ESG criteria refer to environmental, social and corporate governance factors that are taken into account when investing in a company. In recent years it has become the benchmark for socially responsible investment (SRI).
ESG sustainability criteria
ESG stands for “environmental, social and governance”. Each of these refers to the following:
Environmental criteria
The E in Environmental refers to the practices a company adopts in relation to environmental conservation. It analyses the contribution and performance of a business with respect to environmental challenges (greenhouse gas emissions or water resources, for example). It therefore encompasses the environmental impact and effect of companies on nature and the resources they use to reduce them.
Social criteria
Social criteria assess the impact that the organisation may have on its immediate social environment. Relations with the communities where the company is present are analysed, as well as whether human resources are promoting equality and diversity, in addition to social inclusion. Thus, this criterion seeks the creation of a healthy space.
Governance criteria
The governance or corporate governance criteria are related to the governance mechanisms of companies, the rights of shareholders and the responsibilities of executive management. It examines companies’ decision-making procedures, organisational structure, control mechanisms and compliance systems.
Linking the SDGs to ESG criteria
The Sustainable Development Goals (SDGs) of the 2030 Agenda are the pillars of the sustainability framework. They address more specific issues, such as climate, equality, consumption, among others.
Both are of great relevance today. ESG criteria are closely linked to new and growing trends in socially responsible investment, as well as to non-financial reporting requirements. In the case of the SDGs because of the popularity among companies that focus their sustainability management around them.
Thus, we have established a relationship between the two:
- Environmental criteria. Since they represent a necessary commitment to a new, greener and more prosperous form of economy, there are many Sustainable Development Goals linked to them, such as SDG 6, on clean water and sanitation, SDG 7, on affordable and non-polluting energy, or SDG 12, on responsible and sustainable production and consumption, which also talks about recycling.
- Social criteria. The 2030 Agenda is the agenda of humanity, so it is strongly related to social criteria. Among the most related SDGs, we find SDG 1 on the end of poverty, SDG 3 on health and well-being and SDG 5 on gender equality.
- Governance criteria. These criteria link SDG 8 on decent work and economic growth, SDG 16 on peace, justice and strong institutions and SDG 17 on partnerships to achieve goals.