What does an ESG score evaluate?

An ESG score evaluates a company's performance based on environmental, social, and governance factors. This score encompasses a range of criteria that reflect how well a company manages risks and opportunities related to sustainability issues.

The environmental aspect looks at how a company interacts with the natural environment, including its carbon footprint, energy consumption, waste management practices, and resource conservation. The social component assesses how a company manages relationships with employees, suppliers, customers, and the communities where it operates, considering labor practices, diversity, and community engagement. The governance element evaluates the frameworks, practices, and policies that dictate how a company is controlled and directed, including board structure, executive compensation, and ethical conduct.

In essence, the ESG score provides a holistic view of a company's overall sustainability performance and its potential impact on society and the environment, thereby influencing investment decisions and stakeholder engagement. This focus on sustainability is key to understanding how well a company may navigate future challenges posed by climate change and social responsibility.