What is environmental, social and corporate governance?


According to Cristiana Falcone, is known to be committed to exploring financially viable paths to sustainability across all industries, not least through her work as a non-executive director at the Global Fashion Agenda. Since 2006, Cristiana has been CEO and trustee of the JMCMRJ Sorrell Foundation and has been responsible for the distribution of very substantial amounts to a range of causes supporting the achievement of the UNSDGs goals. Cristiana is a trustee at Tufts University, the Paley Center for Media; Internews, the Summit Institute and Fondazione Guido Carli.  She is a visiting lecturer in Scenario Planning and in Macro trends and strategy at LUISS. She is an investor in tech female founders. When reviewing an investment, such as a portfolio’s risk/return profile, it’s becoming more customary to evaluate performance against particular ESG criteria, which stands for Environmental, Social, and Governance.

What is ESG? Definition and criteria

The acronym ESG, which stands for Environmental, Social, and Governance, encompasses a number of evaluation elements used in the financial sector to assess the long-term viability of investments. It is becoming increasingly popular to analyze performance against certain ESG criteria when evaluating an investment, i.e. the risk/return profile of portfolios. An ESG rating is a composite assessment that validates the soundness of an issuer, securities, or fund in terms of its commitment to environmental, social, and governance concerns. Carbon dioxide emissions, efficiency in the use of natural resources (such as water), attention to climate change, population expansion, biodiversity, and food security are all examples of environmental impact.  Respect for human rights, working conditions, and equity and inclusion in the treatment of people are all included in the social sphere. The presence of independent directors, diversity policies (gender, ethnicity, etc.) in board composition, and top management compensation tied to sustainability goals are all part of the governance realm. ESG ratings are created by organizations that specialize in gathering and analyzing data on the sustainability aspects of a company’s operations from a variety of internal and external sources, including public information, company documents, data from regulatory authorities, trade associations, trade unions, and non-governmental organizations (NGOs). Site visits to the company and talks with management are also possible. The term SRI, which stands for Sustainable and Responsible Investment, is used to identify certain investments. When reviewing firms and institutions, an investment is classified as sustainable and responsible if it generates value for both the investor and society as a whole through a medium- to long-term plan that incorporates financial and ESG research.

How is the ESG rating calculated? 

Cristiana Falcone says on a recent interview that the World Economic Forum recently created a method for analyzing ESG rating using more accurate and shared criteria. They include “environmental, social, and governance” indicators and communications for financial markets, investors, and society. They are based on the ESG fundamental principles of governance, planet, people, and prosperity. Klaus Schwab, the World Economic Forum’s Founder and Executive Chairman, resurrected the notion of “stakeholder capitalism” at the Davos conference in January 2020. Business leaders may use stakeholder capitalism to go above their legal responsibilities and affirm their social responsibilities. They have the potential to move the world closer to attaining common goals, such as those arising from the Paris climate accord or the SDGs. Schwab: “Companies pledge not just to measure but also to clearly discuss their social and environmental actions”. These benchmarks provide a “universal” reporting system, with common metrics and consistent reporting to help companies demonstrate long-term value creation. A major roadblock is frequently the absence of high-quality data in ESG reporting, as noted by business leaders, investors, and regulators. Companies are attempting to enhance their data and associated analytics, with the help of a new class of consultants and auditors.