What does ESG stand for in sustainability accounting?

The term ESG stands for Environmental, Social, and Governance. In the context of sustainability accounting, ESG criteria are used to evaluate a company's performance in these three fundamental areas, which are crucial for assessing its overall sustainability and ethical impact.

The "Environmental" aspect focuses on how a company performs as a steward of the natural environment, including its policies on climate change, resource depletion, waste, and pollution. The "Social" component examines how it manages relationships with employees, suppliers, customers, and the communities where it operates, encompassing issues such as labor practices and community engagement. Lastly, the "Governance" part deals with a company’s leadership, executive pay, auditing, internal controls, and shareholder rights.

Understanding ESG is essential for investors, as it helps them gauge the long-term sustainability of their investments and how well companies align with socially responsible practices. Thus, acknowledging these three aspects of ESG is vital in the field of sustainability accounting, providing a framework for assessing both risks and opportunities that a business may face in its pursuit of sustainability goals.