financial leaders, city lawyers, and environmental stewardship NGOs became known as ''The Virtuous Circle'', and its brief was to examine the nature of the correlation between environmental and social standards and financial performance. Several of the world's big banks and investment houses began to respond to the growing interest in the ESG investment market with the provision of sell-side services; among the first were the Brazilian bank Unibanco, and Mike Tyrell's Jupiter Fund in London, which used ESG based research to provide both [[Company:HSBC|HSBC]] and Citicorp with selective investment services in 2001.

In the early years of the new millennium, the major part of the investment market still accepted the historical assumption that ethically directed investments were by their nature likely to reduce financial return. Philanthropy was not known to be a highly profitable business, and Friedman had provided a widely accepted academic basis for the argument that the costs of behaving in an ethically responsible manner would outweigh the benefits. However, the assumptions were beginning to be fundamentally challenged.  In 1998 two journalists Robert Levering and Milton Moskowitz brought out the "Fortune 100 Best Companies to Work For", initially a listing in the magazine ''Fortune'', then a book compiling a list of the best-practicing companies in the United States with regard to [[Philosophy:Corporate social responsibility|corporate social responsibility]] and how their financial performance fared as a result.  Of the three areas of concern that ESG represented, the environmental and social had received most of the public and media attention, not least because of the growing fears concerning [[Earth:Climate change|climate change]]. Moskowitz brought the spotlight onto the corporate governance aspect of responsible investment. His analysis concerned how the companies were managed, what the stockholder relationships were, and how the employees were treated. He argued that improving corporate governance procedures did not damage financial performance; on the contrary, it maximized productivity, ensured corporate efficiency, and led to the sourcing and utilizing of superior management talents. In the early 2000s, the success of Moskowitz's list and its impact on companies' ease of recruitment and brand reputation began to challenge the historical assumptions regarding the financial effect of ESG factors.<ref name="autogenerated2003">Ballou, B., Godwin, Norman H., Toppe Shortridge, Rebecca, "Firm Value and Employee Attitudes on Workplace Quality", (''Accounting Horizons'', Vol. 17, 2003)</ref> In 2011, Alex Edmans, a finance professor at Wharton, published a paper in the ''Journal of Financial Economics'' showing that the "100 Best Companies to Work For" outperformed their peers in terms of stock returns by 2–3% a year over 1984–2009, and delivered earnings that systematically exceeded analyst expectations.<ref>Edmans, Alex, "[http://ssrn.com/abstract=985735Does the Stock Market Fully Value Intangibles? Employee Satisfaction and Equity Prices]", ''Journal of Financial Economics'' Vol. 101, 2011.</ref>

In 2005, the United Nations Environment Programme Finance Initiative commissioned a report from the international law firm Freshfields Bruckhaus Deringer on the interpretation of the law with respect to investors and ESG issues. The Freshfields report concluded that not only was it permissible for investment companies to integrate ESG issues into investment analysis, but it was also arguably part of their fiduciary duty to do so.<ref>{{Cite web|url=https://www.unepfi.org/|title=United Nations Environment – Finance Initiative – Partnership between United Nations Environment and the global financial sector to promote sustainable finance}}</ref><ref>Freshfields Bruckhaus Deringer, [http://www.unepfi.org/fileadmin/documents/freshfields_legal_resp_20051123.pdf  ''A Legal Framework for the Integration of Environmental, Social and Governance Issues into Institutional Investment: A Report Produced for the Asset Management Working Group of the UNEP FI'', 2005 (PDF)]</ref> In 2014, the Law Commission (England and Wales) confirmed that there was no bar on pension trustees and others from taking account of ESG factors when making investment decisions.<ref>{{cite web|url=http://lawcommission.justice.gov.uk/areas/fiduciary_duties.htm |title=Law Commission |work= Justice | place = UK |url-status= dead |archive-url=https://web.archive.org/web/20140924041547/http://lawcommission.justice.gov.uk/areas/fiduciary_duties.htm |archive-date=September 24, 2014}}</ref>

Where Friedman had provided academic support for the argument that the integration of ESG type factors into financial practice would reduce financial performance, numerous reports began to appear in the early years of the century which provided research that supported arguments to the contrary.<ref>{{cite book |last1=Cogan |first1=Douglas G. |date=March 2006 |title=Corporate Governance and Climate Change: Making the Connection |publisher=Ceres |url=http://ww.w.rrojasdatabank.info/ceres06.pdf }}{{pn|date=February 2023}}</ref> In 2006 Oxford University's Michael Barnett and New York University's Robert Salomon published an influential study which concluded that the two sides of the argument might even be complementary—they propounded a curvilinear relationship between social responsibility and financial performance. Both selective investment practices and non-selective ones could maximise the financial performance of an investment portfolio, and the only route likely to damage performance was a middle way of selective investment.<ref>{{cite journal |last1=Barnett |first1=Michael L. |last2=Salomon |first2=Robert M. |title=Beyond dichotomy: the curvilinear relationship between social responsibility and financial performance |journal=Strategic Management Journal |date=November 2006 |volume=27 |issue=11 |pages=1101–1122 |doi=10.1002/smj.557 }}</ref> Besides the large investment companies and banks taking an interest in matters ESG, an array of investment companies specifically dealing with responsible investment and ESG based portfolios began to spring up throughout the financial world.

Many in the investment industry believe the development of ESG factors as considerations in investment analysis to be inevitable.<ref name="autogenerated1">"IPE European Institutional Asset Management Survey", 2009</ref> The evidence toward a relationship between consideration for ESG issues and financial performance is becoming greater and the combination of fiduciary duty and a wide recognition of the necessity of the sustainability of investments in the long term has meant that environmental social and corporate governance concerns are now becoming increasingly important in the investment market.<ref name= "responsibility2006">{{cite journal |last1=Aguilera |first1=Ruth V. |last2=Williams |first2=Cynthia A. |last3=Conley |first3=John M. |last4=Rupp |first4=Deborah E. |title=Corporate Governance and Social Responsibility: a comparative analysis of the UK and the US |journal=Corporate Governance: An International Review |date=May 2006 |volume=14 |issue=3 |pages=147–158 |doi=10.1111/j.1467-8683.2006.00495.x |s2cid=154823361 }}</ref><ref name= Eccles /> ESG has become less a question of philanthropy than practicality.

There has been uncertainty and debate as to what to call the inclusion of intangible factors relating to the sustainability and ethical impact of investments. Names have ranged from the early use of buzz words such as "green" and "eco", to the wide array of possible descriptions for the types of investment analysis—"responsible investment", "socially responsible investment" (SRI), "ethical", "extra-financial", "long horizon investment" (LHI), "enhanced business", "corporate health", "non-traditional", and others. But the predominance of the term ESG has now become fairly widely accepted. A survey of 350 global investment professionals conducted by Axa Investment Managers and AQ Research in 2008 concluded the vast majority of professionals preferred the term ESG to describe such data.<ref>{{cite press release |url=http://www.ga-institute.com/fileadmin/user_upload/ESG_Uploads/AXA_20IM_20-_20RI_20Survey_20Results_20Release.pdf |title=Investment Professionals vote 'ESG' and 'Sustainability' as top descriptions |publisher=AQ Research |date=July 28, 2008 |access-date=February 18, 2023}}</ref>

In January 2016, the [[Finance:Principles for Responsible Investment|PRI]], UNEP FI and The Generation Foundation launched a three-year project to end the debate on whether fiduciary duty is a legitimate barrier to the integration of environmental, social, and governance issues in investment practice and decision-making.<ref>{{Cite web |title=Fiduciary Duty in the 21st Century |url=https://www.unepfi.org/investment/history/fiduciary-duty/ |access-date=2023-02-18 |website=UNEP FI}}</ref>

This follows the publication in September 2015 of ''Fiduciary Duty in the 21st Century'' by the PRI, UNEP FI, UNEP Inquiry and UN Global Compact.<ref>{{Cite web |title=Fiduciary Duty in the 21st Century |url=https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2724866 |website=[[Social:Social Science Research Network|Social Science Research Network]] |last=Sullivan |first=Rory |date=2016-02-01 | ssrn=2724866 |access-date=2023-02-18}}</ref> The report concluded that "Failing to consider all long-term investment value drivers, including ESG issues, is a failure of fiduciary duty". It also acknowledged that despite significant progress, many investors have yet to fully integrate ESG issues into their investment decision-making processes. In 2021, several organizations were working to make ESG compliance a better understood process in order to establish standards between rating agencies, amongst industries, and across jurisdictions. This included companies like [[Company:Workiva|Workiva]] working from a technology tool standpoint; agencies like the [[Finance:Task Force on Climate Related Financial Disclosures|Task Force on Climate-related Financial Disclosures]] (TCFD) developing common themes in certain industries; and governmental regulations like the EU's Sustainable Finance Disclosure Regulation (SFDR).<ref>{{Cite web |title=Sustainable Finance |url=https://www.esma.europa.eu/policy-activities/sustainable-finance|access-date=2022-05-18|website=European Securities and Markets Authority}}</ref><ref>{{Cite web |title=Sustainable Finance Disclosure Regulation (SFDR)|url=https://www.afm.nl/nl-nl/professionals/onderwerpen/duurzaamheid-sfdr|access-date=2022-05-18|website=Autoriteit Financiële Markten}}</ref><ref>{{Cite web |title=Sustainability-related disclosure in the financial services sector|url=https://ec.europa.eu/info/business-economy-euro/banking-and-finance/sustainable-finance/sustainability-related-disclosure-financial-services-sector_en|access-date=2022-05-18|website=European Commission}}</ref><ref>{{Cite web |title=Joint ESAS Final Report on RTS Under SFDR|url=https://www.esma.europa.eu/document/joint-esas-final-report-rts-under-sfdr|access-date=2022-05-18|website=European Securities and Markets Authority}}</ref>

In 2023 Vanguard distanced itself from ESG investing as its CEO states that it's not compatible with its fiduciary duties to the investors. Fewer than 1 in 7 of their active equity managers outperformed the broad market in any five-year period and none of them relied exclusively on a net-zero investment methodology.<ref>{{Cite web |title=Vanguard's CEO Bucks the ESG Orthodoxy|url=https://www.wsj.com/articles/vanguards-ceo-bucks-the-esg-orthodoxy-tim-buckley-net-zero-emissions-united-nations-initiative-nzam-f6ae910d|access-date=2023-03-08|website=The Wall Street Journal}}</ref>

== Environmental concerns ==
Both the threat of climate changes and fears over climate change have grown, so investors may choose to factor sustainability issues into their investment choices.<ref name="afr">{{cite news |last1=Tan |first1=Jenn-Hui |agency=Fidelity International |title=Getting real about ESG |url=https://www.afr.com/companies/financial-services/getting-real-about-esg-20230207-p5ciki |work=Australian Financial Review |date=15 February 2023 }}</ref> The issues often represent externalities, such as influences on the functioning and revenues of the company that are not exclusively affected by market mechanisms.<ref>{{cite web |title=European Institutional Asset Management Survey 2009 |url=https://www.afg.asso.fr/afg-document/european-institutional-asset-management-survey-2009-6-juillet-2009/ |website=AFG |url-access=subscription }}{{rs|date=February 2023}}</ref> As with all areas of ESG, the breadth of possible concerns is vast (e.g. [[Earth:Greenhouse gas emissions|greenhouse gas emissions]], [[Biology:Biodiversity|biodiversity]], [[Social:Waste management|waste management]], water management) but some of the chief areas are listed below:

===Climate crisis===
The body of research providing data of global trends in [[Earth:Climate change|climate change]] has led some investors—pension funds, holders of insurance reserves—to begin to screen investments in terms of their impact on the perceived factors of climate change. Fossil fuel-reliant industries are less attractive.<ref>Supachai Panitchpakdi, "UNCTAD Secretary General's Statement", 2009{{page needed|date=July 2022}}{{rs|date=February 2023}}</ref> In the UK, investment policies were particularly affected by the conclusions of the ''[[Earth:Stern Review|Stern Review]]'' in 2006, a report commissioned by the British government to provide an economic analysis of the issues associated with climate change. Its conclusions pointed towards the necessity of including considerations of climate change and environmental issues in all financial calculations and that the benefits of early action on climate change would outweigh its costs.<ref>{{cite journal |last1=Nordhaus |first1=Williams |title=Critical Assumptions in the Stern Review on Climate Change |journal=Science |date=July 13, 2007 |volume=317 |issue=5835 |pages=201–202 |doi=10.1126/science.1137316 |pmid=17626869 |s2cid=37720510 |url=https://www.science.org/doi/10.1126/science.1137316 |access-date=February 18, 2023}}</ref>

===Environmental sustainability===
{{see|environmental sustainability}}
In every area of the debate from the depletion of resources to the future of industries dependent upon diminishing raw materials the question of the [[Social:Obsolescence|obsolescence]] of a company's product or service is becoming central to the value ascribed to that company. The long-term view is becoming prevalent amongst investors.<ref name="autogenerated1"/>

== Social concerns ==
===Diversity===
There is a growing belief that the broader the pool of talent open to an employer the greater the chance of finding the optimum person for the job.<ref>Jayne, Michele E. A. and Dipboye, Robert L., "Leveraging Diversity to Improve Business Performance",  ''Human Resource Management'', Wiley, Vol. 43, 2004.{{page needed|date=July 2022}}</ref> Innovation and agility are seen as the great benefits of diversity, and there is an increasing awareness of what has come to be known as ''the power of difference.''<ref>Merck, ''Promoting Diversity and Inclusion'', 2006 {{ISBN?}}{{page needed|date=July 2022}}</ref> However, merely holding mandatory diversity training isn't enough to open companies to opportunities for targeted groups. Studies find the more a company intentionally integrates work teams, the more open it becomes to a diverse workforce; the US military is a prime example of races and genders working well together. <ref>{{cite journal |last1=Dobbin | first=Frank  |title=Why Diversity Programs Fail, And what works better | journal=Harvard Business Review |date=July–August 2016 |url=https://hbr.org/2016/07/why-diversity-programs-fail | access-date=February 28, 2023}}</ref>

===Human rights===
In 2006, the US Courts of Appeals {{clarify|date=September 2022}} {{which|date=September 2022}} ruled that there was a case to answer bringing the area of a company's social responsibilities squarely into the financial arena.<ref>{{Cite web|url=https://www.business-humanrights.org/en/|title=Business & Human Rights Resource Centre|website=Business & Human Rights Resource Centre}}</ref> This area of concern is widening to include such considerations as the impact on local communities, the health and welfare of employees and a more thorough examination of a company's [[Supply chain|supply chain]].

===Consumer protection===
Until fairly recently, [[Social:Caveat emptor|caveat emptor]] ("buyer beware") was the governing principle of commerce and trading. In recent times however, there has been an increased assumption that the consumer has a right to a degree of protection, and the vast growth in damages litigation has meant that consumer protection is a central consideration for those seeking to limit a company's risk and those examining a company's credentials with an eye to investing. The [[Finance:Subprime mortgage crisis|collapse of the US subprime mortgage market]] initiated a growing movement against [[Finance:Predatory lending|predatory lending]] has also become an important area of concern.<ref>Morgan, Donald P., ''Defining and Predicting Predatory Lending'', Federal Reserve Bank of New York, Staff Report 273, 2007.</ref>

===Animal welfare===
Animal welfare concerns involve testing products or ingredients on animals, breeding for testing, exhibiting animals, or factory farms.<ref>{{Cite web|title= Animal welfare | work = ESG pro |url= https://esgpro.fidelity.com/s/article/Animal-Welfare |access-date=2022-01-19| publisher = Fidelity}}</ref>

=== Conservatives ===
Out of the 435 ESG [[Finance:Activist shareholder|shareholder proposals]] that were recorded by the non-profit organization As You Sow in 2021, 22 were classified as conservative by the organization.<ref>{{Cite news|date=2021-03-25|title=Right-wing activists pose challenge to ESG crusade|language=en|work=Reuters|url=https://www.reuters.com/article/us-usa-race-investors-breakingviews-idUSKBN2BH39Y|access-date=2022-01-22}}</ref> The National Center for Public Policy Research has asked 7 companies to prepare a report on the BRT Statement of the Purpose of a Corporation. Other conservative proposals include reports on charitable contributions and board nominee ideological diversity.<ref>{{Cite web|title=Conservatives|url=https://www.proxypreview.org/2021/report-blog/conservatives|access-date=2022-01-22|website=Proxy Preview 2021|language=en-US}}</ref>

== Corporate governance concerns ==
Corporate governance is the structures and processes that direct and control companies. It makes companies more accountable and transparent to investors and gives them the tools to respond to stakeholder concerns.<ref>{{Cite web|title=Overview|url=https://www.ifc.org/wps/wcm/connect/Topics_Ext_Content/IFC_External_Corporate_Site/IFC+CG/Overview|access-date=2022-01-19|website= IFC}}</ref>

ESG Corporate Governance from the Board of Director's view, Governance Lens watching over Corporate Behavior of the CEO, C-Suite, and employees at large includes measuring the Business ethics, anti-competitive practices, corruption, tax and providing accounting transparency for stakeholders.

MSCI puts in the Governance side of the bucket corporate behavior practices and governance of board diversity, executive pay, ownership, and control, and accounting that the board of directors have to oversee on behalf of stakeholders.<ref>{{Cite web|url=https://www.msci.com/our-solutions/esg-investing/what-is-esg | publisher = MSCI |title=ESG 101: What is Environmental, Social and Governance?}}</ref> Other concerns include reporting and transparency, business ethics, board oversight, CEO / board chair split, shareholder right to nominate board candidates, stock buybacks, and dark money given to influence elections.<ref>{{Cite book|last=Behar|first=Andrew|title=The Shareholder Action Guide: How Your Investments and 401(k) Can Change the World |year= 2016 |page = 27}}</ref>

===Management structure===
The system of internal procedures and controls that makes up the management structure of a company is in the valuation of that company's equity.<ref name="responsibility2006"/> Attention has been focused in recent years on the balance of power between the CEO and the board of directors and specifically the differences between the European model and the US model—in the US studies have found that 80% of companies have a CEO who is also the chairman of the board, in the UK and the European model it was found that 90% of the largest companies split the roles of CEO and chairman.<ref>Higgs, D, ''Review of the Role and Effectiveness of Non-Executive Directors'' (Higgs Report, 2005){{ISBN?}}</ref>

===Employee relations===
In the United States Moskowitz's list of the ''Fortune 100 Best Companies to Work For'' has become not only an important tool for employees but companies are beginning to compete keenly for a place on the list, as not only does it help to recruit the best workforce, it appears to have a noticeable impact on company values.<ref name="autogenerated2003"/> Employee relations relate also to the representation of co-workers in the decision-making of companies, and the ability to participate in a union.

===Executive compensation===
Companies are now being asked to list the percentage levels of bonus payments and the levels of remuneration of the highest paid executives are coming under close scrutiny from stock holders and equity investors alike.

===Employee compensation===
Besides executive compensation, equitable pay of other employees is a consideration in the governance of an organization. This includes pay equity for employees of all genders. Pay equity audits and the results of those audits may be required by various regulations and, in some cases, made available to the public for review. Hermann J. Stern differentiates four methods to include ESG performance in employee compensation:<ref>Stern, H.J., ''Better Bonus Plans for ESG'', submitted Working Paper, SSRN, 2020.</ref>
# ESG Targets (Objectives for activities, projects and ESG results set by the company as a goal)
# ESG Relative Performance Measurement (compared to peers, on the basis of key figures the company considers relevant)
# ESG Ratings Agencies ([[Company:Refinitiv|Refinitiv]], S&P Trucost and RobecoSam, [[Company:Sustainalytics|Sustainalytics]], ISS ESG, MSCI ESG, Vigeo Eiris, EcoVadis, Minerva Analytics, etc.)<ref>{{Cite web|last=Nason |first= Deborah |date= 2020-12-31|title=How to navigate the world of sustainable investing ratings|url=https://www.cnbc.com/2020/12/31/how-to-navigate-the-world-of-sustainable-investing-ratings.html |access-date= 2021-01-28 |website= CNBC}}</ref>
# ESG Performance Evaluations (internal or independent performance assessment by means of expert opinions, based on internally and externally available objective and subjective facts)

== Responsible investment ==
The three domains of social, environmental and corporate governance are intimately linked to the concept of responsible investment (RI). RI began as a niche investment area, serving the needs of those who wished to invest but wanted to do so within ethically defined parameters. In recent years it has become a much larger proportion of the investment market. By June 2020, flows into U.S. sustainable funds reached $20.9 billion, nearly matching 2019's flows of $21.4 billion.<ref>{{Cite web|last=Hale|first=Jon|date=July 30, 2020|title=Sustainable Funds Continue to Rake in Assets During the Second Quarter |url= https://www.morningstar.com/articles/994219/sustainable-funds-continue-to-rake-in-assets-during-the-second-quarter|access-date=August 18, 2020|website=Morning star}}</ref> By the end of 2020, flows into U.S. sustainable funds surpassed $51 billion.<ref>{{Cite web|last=Hale|first=Jon|date=January 28, 2021|title=A Broken Record: Flows for U.S. Sustainable Funds Again Reach New Heights|url= https://www.morningstar.com/articles/1019195/a-broken-record-flows-for-us-sustainable-funds-again-reach-new-heights |url-status=live |access-date= 2021-01-29|website=Morning star}}</ref> Globally, sustainable funds held $1.65 trillion in assets at the end of 2020.<ref>{{Cite news|last1=Howcroft|first1=Simon | last2 = Jessop | first2 = Elizabeth|date=2021-01-28|title=Sustainable fund assets hit record $1.7 trln in 2020 | work = Morningstar | agency =Reuters|url=https://www.reuters.com/article/us-global-funds-sustainable-idUSKBN29X2NM|access-date= 2021-01-28}}</ref>

ESG corporate reporting can be used by [[Social:Stakeholder (corporate)|stakeholders]] to assess the material sustainability-related risks and opportunities relevant to an organization. Investors may also use ESG data beyond assessing material risks to the organization in their evaluation of [[Finance:Enterprise value|enterprise value]], specifically by designing models based on assumptions that the identification, assessment, and management of sustainability-related risks and opportunities with respect to all organizational stakeholders leads to higher long-term risk-adjusted return.<ref>{{cite web |title=Standards Overview|url=https://www.sasb.org/standards/ |publisher=Sustainability Accounting Standards Board (SASB) |access-date=25 October 2022}}</ref>

===Investment strategies===
RI seeks to control the placing of its investments via several methods:
* Positive selection; where the investor actively selects the companies in which to invest; this can be done either by following a defined set of ESG criteria or by the best-in-class method where a subset of high performing ESG compliant companies is chosen for inclusion in an investment portfolio.
* Activism; strategic voting by shareholders in support of a particular issue, or to bring about change in the governance of the company.
* Engagement; investment funds monitoring the ESG performance of all portfolio companies and leading constructive shareholder engagement dialogues with each company to ensure progress.<ref>French research centre [http://www.novethic.com/ Novethic] issues a SRI engagement label, which was extended to Fondation Guilé e.g.</ref>
* Consulting role; the larger institutional investors and shareholders tend to be able to engage in what is known as 'quiet diplomacy', with regular meetings with top management in order to exchange information and act as early warning systems for risk and strategic or governance issues.<ref>{{cite journal |last1=Holland |first1=John |title=Influence and Intervention by Financial Institutions in their Investee Companies |journal=Corporate Governance |date=October 1998 |volume=6 |issue=4 |pages=249–264 |doi=10.1111/1467-8683.00113 }}</ref>
* Exclusion; the removal of certain sectors or companies from consideration for investment, based on ESG-specific [[Social:Socially responsible investing#Mutual funds and ETFs|criteria]].
* Integration; the inclusion of ESG risks and opportunities into traditional financial analysis of equity value.

===Institutional investors===
One of the defining marks of the modern investment market is the divergence in the relationship between the firm and its equity investors. Institutional investors have become the key owners of stock—rising from 35% in 1981 to 58% in 2002 in the US<ref>Binay, M., ''Performance Attribution of UA Institutional Investors '' (Financial Management, Summer, 2005)</ref> and from 42% in 1963 to 84.7% in 2004 in the UK<ref>Office for National Statistics, ''Share Ownership'', 2005</ref> and institutions tend to work on a long-term investment strategy. Insurance companies, Mutual Funds and Pension Funds with long-term payout obligations are much more interested in the long term sustainability of their investments than the individual investor looking for short-term gain.<ref name="autogenerated1"/> Where a Pension Fund is subject to ERISA, there are legal limitations on the extent to which investment decisions can be based on factors other than maximizing plan participants' economic returns.<ref>Lemke and Lins, ''ERISA for Money Managers'' §§2:125–2:127 (Thomson West, 2014–2015 ed.).</ref>

Based on the belief that addressing ESG issues will protect and enhance portfolio returns, responsible investment is rapidly becoming a mainstream concern within the institutional industry. By late 2016, over a third of institutional investors (commonly referred to as LPs) based in Europe and Asia-Pacific said that ESG considerations played a major or primary role in refusing to commit to a private equity fund, while the same is true for a fifth of North American LPs.<ref>{{Cite web|url=https://www.collercapital.com/coller-capital-global-pe-barometer-winter-2016-17|title= Global PE Barometer – Winter 2016–17 |date= 5 December 2016 | publisher =Coller capital |access-date=2017-10-30}}</ref> In reaction to investor interest in ESG, private equity and other industry trade associations have developed a number of ESG best practices, including a due diligence questionnaire for private fund managers and other asset managers to use before investing in a portfolio company.<ref>{{Cite news|url=https://www.navatargroup.com/webinar/finding-esg-mindset-invest-europe |title=Finding Your ESG Mindset with Invest Europe |work=Navatar|access-date=2017-10-30|language=en-US}}</ref>

There was a clear acceleration of the institutional shift towards ESG-informed investments in the second semester of 2019. The notion of "SDG Driven Investment" gained further ground amongst pension funds, SWFs and asset managers in the second semester of 2019, notably at the World Pensions Council [[Organization:G7|G7]] Pensions Roundtable held in Biarritz, 26 August 2019,<ref>{{cite news |last1=Firzli |first1=M. Nicolas J. |title=COMPTE RENDU DE LA RÉUNION DU G7 DES FONDS DE PENSIONS D'AOÛT 2019 Les objectifs de Développement Durable («ODD») sont désormais incontournables pour le secteur financier |trans-title=Report on the G7 Pensions Meetings, August 2019: Sustainable Development Goals (‘SDGs’) Are Now Essential for the Financial Sector |language=fr |work=Cahiers du Centre des Professions Financières |date=10 February 2020 |ssrn=3545217 }}</ref> and the Business Roundtable held in Washington, DC, on 19 August 2019.<ref>{{cite news |last1= McGregor|first1=Jena|title=Group of top CEOs says maximizing shareholder profits no longer can be the primary goal of corporations|url=https://www.washingtonpost.com/business/2019/08/19/lobbying-group-powerful-ceos-is-rethinking-how-it-defines-corporations-purpose|access-date=17 March 2020|newspaper=Washington Post |date=20 August 2019}}</ref>

Networks of institutional investors committed to curbing climate change have emerged, where in institutional investors are agreeing to hold themselves accountable to climate action targets.<ref>{{Cite web |date=2023-04-06 |title=ESG in scrutiny: how investors can be more vigilant – Fund23 |url=https://fund23.com/esg-investment |access-date=2023-05-27 |language=en-US}}</ref> One such example is the Institutional Investors Group on Climate Change, looking to deliver significant progress to net zero by 2030.<ref>{{cite web|url=https://www.iigcc.org/about-us/| publisher = IIGCC | title = About Us}}</ref> Moreover, the networks have collaborated with investment frameworks to "evaluate" corporate progress to net zero, with one such framework being the Climate Action 100+, a series of criterion used to evaluate the companies emitting the largest quantity of GHG.<ref>{{cite web|url=https://www.parqhq.com/post/the-e-in-esg-carries-weight | publisher = Parq HQ|title=Climate Action 100+ Framework}}</ref>

===Principles for Responsible Investment===
The [[Finance:Principles for Responsible Investment|Principles for Responsible Investment]] Initiative (PRI) was established in 2005 by the United Nations Environment Programme Finance Initiative and the UN Global Compact as a framework for improving the analysis of ESG issues in the investment process and to aid companies in the exercise of responsible ownership practices. As of April 2019 there are over 2,350 PRI Signatories.<ref>{{cite web |url = http://www.unpri.org/signatories/signatories/| work = Principles for Responsible Investment | title = Signatories|date = 5 February 2015|access-date = 5 February 2015| publisher = UN |archive-url = https://web.archive.org/web/20130921184606/http://www.unpri.org/signatories/signatories/#|archive-date = 21 September 2013|url-status = dead|df = dmy-all}}</ref>

===Equator Principles===
{{main|Social:Equator Principles}}
The Equator Principles is a risk management framework, adopted by financial institutions, for determining, assessing and managing environmental and social risk in project finance. It is primarily intended to provide a minimum standard for due diligence to support responsible risk decision-making.<ref>{{Cite web|url=https://www.equator-principles.com/|title=The Equator Principles – Environmental and social risk management for projects |access-date=2019-04-27}}</ref> As of October 2019, 97 adopting financial institutions in 37 countries had officially adopted the Equator Principles,<ref>{{Cite web |url= https://equator-principles.com/members-reporting/|title=EP Association Members & Reporting|website=Equator principles |access-date=2019-10-07}}</ref> the majority of international Project Finance debt in emerging and developed markets.<ref>{{cite journal |last1=Wright |first1=Christopher |last2=Rwabizambuga |first2=Alexis |title=Institutional Pressures, Corporate Reputation, and Voluntary Codes of Conduct: An Examination of the Equator Principles |journal=Business and Society Review |date=March 2006 |volume=111 |issue=1 |pages=89–117 |doi=10.1111/j.1467-8594.2006.00263.x |s2cid=44383361 }}</ref> Equator Principles Financial Institutions (EPFIs) commit to not provide loans to projects where the borrower will not or is unable to comply with their respective social and environmental policies and procedures.

The Equator Principles, formally launched in Washington DC on 4 June 2003, were based on existing environmental and social policy frameworks established by the [[Organization:International Finance Corporation|International Finance Corporation]]. These standards have subsequently been periodically updated into what is commonly known as the International Finance Corporation Performance Standards on social and environmental sustainability and on the World Bank Group Environmental, Health, and Safety Guidelines.<ref>{{cite web|title=Equator Principles History and Context FAQ|url=http://equator-principles.com/resources/Frequently%20Asked%20Questions.pdf |website= Equator principles |access-date=30 November 2015|archive-url=https://web.archive.org/web/20151123034432/http://equator-principles.com/resources/Frequently%20Asked%20Questions.pdf|archive-date=23 November 2015|url-status= dead}}</ref>

=== Statistics ===

==== United Kingdom ====
According to a nationally representative survey from Finder UK, over half (57%) of UK investors hold an ethical investment.<ref name=":0">{{Cite web |last=Butler |first=Danny |date=2022-02-28 |title=ESG investing statistics |url=https://www.finder.com/uk/esg-statistics |access-date=2023-04-24 |website=Finder UK |language=en-gb}}</ref> Gen Z being the most likely generation to invest ethically, with 66% of respondents claiming an interest in ESG investing.<ref name=":0" /> Baby boomers were found to be the least likely to consider an ethical investment, with only 11% of this generation planning to invest in an ethical investment. <ref name=":0" />

== ESG ratings agencies ==
Asset managers and other financial institutions increasingly rely on ESG ratings agencies to assess, measure and compare companies' ESG performance.<ref>{{Cite web|url= https://corpgov.law.harvard.edu/2017/07/27/esg-reports-and-ratings-what-they-are-why-they-matter/|title=ESG Reports and Ratings: What they are, why they matter|last=Huber|first=Betty|date=27 July 2017| publisher =Harvard Law School |access-date= 13 September 2018}}</ref> More recently, publications like Newsweek have used ESG data provided by market research companies like [[Company:Statista|Statista]] to rate the most responsible organizations in a country.<ref>{{Cite web|url= https://www.newsweek.com/americas-most-responsible-companies-2022|title=America's Most Responsible Companies 2022|last=Cooper|first=Nancy|date=9 December 2021| publisher =Newsweek |access-date= 7 February 2022}}</ref><ref>{{Cite web|url= https://investors.zurnwatersolutions.com/news/news-details/2021/Zurn-Water-Solutions-Named-to-Newsweeks-2022-List-of-Americas-Most-Responsible-Companies/default.aspx|title=Zurn Water Solutions Named to Newsweek's 2022 List of America's Most Responsible Companies|last=Hersil|first=Angela|date=9 December 2021| publisher =Zurn Water Solutions |access-date= 7 February 2022}}</ref>

Data providers such as ESG Analytics have applied [[Social:Artificial intelligence|artificial intelligence]] to rate companies and their commitment to ESG. Each rating agency uses its own set of metrics to measure the level of ESG compliance and there is, at present, no industry-wide set of common standards.{{cn|date=March 2023}}

In Latin America, it is the Latin American Quality Institute with headquarters in Panama and operations in 19 countries that leads the movement with more than 10,000 certifications issued.<ref>{{Cite web |url= http://www.agenciaoglobo.com.br/dinonews/Default.aspx?idnot=88700&tit=Pequenas+e+m%C3%A9dias+empresas+podem+se+beneficiar+do+ESG,+revela+pesquisa+do+Latin+American+Quality+Instute|title=Pequenas e médias empresas podem se beneficiar do ESG, entrevista Daniel Maximilian Da Costa|website=Agência O Globo |place=Brazil}}</ref><ref>{{Cite web|url=https://www.terra.com.br/noticias/dino/empresas-da-america-latina-se-comprometem-a-atingir-objetivos-globais-atraves-de-modelo-de-excelencia,9a7b24f1abb2dda5321303d10497acf1990yqzb8.html|title=Empresas da América Latina se comprometem a atingir objetivos globais através de modelo de excelência|website=Terra | place = Brazil}}</ref><ref>{{Cite web|url=http://www.broadcast.com.br/cadernos/releases/?id=VnM0cVJKT21wV1BEUjM5cXNWblFidz09|title=ESG | first = Daniel Maximilian | last = da Costa|website=Estadão | place = Brazil}}</ref>

== Disclosure and regulation ==
The first ten years of the 21st century has seen growth in the ESG defined investment market. Not only do most of the world's big banks have departments and divisions exclusively addressing Responsible Investment but boutique firms specialising in advising and consulting on environmental, social, and governance related investments are proliferating. One of the major aspects of the ESG side of the insurance market which leads to this tendency to proliferation is the essentially subjective nature of the information on which investment selection can be made. By definition ESG data is qualitative; it is non-financial and not readily quantifiable in monetary terms. The investment market has long dealt with these intangibles—such variables as goodwill have been widely accepted as contributing to a company's value. But the ESG intangibles are not only highly subjective they are also particularly difficult to quantify and more importantly verify. A lack of clear standards and transparent monitoring has led to fears that ESG avowals mainly serve purposes of [[Social:Greenwashing|greenwashing]] and other company public relations objectives, while distracting from more substantive initiatives to improve environment and society.<ref>{{Cite journal|last1=O'Leary|first1=Michael|last2=Valdmanis|first2=Warren|date=2021-03-04|title=An ESG reckoning is coming|url=https://hbr.org/2021/03/an-esg-reckoning-is-coming|url-status=live |journal= Harvard Business Review}}</ref><ref>{{Cite web|last=Fancy|first=Tariq|date=2021-03-16|title=Financial world greenwashing the public with deadly distraction in sustainable investing practices |url= https://www.usatoday.com/story/opinion/2021/03/16/wall-street-esg-sustainable-investing-greenwashing-column/6948923002/|url-status=live|access-date=2021-04-15|website=[[Software:USA Today|USA Today]]}}</ref>

One of the major issues in the ESG area is [[Company:Corporation#Financial disclosure|disclosure]]. Environmental risks created by business activities have actual or potential negative impact on air, land, water, ecosystems, and human health. The information on which an investor makes their decisions on a financial level is fairly simply gathered. The company's accounts can be examined, and although the accounting practices of corporate business are coming increasingly into disrepute after a spate of recent financial scandals, the figures are for the most part externally verifiable. With ESG considerations, the practice has been for the company under examination to provide its own figures and disclosures.<ref>Association of British Insurers, ''Disclosure Guidelines on Socially Responsible Investment'', 2001</ref> These have seldom been externally verified and the lack of universal standards and [[Finance:Regulation|regulation]] in the areas of environmental and social practice mean that the measurement of such statistics is subjective to say the least.

One of the solutions put forward to the inherent subjectivity of ESG data is the provision of universally accepted standards for the measurement of ESG factors. Such organizations as the [[Organization:International Organization for Standardization|ISO]] (International Organization for Standardization) provide highly researched and widely accepted standards for many of the areas covered.<ref>{{Cite web |url= http://www.iso.org/ |title=ISO – International Organization for Standardization |access-date=2016-04-27}}</ref> Some investment consultancies, such as Probus-Sigma have created methodologies for calculating the ratings for an ESG based Ratings Index that is both based on ISO standards and externally verified,<ref>{{cite web |author=Burocratik |url=http://www.probus-sigma.eu/ |place=EU |title=Probus Sigma |access-date=2011-11-15 |archive-date=11 October 2016 |archive-url=https://web.archive.org/web/20161011150220/http://probus-sigma.eu/ |url-status=dead }}</ref> but the formalization of the acceptance of such standards as the basis for calculating and verifying ESG disclosures is by no means universal.

The corporate governance side of the matter has received rather more in the way of regulation and standardization as there is a longer history of regulation in this area. In 1992 the [[Company:London Stock Exchange|London Stock Exchange]] and the Financial Reporting Commission set up the Cadbury Commission to investigate the series of governance failures that had plagued the City of London such as the bankruptcies of [[Company:Bank of Credit and Commerce International|BCCI]], Polly Peck, and Robert Maxwell's Mirror Group. The conclusions that the commission reached were compiled in 2003 into the ''Combined Code on Corporate Governance'' which has been widely accepted (if patchily applied) by the financial world as a benchmark for good governance practices.<ref>Cadbury Committee on the Financial Aspects of Corporate Governance, ''Report with Code of Best Practice'', (London, Gee Publishing, 1992)</ref>

In the interview for [[Software:Yahoo! Finance|Yahoo! Finance]] Francis Menassa (JAR Capital) says, that "the EU's 2014 Non-Financial Reporting Directive will apply to every country on a national level to implement and requires large companies to disclose non-financial and diversity information. This also includes providing information on how they operate and manage social and environmental challenges. The aim is to help investors, consumers, policy makers, and other stakeholders to evaluate the non-financial performance of large companies. Ultimately, the Directive encourages European companies to develop a responsible approach to business".<ref>{{cite news| url=https://finance.yahoo.com/news/why-esg-trend-154857035.html | author = Francis Menassa | title= Why ESG is a New Trend |date = June 20, 2019|work= FX Empire | access-date= June 20, 2019}}</ref>

One of the key areas of concern in the discussion as to the reliability of ESG disclosures is the establishment of credible ratings for companies as to ESG performance. The world's financial markets have all leapt to provide ESG relevant ratings indexes, the Dow Jones Sustainability Index, the FTSE4Good Index (which is co-owned by the London Stock Exchange and [[Social:Financial Times|Financial Times]]<ref>{{cite web | author = Baker & McKenzie LLP |url=http://a4id.org/sites/default/files/user/LSE%20ESG%20reporting.pdf |title=ESG Reporting on the London Stock Exchange |publisher=Advocates for International Development |year=2013 |access-date= 15 August 2013 |archive-url=https://web.archive.org/web/20131212180604/http://a4id.org/sites/default/files/user/LSE%20ESG%20reporting.pdf |archive-date=12 December 2013 |url-status=dead |df= dmy-all}}</ref>), Bloomberg ESG data,<ref>{{Cite web|url=https://www.emisoft.com/bloomberg-esg-matters/|title=Why Bloomberg ESG Data Matters|website=Emisoft}}{{Dead link|date=January 2022 |bot= InternetArchiveBot |fix-attempted=yes}}</ref> the MSCI ESG Indices<ref>{{cite web|url=http://www.msci.com/products/indices/esg/|title=MSCI ESG Indexes | publisher = MSCI|access-date=10 October 2018}}</ref> and the GRESB benchmarks<ref>{{cite web|url=http://www.gresb.com/gresb-assessments/|title= Assessments|website= GRESB |access-date=10 October 2018}}</ref>

European regulators have introduced concrete rules to deal with the problem of greenwashing.<ref>{{cite news |last1=Katanga |first1=Jerber |title=U.S. SEC to consider new 'sustainable' fund criteria, data disclosure rules |url=https://www.nasdaq.com/articles/u.s.-sec-to-consider-new-sustainable-fund-criteria-data-disclosure-rules-2021-07-07-0 |access-date=29 July 2021 |publisher=Nasdaq |date=7 July 2021}}</ref> These include a package of legislative measures arising from the European Commission's Action Plan on Sustainable Finance.<ref>{{Cite web |title=Sustainable finance {{!}} European Commission |url=https://ec.europa.eu/info/business-economy-euro/banking-and-finance/sustainable-finance_en |access-date=May 30, 2022 |website=European Commission}}</ref>

== Public reaction ==
In January 2023, a Rasmussen opinion poll in the U.S. reported that the proportion of Americans who considered the promotion of "causes like diversity and environmentalism" to be the most important aim for companies was 9%.  69% said that the focus should be on "providing quality goods and services," and 13% on "increasing profit".<ref name=RR>{{cite web |url=https://www.rasmussenreports.com/public_content/business/general_business/get_woke_go_broke_promoting_causes_doesn_t_help_business |title='Get Woke, Go Broke'? Promoting Causes Doesn't Help Business |website=Rasmussen Reports |date=January 24, 2023 |access-date=January 25, 2023}}</ref> A poll by [[Company:PricewaterhouseCoopers|PricewaterhouseCoopers]] found that "83% of consumers think companies should be actively shaping ESG best practices", with 76% of consumers saying they would "discontinue relations with companies that treat employees, communities and the environment poorly".<ref name="pwc">{{cite web |url=https://www.pwc.com/gx/en/services/sustainability/publications/cop26/how-much-does-the-public-care-about-esg-pwc-cop26.html |title=How much does the public care about ESG? |website=[[Company:PwC|PwC]] |last=Herman |first=Casey |access-date=January 26, 2023}}</ref>

==Litigation==
The Kentucky Bankers Association of 150 banks doing business in Kentucky is suing Kentucky Attorney General Daniel Cameron over his investigating banks' ESG practices, such as commitments to combat climate change.<ref>{{Cite web|url=https://politi.co/3V5Ocw6|title='Til next time, COP|first1=Jordan|last1=Wolman|first2=Allison|last2=Prang|website=POLITICO}}</ref><ref>{{Cite web|url=https://www.wdrb.com/in-depth/banking-group-sues-kentucky-ag-daniel-cameron-over-esg-investigation/article_61b11b90-64f7-11ed-8437-432e5d6f8aea.html|title=Banking group sues Kentucky AG Daniel Cameron over 'ESG' investigation|first=Chris|last=Otts|website=WDRB}}</ref> In November 2022, the Kentucky Bankers Association sued Cameron in Franklin Circuit Court; Cameron had the case removed to the US District Court for the Eastern District of Kentucky before Judge Gregory Van Tatenhove, for whom Cameron was previously a [[Social:Law clerk|law clerk]].<ref>{{Cite web|url=https://dockets.justia.com/docket/kentucky/kyedce/3:2022cv00062/100269|title=''Hope of Kentucky, LLC et al v. Cameron''|publisher=US District Court for the Eastern District of Kentucky|website=Justia Dockets & Filings}}</ref><ref name="auto6">{{Cite web|url=https://www.yahoo.com/now/kentucky-bankers-daniel-cameron-trying-102029595.html|title=Kentucky bankers: Daniel Cameron trying to create 'state surveillance system'|website=Yahoo|author=Joe Sonka|date=November 15, 2022}}</ref><ref name="auto8">{{Cite web|url=https://www.americanbanker.com/news/kentucky-banking-group-sues-states-gop-attorney-general-over-esg-probe|title=Kentucky banking group sues state's GOP attorney general over ESG probe|date=November 16, 2022|website=American Banker}}</ref><ref name="auto5">{{Cite web|url=https://www.wdrb.com/in-depth/banking-group-sues-kentucky-ag-daniel-cameron-over-esg-investigation/article_61b11b90-64f7-11ed-8437-432e5d6f8aea.html|title=Banking group sues Kentucky AG Daniel Cameron over 'ESG' investigation|first=Chris|last=Otts|website=WDRB|date=November 15, 2022}}</ref> The association said Cameron has displayed "amazing and disturbing broad overreach" by overstepping his legal authority, and did not have authority to demand detailed information from banks as part of an investigation into their environmental lending practices, which it said was a big government intrusion on private businesses that could create "an ongoing state surveillance system."<ref name="auto6" /><ref name="auto8" /><ref name="auto5" />

== Reporting ==
Under ESG reporting, organizations are required to present data from financial and non-financial sources that shows they are meeting the standards of agencies such as the [[Organization:Sustainability Accounting Standards Board|Sustainability Accounting Standards Board]], the [[Organization:Global Reporting Initiative|Global Reporting Initiative]], and the [[Finance:Task Force on Climate Related Financial Disclosures|Task Force on Climate-related Financial Disclosures]]. Data must also be made available to rating agencies and shareholders.<ref>{{Cite web |date= 2021-04-30 |title= Workiva Cloud Platform Simplifies and Accelerates ESG Reporting for Companies Across the Globe|url=https://aithority.com/it-and-devops/cloud/workiva-cloud-platform-simplifies-and-accelerates-esg-reporting-for-companies-across-the-globe/|access-date=2021-09-01|website=AiThority|language=en-US}}</ref>

==Research findings==

According to a 2021 study done by the NYU Stern Center for Sustainable Business, which looked at over 1,000 studies, "studies use different scores for different companies by different data providers."<ref>{{cite journal |last1=Whelan |first1=Tensie |title=ESG and Financial Performance |journal=NYU Stern |date=February 10, 2021 |url=https://www.stern.nyu.edu/sites/default/files/assets/documents/NYU-RAM_ESG-Paper_2021%20Rev_0.pdf |access-date=March 10, 2022}}</ref>

Gallup finds that 28% of U.S. employees strongly agree with the statement, "My organization makes a positive impact on people and the planet."<ref>Gallup's Indicator's: [https://www.gallup.com/395216/indicator-esg.aspx ESG]</ref>

Research shows that such intangible assets comprise an increasing percentage of future enterprise value.<ref>[https://www.oceantomo.com/intangible-asset-market-value-study/ "Intangible Asset Market Value Study"], Ocean Tomo.</ref><ref name="Eccles">Robert Eccles, Ioannis Ioannou and George Serafeim, [https://www.theguardian.com/sustainable-business/sustainability-key-corporate-success "Is sustainability now the key to corporate success? Companies that adopted environmental, social, and governance policies in the 1990s have outperformed those that didn't"], ''{{wipe|The Guardian}}'', 6 January 2012 (page visited on 28 January 2018).</ref> While there are many ways to think of intangible asset metrics, these three central factors together, ESG, comprise a label that has been adopted throughout the United States financial industry. They are used for a myriad of specific purposes with the ultimate objective of measuring elements related to [[Earth:Sustainability|sustainability]] and societal impact of a company or business.<ref>Georg Kell ([[Social:United Nations Global Compact|United Nations Global Compact]]), [https://www.theguardian.com/sustainable-business/blog/five-trends-corporate-social-responsbility-global-movement "Five trends that show corporate responsibility is here to stay"], ''{{wipe|The Guardian}}'', 13 August 2014 (page visited on 28 January 2018).</ref> [[Company:MSCI|MSCI]], a global ESG rating agency uses the term from investment perspective and defines ESG Investing as the consideration of environmental, social, and governance factors alongside financial factors in the investment decision-making process.<ref>{{Cite web|title=ESG 101: What is Environmental, Social and Governance? |url= https://www.msci.com/esg-101-what-is-esg|access-date=2022-01-21| publisher = MSCI |language=en-US}}</ref> Likewise, S&P highlights that through ESG investing, market participants consider in their decision-making the ways in which environmental, social, and governance risks and opportunities can have material impacts on companies' performance. Investors who use ESG in their decision-making are able to invest sustainably while maintaining the same level of financial returns as they would with a standard investment approach.<ref>{{Cite web|title=What is the difference between ESG investing and socially responsible investing?|url=https://www.spglobal.com/en/research-insights/articles/what-is-the-difference-between-esg-investing-and-socially-responsible-investing |access-date= 2022-01-21 | publisher = SP global |language=en-us}}</ref>

A study published by the European Securities and Markets Authority has also found that "ESG generally improves returns and cuts client costs over time".<ref>{{Cite news |last= Schwartzkopff |first= Frances |date=2022-08-25 |title=GOP Fury Over ESG Triggers Backlash With US Pensions at Risk |work={{wipe|Bloomberg News}} |url=https://www.bloomberg.com/news/articles/2022-08-25/esg-pros-say-republican-anti-woke-bashing-hurts-regular-savers |access-date= 2022-08-25}}</ref> Analysis over a five-year period showed stock funds weighted towards ESG scores generally performed higher: an increase in annual average return of 1.59% in European markets, 1.02% in Asia-Pacific markets, and 0.13-0.17% in North American and global markets.<ref>{{Cite news |last1= Horton |first1= Cole |last2=Jessop |first2=Simon |date=2022-07-28 |title=Positive ESG performance improves returns globally, research shows |work={{wipe|Reuters}} |url=https://www.reuters.com/business/sustainable-business/positive-esg-performance-improves-returns-globally-research-shows-2022-07-28/ |access-date= 2022-08-25}}</ref>

== See also ==<!-- Please keep entries in alphabetical order & add a short description WP:SEEALSO -->
{{div col|colwidth=20em}}
* [[Engineering:Environmental impact assessment|Environmental impact assessment]]
* [[Finance:Environmental full-cost accounting|Environmental full-cost accounting]]
* Form 10-K
* [[Organization:International Organization for Standardization|International Organization for Standardization]]
* UK company law
* US corporate law
* UN Sustainable Development Goals
* [[Social:Equator Principles|Equator Principles]]
{{div col end}}
<!-- please keep entries in alphabetical order -->

== References ==
{{reflist}}

== External links ==
* [https://esgriskguard.com/all-about-esg-risks/ All About ESG Risks] by esgriskguard.com
* [https://reportyak.com/elements-of-an-esg-report/ Elements of an ESG Report] by reportyak.com
* [https://reportyak.com/esg-reporting-frameworks-and-the-differences-between-them/ ESG reporting frameworks and the differences between them] by reportyak.com

{{Social accountability}}

{{DEFAULTSORT:Environmental Social And Corporate Governance}}
[[Category:Ethical banking]]

{{Sourceattribution|Environmental, social, and corporate governance}}