What Is ESG and Why Does It Matter?
ESG stands for Environmental, Social, and Governance. These three big words help people understand how a company behaves beyond just making money. Companies that follow ESG rules care about nature, treat people fairly, and manage their businesses in a responsible and honest way.
Investors, customers, workers, and even suppliers are paying attention to ESG. They want to work with companies that take care of the planet, treat people right, and make smart and fair decisions. Companies with strong ESG practices often have better reputations, fewer risks, and more chances to succeed in the long run.
When someone wants to invest money in a company or become its customer or supplier, they may look at ESG reports to see how the business performs in those three areas. This helps everyone make better and more ethical choices.
Breaking Down the E, S, and G
Environmental (E) sees how a company affects the planet. Does it produce a lot of harmful gases? How much water does it use? What happens to its waste? Companies are expected to limit their pollution, save energy, reduce waste, and prepare for things like floods or wildfires caused by climate change.
Some ways to measure this include:
- Amount of greenhouse gases released
- Water used in daily operations
- Amount and type of waste produced
- Rules or policies about protecting nature
Social (S) is all about how the company treats people. This covers its employees, clients, and the local communities in which it conducts business. Are workers paid fairly? Are men and women paid the same for the same position? Does the company support training or help workers learn new skills when jobs change?
Examples of social indicators include:
- Comparing average pay with local cost of living
- Checking the pay gap between men and women
- Making sure workers’ rights are respected
- Providing job training and skill development
Governance (G) refers to how a company is running. Are the leaders making fair decisions? Is there any corruption or cheating? Do executives make hundreds of times more money than regular workers? Governance also checks if the people in charge come from diverse backgrounds and if the company follows strong rules about honesty.
Some common measures are:
- Ratio of executive pay to average worker pay
- How diverse the board of directors is
- Existence of anti-corruption rules
- Amount of taxes the company actually pays
How Did ESG Start and Evolve?
The ideas behind ESG didn’t start all at once. In the 1980s, the focus was mainly on pollution control and keeping workers safe. This was called EHS—Environment, Health, and Safety. In the 1990s, companies began thinking more about doing good for the environment, not just following the law. This started the idea of Corporate Sustainability.
The Changing Role of Oil in Global Politics and Economics
But some companies made fake promises just to look good—this is called “greenwashing.” In the 2000s, people started talking about Corporate Social Responsibility (CSR), which added ideas like donating to charity or letting employees volunteer. Still, there were questions about whether giving money actually helped in meaningful ways.
The term “ESG” was first used in a United Nations report in 2004. But it became popular only in the late 2010s and early 2020s. Now, ESG is a complete system that looks at how companies handle their role in society, the planet, and the business world in a fair and honest way.
The Real Numbers Behind ESG
ESG uses “metrics” to measure a company’s performance. These are like report cards that show how well a company is doing in each ESG area.
Environmental metrics can include:
- Amount of carbon dioxide released
- Level of air pollution from factories and cars
- Water used every year
- Waste produced, like plastic, chemicals, or old equipment
Social metrics may involve:
- Comparing salaries to living costs
- Measuring how fair pay is between men and women
- Checking for human rights problems
- Seeing how much money is spent on training workers
Governance metrics focus on:
- How much more executives earn than regular workers
- How diverse the company leaders are
- If there are clear rules against corruption
- How much tax the company pays compared to its income
These facts help companies, investors, and the public understand where a business is doing well and where it needs to improve. For example, if a company releases too much pollution but has strong training programs for its workers, that will show up in its ESG score.
A company might have 20 or more of these ESG metrics to track. Managing all of them can be tough, but it helps businesses act more responsibly while still reaching their goals.
In Short: ESG is not just a trend—it’s a way for companies to prove they care about people, the planet, and doing the right thing. From measuring pollution to checking fair pay, ESG helps build trust and long-term success.
