Investors use ESG scores to consider nonfinancial factors when analyzing the risks and growth opportunities of companies and making investment decisions.
ESG scores are based on a company’s performance in three categories:
- Environmental,
- Social, and
- Governance.
The environmental category includes factors like a company’s emissions, energy use, and waste minimization methods. The social category looks at how companies relate to their stakeholders, including employees, customers, supply chains, and communities. The governance category examines a company’s leadership by evaluating policies, audits, internal controls, inclusion, and transparency in the reporting process.
Stakeholders pair a company’s ESG scores with its financial results to make investment decisions.
