What is ESG (Environmental Social Governance)?

ESG stands for environment, social, and governance, a set of criteria used by investors, executive boards, managers, and other stakeholders to evaluate the sustainability, corporate responsibility, and risk profile of a business.

ESG is also described as environmental, social, and governance - same thing, slightly different acronym.

How Does ESG Work?

ESG analyzes three themes or categories:

  1. Environment - How a company performs in terms of its environmental sustainability and impacts
  2. Social - How a company manages relationships with its employees, suppliers, customers, and the communities where it operates
  3. Governance - A company’s leadership, executive pay, decision-making structure, transparency, policies, controls, security, and shareholder rights/li>

Companies publish annual ESG reports about their data and performance, and investors read and analyze these reports to evaluate the benefits of risks of making investments. While ESG reports and ratings often group environmental, social, and governance information together, each of the three sections measure their own distinct things:


Environmental ESG activities, issues, risks, opportunities, and disclosure topics include:

This ESG category is similar to our basic definition of corporate environmental sustainability — balancing the environment, equity, and economy across products, packaging, facilities, energy usage, consumption, and waste in an effort to reduce global warming, climate change, and biodiversity loss through an investment and corporate decision-making lens.


Social ESG activities, issues, risks, opportunities, and disclosure topics include:

Internally, this ESG category is closely connected to a company's HR (human resources) and CSR (corporate social responsibility) policies, programs, and practices. It also related to human rights, economic development, and community impact.


Governance ESG activities, issues, risks, opportunities, and disclosure topics include:

  • Corporate ownership structure
  • Leadership and board diversity
  • Executive pay
  • Ethical decision-making
  • Risk management
  • Corporate policies and controls
  • Data privacy and cybersecurity

As well as other aspects that balance the rights, responsibilities, and structure of various shareholders and stakeholders in the company.

What is ESG (Environmental Social Governance)

Why Do Companies Publish ESG Reports?

The short answer is because investors and governments ask them to. However, many companies that aren't required to report their ESG performance still do it voluntarily as a sign of good corporate citizenship and transparency. By publishing ESG reports, companies can show how their performance compares to peers, demonstrate industry leadership, improve their reputation and investor standing, and promote accountability around their ESG efforts.

To learn more about ESG reporting, please read our in-depth guide here.

Different ESG Jobs, Sectors, and Responsibilities

As you've already learned, ESG is quite broad, spanning a variety of different topics and responsibilities throughout the economy. So let's walk through some real-world examples of ESG work:

Common ESG Jobs and Responsibilities

There are quite a few different ESG-related jobs. In fact, we'd argue most jobs have something to do with environmental, social, or governance. That includes:

1. ESG Analyst or Investment Researcher

  • Researches and analyzes data on ESG metrics
  • Advises investment teams and helps integrate ESG factors into investment decisions

2. Sustainability or ESG Consultant

  • Advises companies on sustainability and ESG practices
  • Helps implement ESG initiatives and improve sustainability reporting

3. Corporate Sustainability or ESG Reporting Manager

4. Environmental Engineer or Scientist

  • Studies environmental and climate data and topics
  • Focuses on reducing the environmental impact of products, processes, and/or operations
  • Develops systems or processes that are more circular and sustainable

5. DEI or HR Manager

  • Supports diversity, equity, and inclusion in the company's hiring practices, employee policies, and workplace culture
  • Promotes and measures employee engagement, satisfaction, and wellness

6. Social Impact Manager

  • Measures and manages a company's social impact programs like philanthropy and mission-driven corporate partnerships
  • Engages in dialogue and collaboration with local communities, non-profits, and NGOs

7. Legal, Governance, or Compliance Officer

  • Ensures that company practices and policies are in alignment with good governance standards
  • Makes sure a company follows the laws, including ESG-related regulatory requirements
  • Oversees regulatory compliance and ethical business practices

As well as many others, including boards, CEOs, CFOs.

ESG in Different Parts of the Economy

Many different business sectors and segments of the economy play an important role in ESG. Most also have their own, industry-specific ESG priorities, topics, and risks. Examples includes

  • Finance and Investments - Carries out ESG investment strategies and banking practices, allocates capital to companies based on their ESG performance and risk profile, and develops ESG financial products and strategies
  • Energy - Shifting the economy towards renewable energy like wind, solar, and geothermal, and away from burning fossil fuels
  • Manufacturing - Implementing sustainable and circular production practices, developing more sustainable products, and improving supply chain sustainability
  • Real Estate and Construction - Developing greener, healthier, and more energy-efficient buildings and public spaces

ESG Compared to Traditional Financial Analysis and Investment

While ESG focuses on "non-financial" indicators compared to classic investor metrics like profit and earnings-per-share, ESG issues can directly impact a company's finances, costs, and long-term competitive standing. For example, when a company like Amazon is investigated for its labor practices or criticized for the environmental impacts of its packaging and shipping practices, these risks can impact its stock price and profitability.

ESG criteria give investors and decision-makers a complete lens to evaluate a business' strategy, operations, opportunities, and risks, by accounting for how its business interacts with and impacts its employees, partners, the environment, and society.

One helpful way to view ESG is the social externality side of financial accounting. In modern history, companies operate, account for their financial performance, and then issue shareholder reports like a 10-K which investors use to decide if they want to invest in the company or not. The problem with this narrow approach however — as we've recently seen with companies like Exxon Mobil, JPMorgan Chase, Wells Fargo, Twitter, and Tesla — is that financial accounting alone doesn’t fully account for the consequences and risks of operating a company, particularly long-term:

  • What if your business model fundamentally denies or contributes to climate change?
  • What if your business or value chain is exposed to countries that are at war, under sactions, or operating generally oppressive regimes?
  • What does it mean for your company's long-term performance and competitiveness if you cultivate a toxic workplace culture that creates publicity issues, promotes racism or discrimination, and compels employees to leave?

These are the types of questions and risks ESG attempts to understand and address.

Why ESG is Important for Every Company

Due to a variety of economic, social, scientific, and political factors, support for responsible, stakeholder capitalism and assessing the long-term role of companies in society has grown considerably over the past decade. The impact of the COVID-19 pandemic, climate change, Black Lives Matter, wealth inequality, government gridlock, and regulatory uncertainty have increased the need for companies to proactively integrate ESG issues and risk management into their strategy, policies, business model, company culture, and sourcing.

Compared to quarterly earnings cycles and short-term decision-making, ESG is a longer-term lens on risks, opportunities, and value creation. But ESG also carries near-term, immediate consequences, particularly for companies who fail to consider and address material ESG considerations.

Top ESG Business and Investment Risks

Some of the most important (and common) ESG risks for companies and investors include:

  • Access to capital - From institutional ESG investors like BlackRock and State Street to private equity and banking lenders, more capital providers are using ESG indices, scores, and ratings signals to assess the risk-return profile of their allocation decisions. Emerging evidence suggests better company ESG performance translates to a lower cost of capital for companies, plus broader liquidity access
  • Share price risk - Research from MSCI and Morgan Stanley indicate strong ESG performers have lower earnings volatility and lower market risk compared to lower-ranking companies
  • Board risk - From Engine No. 1's Exxon Mobil board activism campaign to State Street voting against the re-election of directors at 400 companies who failed to improve gender diversity on their all-male boards, directors who fail to act on material ESG risks and opportunities are increasingly seen as poor corporate leaders and fiduciaries
  • Climate risk - As climate change and biodiversity loss fuel trillions of dollars in economic loss and risk, organizations need to identify, manage, and adapt to climate impacts across their business model, products, and value chain. Fortune 500 companies alone carry an estimated $2 trillion+ in financial risk from climate impacts
  • Regulatory risk - On the legal side, regulators in the European Union (EU), United Kingdom (UK), United States, Canada, Singapore, and other regions are pushing for more robust ESG implementation across financial reporting, non-financial reporting, and regular operational practices. The Corporate Sustainability Reporting Directive (CSRD) and European Sustainability Reporting System (ESRS) require thousands of companies doing business in the EU to improve their sustainability performance and ESG disclosures
  • Brand and customer risk - The majority of consumers (and a growing number of businesses) want to buy from sustainable brands, making ESG investment, integration, and innovation important ways to de-risk current and future revenue streams while strengthening public reputation
  • Financial ROI - There are many, proven ways sustainability and ESG integration can drive operational cost savings and tangible ROI for category leaders

In many ways, ESG performance has become a major indicator of responsible leadership, brand reputation, and risk management. A well-run company that cares about its people, customers, and the environment will logically be more resilient over time and outperform its peers who don't.

ESG Regulations

Currently, companies around the world are navigating a landscape of different rules and requirements when it comes ESG reporting. The U.S. Securities and Exchange Commission (SEC) has been advising publicly traded companies to disclose climate-related matters that are financially significant, but still haven't been comprehensive regulations in place. However, other regulatory bodies worldwide are now introducing or finalizing ESG reporting requirements and regulations, including Australia, Canada, the European Union (EU), India, Singapore, the United Arab Emirates (UAE), and the United Kingdom.

Top ESG Issues and Trends Today

2023 continues to be an eventful and turbulent year. Much like the news cycle itself, ESG issues also trend in terms of global and stakeholder attention and prioritization. While every company's ESG materiality is unique, here are some of the most important ESG issues leaders, boards, and investors need to keep in mind in 2022:

  • War - In addition to rampant human rights violations and war crimes, Russia's unprovoked and illegal invasion of Ukraine has led to supply chain shocks and driven up commodity prices for important resources like oil, wheat, and corn. More recently, armed conflict in Israel and Gaza has also increased macroeconomic risks for many companies and sectors
  • Climate crisis - Record heatwaves and wildfireds across Europe, North America, India, and other parts of the world continue to highlight the need for urgent climate action to prevent catastrophic humanitarian and biodiversity loss
  • Inflation and economic uncertainty - Commodity price inflation from war in Ukraine, pandemic supply chain frictions, and massive central bank liquidity during a recent low interest rate era have put strain on consumer prices, harming low-income earners, households, and vulnerable communities
  • Uyghur human rights in Xinjiang - China has been accused of human rights violations, forced labor, and possibly genocide against the Uyghur population and other ethnic groups in the north-western region of Xinjiang. Human rights groups believe China's detained over one million Uyghurs in "re-education camps," sentenced hundreds of thousands to prison terms, and required Uyghur's to produce cotton and other materials that are sold at home and abroad. In December 2021, U.S. Congress and President Joe Biden signed the Uyghur Forced Labor Prevention Act (H.R. 6256 or UFLPA) which places import limits on goods produced using forced labor in China
  • COVID-19 and public health - Several years into the global pandemic, the COVID-19 virus continues to persist, evolve, and mutate, requiring renewed public and private health responses, while putting further pressures on global supply chains.
  • Board and leadership diversity - While many companies have made some progress on diversity, equity, and inclusion since the 2020 George Floyd protests, corporate diversity continues to lag, particularly at the management, leadership, and board level
  • Internal ESG alignment, integration, and resourcing - As ESG transitions from an investor framework to an operating discipline, firms are exploring how to better organize internally for ESG success to break down silos and improve data and program visibility, decision-making, and cross-team collaboration

Within ESG, it's critical for leaders to keep up with - if not anticipate - these trends, while also creating flexible structures, technology, and operating principles to adapt to new and emerging ESG issues.

The Future of ESG

Today, ESG continues to be an important and growing topic across the global economy. While ESG may feel complicated, dozens of case studies demonstrate that strong, thoughtful, and strategic ESG performance is a competitive business advantage that delivers positive ROI. Many companies start ESG work due to compliance and investor reporting pressures, only to find that as their ESG investments, maturity, and capabilities evolve, their company realizes significant cross-company benefits and efficiencies.

What ESG is and How it Works

Every company's ESG roadmap is different - and ESG truly is a long-term, strategic journey for boards and management teams. Nonetheless, the benefits of strong ESG performance on brand reputation, employee talent attraction and retention, culture, operational efficiency, risk management, and access to capital are not only numerous - many are quantifiable. And, as always, if we can help your organization improve your ESG strategy, data managementm or unlock more ESG ROI, please be in touch.