What is ESG (Environmental, Social, and Governance)?

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ESG is the acronym for Environmental, Social, and (Corporate) Governance, the three broad categories, or areas, of interest for what is termed “socially responsible investors.” They are investors who consider it important to incorporate their values and concerns (such as environmental concerns) into their selection of investments instead of simply considering the potential profitability and/or risk presented by an investment opportunity.

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Within each ESG category are various specific related concerns, discussed below, that may or may not be pertinent in a given situation, depending on the specific investment being examined. For example, under the “Environmental” category are concerns such as pollution or waste material that a company produces and factors related to climate change.

Socially responsible, or ESG, investing may also be referred to as sustainable investing, impact investing, and mission-related investing. ESG investors tend to be more activist investors, participating at shareholder meetings and actively working to influence company policies and practices.

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Summary

• ESG is the acronym for Environmental, Social, and (Corporate) Governance, the three broad categories or areas of interest for what is termed “socially responsible investors.”

• ESG concerns are growing as more of the millennial generation make up the total pool of investors.

• The issue of executive compensation is the primary focus of many ESG investors.