ESG criteria are non-financial factors that investors use to analyze and screen companies. Environmental, social, and governance (ESG) data was introduced as a tool to guide socially responsible investors. Investors use ESG data to find companies that are trying to reduce their negative effects on society and/or give back to society. Environmental factors look at things like how well a company uses energy and how much CO2 it puts into the air.
Social refers to things like how a company treats its workers, how happy its customers are, and how safe its products are. Governance factors look at things like how clear the accounting is, how independent the board is, and whether or not there has been a history of corruption. There isn’t a single list of ESG factors, and their importance varies from sector to sector. Some investors use ESG factors because it’s important to them, while others want to look at non-financial risks.