Introduction to ESG and ESG Investing

The concept of ESG—which stands for Environmental, Social, and Governance—has gained significant traction in the world of business and finance. ESG is more than just a buzzword; it is a framework used to assess a company's commitment to sustainable and ethical practices.

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ESG is particularly crucial in modern infrastructure development, with approximately 80% of global greenhouse gas emissions linked to infrastructure.

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For investors, ESG investing represents an opportunity to align their portfolios with their values while pursuing competitive financial returns. But what exactly does ESG entail, and why is it becoming so important?

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Breaking Down ESG’s core principles

Environmental Factors

• The environmental aspect of ESG focuses on how a company impacts the planet. This includes issues such as climate change, resource depletion, waste management, and pollution control. Companies that score high in environmental criteria are those actively reducing their carbon footprint, embracing renewable energy, or committing to sustainable supply chains.
• For instance, a company that invests in solar energy or adopts a zero-waste policy would typically score well in this area. Similarly, businesses that disclose their greenhouse gas emissions and set science-based targets for reduction are viewed favorably by ESG-conscious investors.

Social Factors

• The social component of ESG examines how an infrastructure development company manages its relationships with employees, customers, suppliers, and the communities in which it operates. Key considerations include labor rights, diversity and inclusion, workplace safety, and community engagement.
• For example, a company that fosters a diverse and inclusive workforce, supports fair trade practices, or donates to local charities demonstrates strong social performance. By prioritizing social issues, businesses can not only build trust but also enhance their long-term resilience and reputation.

Governance Factors

• Governance factors examine the internal systems, practices, and policies that guide a company's decision-making and ensure accountability. This includes board diversity, executive compensation, ethical business practices, and transparency.
• Strong governance is essential for maintaining shareholder confidence and mitigating risks. Companies with a history of ethical lapses, such as accounting scandals or insider trading, tend to rank poorly on ESG governance metrics.

What is ESG Investing?

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