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ESG investors focused on pollution and working conditions

On Behalf of | Jun 16, 2023 | Environmental Law

The term ESG is an acronym for environment, social and corporate governance. ESG operates as a business framework that considers environmental and social issues within corporate governance. Investors increasingly include this non-financial framework in their analysis of risks and growth opportunities. California lawmakers and investors have already adopted ESG policies as the new norm. In February 2023, California lawmakers proposed three climate bills crafted around increasing ESG disclosure and investment in the state.

Evaluating social factors with ESG

The social component of ESG focuses on how organizations impact people. Some of the social reporting ESG investors prioritize includes data protection and privacy, workplace safety, wage equality, customer satisfaction and human rights issues. Many investors focus on evaluating working conditions when assessing social issues with an ESG framework. Employees suffering in adverse work conditions are less productive and increase the risk of litigation, reducing the organization’s bottom line. Data breaches can negatively impact customer loyalty and disrupt operations.

Evaluating environmental factors with ESG

When investors use ESG to evaluate companies, pollution is one of the most common environmental factors under consideration. Other types of environmental reporting ESG investors analyze include climate policies, carbon footprint, waste, water use and resource conservation. ESG investors are most likely to be dissuaded by a history of violating environmental laws. Investors use the ESG framework to evaluate these factors when assessing the potential growth, sustainability and risk exposure from investing in an organization long-term.

The governance aspect of ESG is based on developing a foundational understanding of how an organization is structured for measuring and reducing risk. Investors using ESG often emphasize leadership diversity, fair and equitable compensation, and transparency. Evaluating governance may provide insight on how an organization will likely manage potential risks like adverse working conditions and increasing pollution.