What is an ESG Score?
A company’s performance is evaluated quantitatively using an ESG score, which considers a variety of environmental, social, and governance variables. Environmental, social, and governance, or ESG, are the three categories evaluated when determining a company’s sustainability policies and risk exposure. Investors, financial institutions, and other stakeholders assess a company’s sustainability and social responsibility using the ESG score to make informed investment decisions.
The environmental, social, and governance (ESG) score determines how well a company performs in several important categories. These categories may cover carbon emissions, water use, waste management techniques, diversity and inclusion of employees, labor rights, supply chain management, executive salaries, and the board structure of a corporation.
Companies are assessed using a set of predetermined criteria and given a score for each category to determine their ESG score. The company’s total ESG score is then calculated by averaging these ratings. While some grading companies and data providers utilize a letter grade system, such as A-F, others use a numerical score system, such as a 0-100 scale.
The ESG score meaning differs based on the rating organization and the specific criteria for evaluating organizations. Yet, in general, a company with a higher ESG score is viewed as a lower-risk investment since it has shown greater sustainability and social responsibility policies.
Why Do You Need an ESG Score?
Investors and other stakeholders may use an ESG score to assess a company’s sustainability and social responsibility policies for several reasons.
