What Is ESG Investing & What Are ESG Stocks?

The environmental component addresses how a company affects the planet through:

• Climate change policies
• Greenhouse gas emissions
• Carbon footprint and carbon intensity
• Water usage and conservation, overfishing, and waste disposal
• Renewable energy usage
• Recycling and disposal practices
• Green products, technologies, and infrastructure
• Employee incentives promoting carpooling, public transportation, bicycle commuting, etc
• Relationships with the U.S. Environmental Protection Agency (EPA) and other environmental regulatory bodies

The social component of ESG covers issues affecting employees, customers, consumers, suppliers, and the local community. Examples include:

• Employee treatment and compensation
• Employee engagement and turnover
• Employee training and development
• Employee safety policies and sexual harassment prevention
• Diversity and inclusion in hiring, promotions, and pay increases
• Ethical supply chain sourcing
• Mission or higher purpose
• Customer service performance
• Consumer protection activity, including lawsuits, recalls, and regulatory penalties
• Lobbying efforts and public stance on social justice issues

The governance component relates to board independence, leadership effectiveness, and business ethics. Specific topics include:

• Executive compensation, bonuses, and perks -- and whether they're tied to long-term business value
• Policies that define and enforce ethical business practices
• Diversity of the board and management team
• Potential for conflicts of interest for board members
• Shareholders' ability to nominate board candidates
• Whether term lengths differ among board members
• Separation of the chairman and CEO roles
• How board votes are decided -- by a majority or by who receives the most votes
• Whether the company issues dual- or multiple-class stock
• Transparency of shareholder communications
• History of shareholder lawsuits
• Relationships with the SEC and other regulatory bodies