“ESG” stands for environmental, social, and governance. ESG investing is a way of investing in companies based on their commitment to one or more ESG factors. It is often also called sustainable investing, socially responsible investing, and impact investing.
- The environmental factor might focus on a company’s impact on the environment or the risks and opportunities associated with the impacts of climate change on the company, its business and its industry.
- The social factor might focus on the company’s relationship with people and society, or whether the company invests in its community.
- The governance factor might focus on issues such as how the company is run and executive compensation.
Different investments may weight environmental, social and governance factors differently and also may focus on different specific criteria within a factor. Investments that don’t have “ESG” in the name may still incorporate elements of ESG investing into their portfolios. If the investment is a mutual fund or ETF, you can learn more about how the fund incorporates ESG and how it weights ESG factors by reading its disclosure documents.