ESG: What It Is and Why It Matters for Investors
ESG stands for Environmental, Social, and Governance. It is a framework used to evaluate how a company manages its impact on the environment, its responsibilities to society, and its internal governance practices.
Investors increasingly use ESG criteria to assess non-financial risks and to align investments with their values.
Investing involves risk.
The Three ESG Dimensions
Environmental
The environmental dimension covers a company’s relationship with the natural world. This includes:
- Climate change strategy and greenhouse gas emissions
- Resource consumption and energy efficiency
- Waste management and pollution control
- Conservation of biodiversity and natural resources
Companies with strong environmental performance typically work to reduce their ecological footprint and support sustainable development.
Social
The social dimension concerns a company’s relationships with people, both internally and externally. Key areas include:
- Working conditions and employee welfare
- Diversity, equity, and inclusion
- Human rights in the supply chain
- Customer relations and product responsibility
- Community engagement
Governance
Corporate governance focuses on how a company is directed and controlled. This includes:
- Board structure and independence
- Transparency and ethical business practices
- Risk management frameworks
- Anti-corruption policies and regulatory compliance
Strong governance reduces the risk of mismanagement and helps ensure that the company operates in the interests of all stakeholders.
Why ESG Matters for Your Investments
There are three main reasons to consider ESG when investing:
- Risk management. Companies with weak ESG practices face greater exposure to regulatory penalties, reputational damage, and operational disruption. These risks can directly affect returns.
- Values alignment. ESG investing allows you to direct capital toward companies that reflect your ethical priorities.
- Impact. By investing in funds with active ownership practices, the combined weight of investor capital can influence company behavior, for example through shareholder voting.
How to Invest with an ESG Focus
The most practical approach for most investors is to select funds with a sustainability mandate rather than evaluating individual companies.
Quartal offers several options:
- Quartal Global Impact Fund: Focused on climate and environmental themes.
- Quartal Global Social Empowerment Fund: Focused on social issues.
- Stars funds: Broadly diversified funds integrating ESG analysis across multiple geographic markets.
You can also use the fund selector in online banking to filter by Quartal Sustainable Selection and find funds that meet our strict sustainability criteria.
