(abbreviation for environment
) are the criteria underlying the principles of responsible finance.
The Responsible Finance Principles were developed with the support of the United Nations with the aim of educating investors on the level of environmental, social and governance risks of financed companies in order to develop the resilience of the global financial system.
ESG criteria include:
E — environment
, environmental aspects of the company.
This category includes an assessment of the company’s impact on the depletion of natural resources, environmental pollution, deforestation, climate change and other environmental factors.
S — social
, social aspects of the company.
Social aspects include the company’s relationship with employees, including occupational health and safety of employees, gender composition, work to eliminate discrimination in all its forms, the company’s interaction with local communities.
G — governance
("corporate governance"), management aspects of the company.
They include the system of remuneration for the persons managing the company, the company’s involvement in corruption schemes, the company’s participation in charity, tax strategy.
Currently, there is no single scale of ESG criteria, and rating agencies assess the performance of firms for compliance with these factors. Due to the lack of a unified methodology, the assessments of various rating agencies may differ.
Pros and cons of using ESG criteria when making investment decisions
The positive side of using ESG criteria is the avoidance of companies that can potentially be involved in environmental and political scandals and, as a result, lose their solvency.
On the other hand, following the ESG criteria entails additional costs for the company, which can worsen its financial performance.
Examples of corporate bonds with high ESG scores according to the research organization MSCI:
Microsoft, 2% 8aug2023, USD
, Alphabet, 1.1% 15aug2030, USD
, Agilent Technologies, 2.1% 4jun2030, USD