ESG Factors
Contents
Definition
ESG Factors are environmental, social or governance conditions that are subject to uncertainty and that may have a positive or negative impact on the financial performance or solvency of an entity, sovereign or individual.[1]
ESG factors can lead to negative financial impacts through a variety of risk drivers. The causal chains that explain how these risk drivers impact institutions through their counterparties and invested assets are called transmission channels.
Environmental Factors
Environmental factors are related to the quality and functioning of the natural environment and of natural systems, and include factors such as climate change, biodiversity, energy consumption, pollution and waste management. They can be defined as environmental matters that may have a positive or negative impact on the financial performance or solvency of an entity, sovereign or individual. Environmental considerations may include:
- Climate Change
- Greenhouse Gas Emissions
- Resource Depletion
- Waste and Pollution
- Deforestation
- Biodiversity Loss
Social Factors
Considerations may include issues such as
- Inequality
- inclusiveness
- labour relations
- investment in human capital and communities
- human rights
- modern slavery
- child labour
- working conditions
- employee relations
Governance Factors
Concenrn the governance of public and private institutions, including
- management structures
- employee relations and
- executive remuneration
- bribery and corruption
- board diversity and structure
- political lobbying and donations
- tax strategy
See Also
References
- ↑ EBA Report: On Management and Supervision of ESG Risks for Credit Instituions and Investment Firms, EBA/REP/2021/18
