ESG law

ESG investing stands for Environmental, Social, and Governance, an investment strategy that focuses on a company’s environmental commitment, social impact, and governance issues in the hope of building an ethical portfolio. So what factors come into play when determining a company’s corporate social responsibility?

• Environmental (E) ratings assess a company’s sustainability. Factors such as carbon emissions, deforestation, waste management, or green energy initiatives help determine a company’s impact on the environment. 
• Social (S) criteria assess a company’s social impact, including its commitment to diversity, fair labor standards, or policies on sexual harassment. Social components also include how a company promotes change outside its walls and works to benefit the larger world around them. 
• Finally, governance (G) is determined by the management of the company. Governance can take into account political input, diversity of board members, and fairness of executive pay. ESG research firms calculate scores on a 100-point scale based on each of the above criteria to help investors make an impact with their dollars. 

The law aims to ensure that companies’ actions are transparent and accountable, not just financially but also in terms of sustainability. To this end, companies will be required to disclose the sustainability risks they face, their impact on people and the environment, and the status and direction of their corporate responsibility.