ESG Innovation is racing ahead, focusing on solving many of the key problems facing the world while recently providing handsome returns for investors seeking out these opportunities.
ESG stands for Environmental, Social, and Governance. Together, they make up a set of standards used by company leaders and other stakeholders (e.g. investors, employees, customers, and suppliers) to measure a company’s long-term impact on the environment and society (source: PwC).
Environmental criteria may include a company’s energy use, waste, pollution, natural resource conservation, and treatment of animals. The criteria can also be used in evaluating any environmental risks a company might face and how the company is managing those risks. For example, are there issues related to its ownership of contaminated land, its disposal of hazardous waste, its management of toxic emissions, or its compliance with government environmental regulations?
Social criteria look at a company’s internal and external business relationships. Does it prioritize and actively work toward achieving diversity, equity, and inclusion (DE&I) among its employees and leadership, the communities it serves and in which it operates, as well as at a global and societal level? Does it work with suppliers that hold the same values as it claims to hold? Does the company donate a percentage of its profits to the local community or encourage employees to perform volunteer work there? Do the company’s working conditions show high regard for its employees’ health and safety? Are other stakeholders’ interests considered?
With regard to Governance, investors may want to know that a company uses accurate and transparent accounting methods and that stockholders are given an opportunity to vote on important issues. They may also want assurances that companies avoid conflicts of interest in their choice of board members, don’t use political contributions to obtain unduly favorable treatment and, of course, don’t engage in illegal practices.
ESG (Environment, Social & Governance) is one of NASDAQ's most recently updated innovations in guiding their publicly listed companies to increase transparency for their stakeholders who are increasingly concerned about the social responsibilities that large corporations are expected to fulfill. NASDAQ’s position as a major stock exchange allows them to help companies report sustainability metrics using their ESG framework. NASDAQ not only helps companies report on these metrics, but also helps companies improve on ESG measures, through their advisory services. Evan Harvey states, “Our ESG advocacy goes beyond performance measurement and disclosure guidance. We want to help companies master this part of their business” (Nasdaq, 2019). With both their reporting and advising services, NASDAQ is taking a big step in ensuring the companies they work with are accurately reporting and adopting ESG initiatives.