The “E” in ESG refers to a company’s impact on the natural environment. This includes issues such as greenhouse gas emissions, resource consumption, waste management, biodiversity protection, and efforts to combat climate change.
The “S” covers a company’s impact on society and its relationships with employees, suppliers, customers, and the local community. Key topics include working conditions, gender equality, human rights, employee health and safety, and community engagement.
The “G” focuses on how a company is managed — including board structure, transparency, business ethics, and executive compensation policies. It also evaluates how the company handles risk, corruption, and conflicts of interest.
ESG has become a crucial factor in the investment process. More and more investors, funds, and businesses are prioritizing responsible investments — those that consider not only financial returns but also long-term impacts on the environment, society, and corporate governance. ESG offers a more holistic view of a company’s value and long-term potential.
ESG is short for Environmental, Social, and Governance — a trio of non-financial criteria used to assess companies based not only on their profits, but also on how they interact with the world around them. Over the past few decades, ESG has become a fundamental tool for investors, regulators, and stakeholders seeking to make sustainable, values-driven decisions.
The concept of ESG emerged from the broader movement of responsible investing, which gained traction in the 1970s and 1980s. Initially, investors focused primarily on financial performance. But growing environmental awareness, combined with increased attention to human rights and corporate responsibility, led to the development of a more comprehensive approach.
The 1990s saw the publication of the first sustainability reports. In 2006, the Principles for Responsible Investment (PRI) were launched — a major milestone in promoting ESG standards globally. Since then, ESG has evolved from a niche consideration to a mainstream element of investment analysis worldwide.
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Aspekt środowiskowy w ESG odnosi się do sposobu, w jaki działalność firmy wpływa na środowisko nThe environmental aspect of ESG refers to how a company’s operations affect the natural environment. In an era of growing challenges such as climate change and pollution, corporate environmental responsibility has become increasingly important. Companies are evaluated based on:
Reducing carbon dioxide (CO₂) and other greenhouse gas emissions is a top priority, especially for high-impact industries like energy, transportation, and heavy industry. Many companies are implementing strategies aimed at achieving carbon neutrality.
More and more companies are implementing sustainable practices to minimize their environmental footprint. Examples include:
Unilever – This global consumer goods company launched the Sustainable Living Plan, which includes initiatives to cut CO₂ emissions and improve energy efficiency across its supply chain.
Patagonia – This well-known apparel brand focuses on recycling and offers clothing repair programs. These efforts extend product life and reduce textile waste.
Tesla – The electric vehicle manufacturer not only promotes zero-emission transportation but also invests in renewable energy and energy storage solutions.
Both global and local regulations are being introduced to reduce the negative environmental impact of business activities. Examples include:
EU Taxonomy – A classification framework that defines which economic activities can be considered environmentally sustainable and aligned with climate goals.
The Paris Agreement (2015) – An international treaty aimed at limiting global warming to well below 2°C, with efforts to keep it under 1.5°C.
EU emissions directives – The European Union has implemented various regulations to cut emissions, such as the Emissions Trading System (ETS) and energy efficiency directives.
The social aspect of ESG covers issues related to how a company impacts people, both internally (employees) and externally (customers, suppliers, local communities). Key aspects include:
Community involvement. Companies engaging in social initiatives, such as local community projects, charitable activities, or employee volunteer programs.
Working conditions. Companies are evaluated based on how they treat their employees, including providing safe and healthy working conditions, respecting labor rights, and offering fair compensation.
Human rights. This relates to both the company’s adherence to human rights in its own operations and throughout its supply chain. Companies must avoid working with suppliers that violate human rights, such as using forced labor.
Equality and diversity. Focusing on equal treatment for employees regardless of gender, ethnicity, sexual orientation, or religion. Promoting workplace diversity and eliminating discrimination.
Customer relations. Transparency in operations, responsible marketing practices, safeguarding customer data, and ensuring product and service quality and safety.
Companies that do not adhere to high social standards risk reputational, legal, and financial damage. Modern society, especially in the age of social media, reacts quickly to instances of human rights violations, discrimination, or poor working conditions. As a result, companies are increasingly investing in social responsibility as part of their risk management strategy.
The governance aspect refers to how a company is managed and controlled. Good governance is the foundation of a company’s stability and its ability to grow sustainably over the long term. It includes:
Risk management. Identifying, assessing, and managing risks that may affect the company’s operations, including ESG-related risks.
Board structure. The composition of the board, the diversity of its members, the independence of board members, and the transparency of decision-making processes.
Transparency. Open communication with stakeholders, financial transparency, and clarity in disclosing risks and strategies.
Compensation policy. Setting appropriate compensation for management, aligned with the company’s performance and long-term goals.
Business ethics. Adherence to high ethical standards, anti-corruption measures, and managing conflicts of interest.
Despite the growing awareness of the importance of corporate governance, many companies still face challenges. These include conflicts of interest, lack of board independence, and issues with transparency. Implementing effective ESG risk management and integrating these elements into the company’s strategy will be a key challenge for the future.
For investors, ESG criteria have become a key tool in assessing the long-term value of investments. The rise in popularity of ESG-focused investment funds, alongside the introduction of regulations mandating ESG reporting, has significantly influenced how investors make decisions.
An increasing number of consumers are paying attention to the social and environmental responsibility of the companies they do business with. Studies show that customers are willing to pay a premium for products and services from companies that adhere to high ESG standards.
For employees, ESG factors are becoming more important, especially when choosing an employer. Companies that promote responsible practices attract talent and build loyalty among their workforce.
Despite the growing popularity of ESG, there are several challenges related to its implementation. One of the main issues is the lack of standardized reporting, making it difficult to compare results across companies. Additionally, concerns about greenwashing—where companies falsely present themselves as environmentally or socially responsible—are emerging.
Looking ahead, the development and integration of ESG into business strategies worldwide are expected to continue. Increased pressure from investors, consumers, and regulators will drive progress in this area. As ESG analysis tools evolve, investors will be able to make more informed decisions. At the same time, companies will need to raise their standards to meet rising expectations.
ESG is a key element of the modern economy and plays an increasingly important role in evaluating business performance. It covers three main areas: the environment, social responsibility, and corporate governance. Companies that successfully integrate ESG into their strategies gain a competitive advantage, attract investors, and earn consumer trust. However, implementing ESG principles is not without challenges. The future of ESG will depend on the further development of standards and regulations. It will also require the engagement of all stakeholders to promote sustainable development.
Nina Idzik
