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Environmental, Social and Governance criteria (ESG) are the standards that investors are increasingly using to evaluate a corporation’s operations and performance. About one-third of companies have , and ESG criteria have started to shape their business strategies. Investors seeking companies that meet ESG criteria value returns, but don’t prioritize profits over .
Environmental criteria . ESG criteria also evaluate how a company manages environmental risks that may affect a company’s income. The social criteria evaluate a company’s business relationships; such as if a company donates a percentage of its income or volunteers in the community. The governance aspect is if a company uses transparent accounting methods, avoids conflicts of interest in board members, and if common stockholders are allowed a vote in board meetings. Sustainability Accounting Standards Board (SASB) is a nonprofit that has developed sustainability metrics to create a uniform disclosure of sustainability metrics for public companies to use in public reporting.
Investment research company, Morningstar, released the , where companies are ranked and compared to industry peers in their environmental, social, and governance performance. Morningstar’s sustainability rankings have been applied to over 21,000 mutual and exchanged-traded funds globally and are calculated by determining a fund’s portfolio sustainability score, then by assessing its sustainability score relative to its peers.
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