“ESG” refers to the Environmental, Social and Governance factors by which companies can be evaluated with respect to a broad range of non-financial objectives. These factors are widely used by investors to measure and evaluate a company’s sustainability, commitment to social objectives and the corporate structure that governs both of these.
ESG factors can impact a company’s strategy, business model, risk management, and financial and operational performance. Effective management of these factors can produce a range of benefits including improved risk management; enhanced business resilience; cost savings and increased revenue streams through innovative products; an advantage in attracting, retaining, and motivating employees; enhanced brand reputation and customer loyalty; and improved social licence to operate in local communities.
Integrating material ESG factors into the company’s strategy, existing processes, and key performance indicators (KPIs) can help identify and harness these opportunities for competitive advantage, as well as encourage collaboration among different departments and functions within a given organization. While there are some standard ESG factors that impact all industries, many industries have their own unique industry-specific ESG factors through which they are evaluated.
Environmental factors relate to how a company performs as a steward of the natural environment – they measure how the actions of companies affect the environment. They measure whether companies comply with environmental guidelines, how efficiently they use energy and resources, the effects that the production of goods have on the environment and the companies’ commitment to reducing carbon emissions.
Examples of environmental factors include:
Social factors deal with how a company manages its relationship with internal and external stakeholders – its employees and its workforce, the communities and the societies it operates in. In essence, this category pertains to how a company treats its employees, customers, suppliers and local communities.
Examples of social factors include:
The “G” in ESG stands for governance and is aimed at corporate management factors, including long-term and sustainable corporate development. It examines how rights and responsibilities are distributed among the various stakeholders in companies – including the board, managers, shareholders and other stakeholders.
Examples of governance factors include:
Investors, asset managers and other financial institutions have increasingly utilized ESG performance in making investment decisions. According to Opimas, LLC, the overall value of assets under management (AUM) at funds leveraging environmental, social and governance (ESG) data has increased significantly over the past four years, from US$22.9 trillion in 2016 to over US$40 trillion in 2020. While there is no universal standards for ESG, several frameworks have been developed over the years. As well, investment decisions have been made in accordance with ESG-equivalent criteria since the start of sustainable investing, even if the specific ESG acronym was not used.
In 2020, PSAC formed an ESG council dedicated to providing PSAC Core members with a forum for the discussion of ESG data, metrics, measures and benchmarks affecting capital investment and debt markets for the oilfield service, supply and manufacturing (OFS) sector and the oil and gas industry as a whole. The innovation and technology developed by Canadian oilfield services companies has been a key factor in the safe and responsible development of oil and gas in Canada and globally. For more information about PSAC’s ESG activities, please email firstname.lastname@example.org. If you are a PSAC Member, please log into the Members’ Only area to access further ESG information.
- ESG 101. Toronto Stock Exchange | TSX Venture Exchange. https://www.tsx.com/company-services/learning-academy/esg-101
- ESG Basic. DWS. https://www.dws.com/solutions/esg/esg-basics/
- Environmental, social and governance issues. Principles of Responsible Investment (PRI). https://www.unpri.org/sustainability-issues/environmental-social-and-governance-issues
- Introduction to ESG. Harvard Law School Forum on Corporate Governance. https://corpgov.law.harvard.edu/2020/08/01/introduction-to-esg/
- What is ESG. Energy Workforce & Technology Council. https://energyworkforce.org/center-of-excellence/what-is-esg/
- What are the different ESG Frameworks. Source Intelligence. https://learningcenter.sourceintelligence.com/esg-frameworks
Last updated: February 25, 2021