- The Big Explainer
- What is ESG and Why Does it Matter?
The Big Explainer
What is ESG and why does it matter?
ESG is the hottest theme in world finance right now but what exactly does it mean? Here is a very simple explanation.
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Roger Hirst [00:00:04] Welcome to the big conversation explainer. ESG is a very hot topic at the moment. A vast number of corporate leaders are now committing their company policy to an ESG future. And 2020 looks like it will be the year where the adoption of ESG policies will reach a critical mass among key corporate stakeholders. A sort of tipping point onto which actual investment trends will start to exert themselves. I'm very aware that although everyone seems to be talking about ESG, many people don't fully understand what it stands for or means. So let's clarify that.
Andre Chanavat [00:00:35] How we categorize E, we've got environmental innovation, we've got resource usage and we've got emissions. Then under social for example, you'll be looking at human rights, your workforce, health and safety issues, as well as to think about also what is your corporate social responsibility strategy. So are you going to be signing up to the Global Compact? What are your targets in the future around sustainable issues? And then, of course, the G-, the governance. So as a shareholder, what are your shareholder rights? How is the board structured? So when we talk about ESG, we have over 450 individual measures. But, you know, you could go into easily into the thousands.
Roger Hirst [00:01:14] Companies are now signing up to the ESG protocols. That means they're providing increasing amounts of data. This data can be compared and ranked so that each company can be given its own ESG score. ESG scores are not just about jumping on the environmental bandwagon. It's about recording a vast array of data inputs for corporate decision making. So you can see ESG is a huge area and that's why its tentacles touched so many businesses. The key thing to remember is that ESG is fast becoming a critical new factor for investors to consider in their decision making process. And that trend looks set to continue for many years ahead.