ESG Factors are the new normal for conscious investing.
There are a lot of things that investors care about. They like to know about profitability, about market trends, and about a company’s competitive edge. Increasingly, though, they also like to know whether or not a company’s committing war crimes, or making an endangered species go extinct. But how does one measure this ethical accountability? Enter ESG Factors.
Environmental, Social, and Governance (ESG) Criteria are quickly becoming an industry-standard metric for investors who want to know if a company and its practices are sustainable, viable, and accountable. They break down how an institution interacts with the world around it and the people within it.
On the environmental level, ESG Factors pose questions about sustainability and safety. This could mean responsible farming, harvesting, and fishing, or reducing and offsetting carbon emissions. For companies that deal with toxic chemicals, pollutants, or nuclear materials, it’s safely disposing the waste and byproducts.
Issues like oil spills, nuclear meltdowns, and depleting the globe’s salmon population aren’t just bad for the earth and everything that eats and breathes, they’re bad for business, and a lack of safeguards in the present can spell disaster in the future.
The social level deals with human relations both within and without the company. Diversity and inclusion measures, and narrowing (and destroying!) the wage gap for women and minorities, is just one facet. Another is making sure that a company’s rights and protections extend all the way through the supply chain. And another still is doing the due diligence to know if your contractors are or have been involved in ethnic cleansing, genocide, or any other ethical quandaries. Or, increasingly, if you sell your identification or surveillance tech to tyrannical regimes.
Diversity isn’t just tokenization – companies that hire from a broad range of backgrounds have more perspectives, ideas, and varied ways of approaching challenges, and investors are taking notice. And like environmental disasters, atrocities, whether committed by a company or by a related party, can be a liability. They’re also terrible in general, but you should already know that.
The final section of the ESG criteria refers to how a company is managed. Whether or not the chairman of the board is independent or the CEO, for instance, or whether executives are exponentially out-earning their employees. It also deals with codes of conduct, and whether or not there are clear guidelines about corruption, insider training, customer privacy, cybersecurity, taxes, and other issues.
Transparency, company culture, and written rules give employees, management, and investors alike a good idea of how the company sees itself, where the company’s headed, and what it’s doing to stay on the right track.
Test your company: Take Zirra’s ESG Assessment
We’ve developed a short, simple assessment to help companies better understand their own ESG policies. It’s 40 multiple choice questions: 10 introductory questions, and then three sections of 10 questions about your companies environmental, social, and governance protocols, respectively. The results are anonymous, and are just there to help you and your company find areas where you need to improve.