ESG Framework [UPSC Notes]

In India, the Securities and Exchange Board of India proposed a regulatory framework of ESG (environmental, social & governance) disclosures by listed entities, ESG ratings in the securities market and ESG investing by mutual funds. The move is aimed at facilitating balance among transparency, simplification and ease of doing business in an evolving domain. In this context, what is the ESG framework? What are the advantages it offers? Read on to know more about ESG for the IAS exam.

What is ESG?

ESG stands for Environmental, Social, and Governance. ESG framework is a set of criteria used by investors and organizations to evaluate a company’s performance on these three factors.

• Environmental factors refer to a company’s impact on the environment. This can include things like carbon emissions, energy consumption, waste management, and water usage.
• Social factors refer to a company’s impact on people, both within and outside the company. This can include things like labour practices, human rights, community engagement, and product safety.
• Governance factors refer to a company’s internal governance structure, including its board of directors, executive compensation, and shareholder rights.

ESG Benefits

• Companies that perform well on ESG factors are likely to attract more investors and customers who prioritize sustainability.
• They are more likely to be resilient to environmental and social changes.
• ESG framework is also important for companies because it helps them to identify areas where they can improve their performance, reduce risks, and enhance their brand reputation.
• By adopting and reporting on ESG metrics, companies can demonstrate their commitment to sustainability, transparency, and social responsibility.

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