The Pillars of ESG Evaluation

Investors typically break down ESG performance into three interrelated pillars—Environmental, Social, and Governance—each with its own set of measurable criteria.

Environmental Criteria focus on a company’s impact on the natural world and include metrics such as:

• Carbon Emissions and Energy Efficiency: Evaluating greenhouse gas emissions intensity and the progress toward achieving net‑zero targets. Companies are increasingly measured on their emission reduction strategies, which have direct implications on regulatory risk and long‑term operational costs.
• Resource Management and Waste Reduction: Assessing water usage, waste management practices, and circular economy initiatives. For instance, companies with robust recycling programs and efficient resource usage are considered more resilient in the face of resource scarcity.

Social Criteria assess how a company manages relationships with its employees, customers, suppliers, and communities. Key factors include:

• Workforce Diversity and Inclusion: Measuring gender, ethnic, and age diversity within the organization, as well as policies promoting equal opportunity.
• Labor Standards and Community Engagement: Evaluating workplace safety, fair labor practices, and contributions to local communities. Transparent reporting on these facets helps investors discern a company’s social impact and operational integrity.
• Data Privacy and Customer Protection: Ensuring robust cybersecurity measures and ethical handling of personal data, which are increasingly critical in today’s digital economy.

Governance Criteria examine the structures and processes in place to steer company behavior and ensure accountability. Important aspects include:

• Board Composition and Executive Remuneration: Assessing the diversity, independence, and expertise of board members, along with transparent and performance‐aligned compensation policies.
• Transparency and Ethical Conduct: Evaluating policies and practices designed to prevent corruption, fraud, and conflicts of interest, which collectively influence investor confidence.
• Risk Management and Regulatory Compliance: Reviewing how effectively a company anticipates and mitigates emerging risks in its operations and strategic decisions.