There is an increased trend amongst investors to evaluate non-financial performance indicators to evaluate future financial performance of companies. ESG forms a subset of non-financial performance indicators which socially conscious investors use to screen investments. The ESG factors aid in measuring the sustainability and ethical impact of an investment in a company or business and are gaining popularity in capital markets over the past years.

But what exactly is ESG?

ESG refers to the Environmental, Social and Governance factors that form a criterion to screen investments and are important in long-term valuation of a company. Companies that have a sustainability-based approach to their businesses are believed to be more profitable over time and deliver better returns to their shareholders.

Environmental criteria look at a company’s competence to manage the environmental risks like climate change, depletion of resources that might affect its income. The companies are also evaluated for their energy use, waste, pollution, natural resource conservation and animal treatment.

Social criteria evaluate a company based on its relationships with its employees, customers, suppliers and local communities.

Governance criteria examine how the company is controlled and directed while balancing the many interests of the stakeholders.

The need for Governance

The companies that can ensure accountability, fairness, and transparency in a company’s relationship with its all stakeholders certainly attract more investors. The stakeholders include financiers, customers, management, employees, government, and the community.

The recent times has seen immense scandals like Volkswagen AC in 2015 or Kobe Steel Scandal in October, 2017 that has made the investors even more vigilant. And thus, more and more companies are striving to have a high level of corporate governance.

The Good news

The good news here is that we are living in an era where technology can provide solution to our multidimensional issues. One such solution comes with Governance.com that provides the platform for everything that is needed to design and operate the internal processes ensuring unprecedented transparency of the governance processes.

To know more, click here.