The last few years have witnessed a significant rise in interest in Environmental, Social, Governance (ESG) factors in investing and decision-making. ESG factors cover a wide range of issues that are not traditionally considered part of financial analysis yet are now recognized as being material to financial performance. For example, how a company manages its direct and indirect emissions of greenhouse gases is increasingly a matter of concern by investors and other stakeholders in a carbon-constrained world. Similarly, withdrawal of large volumes of water for use by oil and gas and mining companies in water-stressed areas is an issue that is of concern by governments and local communities, as is the way companies treat their employees or deal with health and safety issues. Companies that fail to properly address ESG issues can face several risks, ranging from poor reputation, brand erosion and lack of social license to operate. Research from leading universities continue to demonstrate that companies that do excel at managing their ESG risks and opportunities also do well financially. The remarkable rise in interest of ESG has resulted in an ever-increasing number of standards and frameworks that companies are using to report on their ESG performance. While this increase in reporting frameworks is further testament to the significant rise in interest in ESG issues, it does makes it difficult to compare ESG performance between firms - in the same industry and across industries. This paper explores the reasons behind the recent rise in ESG interest by stakeholders, including investors, regulators, companies and consumers. Common multi-industry ESG factors are introduced, as well as the key components in ESG strategy development and implementation. The paper also reviews the common ESG standards and frameworks that organizations are using to manage and report on material ESG issues. The paper concludes with some examples of strategies that companies are using to address risks and opportunities associated with greenhouse gas emissions and climate change.
