Environmental, social, and governance (ESG) has recently emerged as a crucial factor in redefining corporate strategy and investment landscapes, dramatically transforming the business world. ESG, formerly considered a specialist issue, is now a widely used framework for assessing the effectiveness and impact of businesses.

What is ESG?

ESG, is an acronym for standards that evaluate a company’s performance in these three crucial areas. Let’s examine each element in detail:

Environmental (E)

This dimension assesses how a corporation affects the environment. A company’s carbon footprint, water use, energy efficiency, waste management, and compliance with environmental rules determine how environmentally conscious it is. Companies that place a high priority on sustainability and aggressively lessen their adverse effects on the environment often perform better in this area.

Social (S)

The social component of ESG concerns how a firm interacts with its customers and the community. It examines working conditions, diversity and inclusion, human rights, community involvement, and how stakeholders and employees are treated. Businesses that embrace diversity encourage fair labour practises and help their local communities typically perform well in the social dimension.

Governance (G)

Governance evaluates the internal organisation, rules, and leadership of a corporation. It covers board impartiality, executive pay, shareholder rights, openness, and moral corporate behaviour. A corporation will be effectively managed, held accountable, and run with integrity if there is strong governance.

Understanding ESG

ESG is more than a trendy term; it denotes a fundamental change in how businesses are rated and valued. Traditionally, financial performance, profitability, and shareholder returns were the main metrics used to evaluate firms. The ESG framework, on the other hand, broadens the evaluation standards by considering a company’s long-term viability and social impact.

ESG-aware businesses incorporate these principles into their business plans, decision-making procedures, and reporting frameworks. This strategy aligns with the rising need for more corporate responsibility and openness from regulators, customers, and investors. As investors look for opportunities that not only give financial rewards but also connect with their beliefs and make a beneficial contribution to society and the environment, ESG investing has gained popularity.

Pros of ESG

Risk reduction

Organisations that give priority to ESG considerations are frequently better equipped to recognise and control a variety of hazards. They lessen their risk of regulatory fines, lawsuits, reputational harm, and operational interruptions by tackling environmental, social, and governance challenges.

Enhanced reputation

Businesses that are ESG-aware have a stronger and better public image. As a result, there may be a rise in consumer and brand loyalty and a competitive advantage.

Getting investors’ attention

A lot of investors increasingly take ESG performance into account when choosing investments. Strong ESG practices may give companies access to a wider range of investors and decrease capital costs.

Long-term sustainability

ESG principles encourage companies to embrace sustainable practices, which include cutting back on resource usage, eliminating waste, and supporting ethical sourcing. These initiatives may result in a decrease in the environmental impact and long-term financial costs.

Employee engagement

Businesses that prioritise social components of ESG, such as diversity, inclusion, and employee well-being, often have more motivated and engaged employees. Productivity may increase, and turnover may decrease as a result.

Cons of ESG

Lack of standardisation

It is difficult to compare organisations consistently due to the absence of standardised measures and reporting frameworks in the ESG landscape. Investors and stakeholders may need more consistency and clarification due to this lack of consistency.


Some businesses may exaggerate or misrepresent their ESG efforts to look more responsible. This “greenwashing” could damage the ESG movement’s reputation.

Short-term sacrifices

Putting ESG ideas into practice could call for upfront investments and adjustments to corporate procedures, which could impact immediate profitability. Short-term sacrifices may discourage some businesses from adopting ESG standards.

Complex evaluation

It is more difficult for small and mid-sized businesses to compete with larger organisations in this area because evaluating ESG performance necessitates knowledge and resources.

Examples of ESG

Several businesses have been honoured for their dedication to sustainability and responsible business practices and for successfully integrating ESG principles into their operations:

Tesla, Inc.

Tesla, Inc. is a shining example of a business that excels in the environmental component of ESG. They create electric cars that cut carbon emissions and support environmentally friendly transportation.

Microsoft Corporation

Microsoft is renowned for its stringent corporate governance principles, which include openness, moral behaviour, and strong shareholder rights. They have also poured a lot of money into alternative energy.

Frequently Asked Questions

To find ESG investments, look for funds or businesses that expressly say that they adhere to ESG principles. Look for ESG certifications or ratings, such as the MSCI ESG rating or Sustainalytics. Examine corporate reports, fund prospectuses, and ESG-focused investing platforms for transparency regarding their ESG performance and criterion.

Investment in ESG focuses on assessing and incorporating ESG factors into investment decisions, focusing on business practices. ESG aspects are included in sustainable investment, but it also prioritises long-term sustainability, which frequently includes ethical and impact factors.

ESG investing is important because it aligns investments with moral and ethical standards, fostering favourable societal and environmental effects. Evaluating companies using ESG criteria allows investors to support companies that place a priority on ethical behaviour, potentially earning long-term financial benefits while also making a positive impact on the environment.

Traditional investing is an alternative to ESG investing, focusing solely on financial measures and profitability without considering environmental, social, or governance aspects when making investment decisions.

The origins of ESG investing can be found in the 18th century when moral considerations played a role in financial decisions. However, the emergence of socially responsible investment (SRI) in the late 20th century gave it a considerable boost. ESG emerged as a distinct paradigm in the twenty-first century, with more institutional acceptance and standardised criteria.

Related Terms

    Read the Latest Market Journal

    Navigating the Post-Inflation Landscape in 2024: Top 10 US Markets Key Events to Look out for

    Published on Feb 23, 2024 51 

    Start trading on POEMS! Open a free account here! In 2023, the United States experienced...

    From Boom to Bust: Lessons from the Barings Bank Collapse

    Published on Feb 23, 2024 12 

    Barings Bank was one of the oldest merchant banks in England with a long history...

    Decoding FX CFD 2.0

    Published on Feb 20, 2024 61 

    This article is aimed at availing information and knowledge essential to intermediate forex traders. It...

    Weekly Updates 19/2/24 – 23/2/24

    Published on Feb 19, 2024 80 

    This weekly update is designed to help you stay informed and relate economic and company...

    Unlock Prosperity with 5 Sure-Fire Financial Instruments!

    Published on Feb 14, 2024 187 

    In Singapore, the concept of guaranteed returns may evoke the spirit of prosperity, reminiscent perhaps...

    Weekly Updates 12/2/24 –16/2/24

    Published on Feb 13, 2024 69 

    This weekly update is designed to help you stay informed and relate economic and company...

    Decoding FX CFD

    Published on Feb 7, 2024 97 

    The foreign exchange market commonly known as the forex or FX market, is a cornerstone...

    Chinese New Year: Three Cases For CFD Trading

    Published on Feb 6, 2024 140 

    The Chinese New Year is a festive season may be celebrated by some parts of...

    Contact us to Open an Account

    Need Assistance? Share your Details and we’ll get back to you


    This material is provided by Phillip Capital Management (S) Ltd (“PCM”) for general information only and does not constitute a recommendation, an offer to sell, or a solicitation of any offer to invest in any of the exchange-traded fund (“ETF”) or the unit trust (“Products”) mentioned herein. It does not have any regard to your specific investment objectives, financial situation and any of your particular needs. You should read the Prospectus and the accompanying Product Highlights Sheet (“PHS”) for key features, key risks and other important information of the Products and obtain advice from a financial adviser (“FA“) pursuant to a separate engagement before making a commitment to invest in the Products. In the event that you choose not to obtain advice from a FA, you should assess whether the Products are suitable for you before proceeding to invest. A copy of the Prospectus and PHS are available from PCM, any of its Participating Dealers (“PDs“) for the ETF, or any of its authorised distributors for the unit trust managed by PCM.  

    An ETF is not like a typical unit trust as the units of the ETF (the “Units“) are to be listed and traded like any share on the Singapore Exchange Securities Trading Limited (“SGX-ST”). Listing on the SGX-ST does not guarantee a liquid market for the Units which may be traded at prices above or below its NAV or may be suspended or delisted. Investors may buy or sell the Units on SGX-ST when it is listed. Investors cannot create or redeem Units directly with PCM and have no rights to request PCM to redeem or purchase their Units. Creation and redemption of Units are through PDs if investors are clients of the PDs, who have no obligation to agree to create or redeem Units on behalf of any investor and may impose terms and conditions in connection with such creation or redemption orders. Please refer to the Prospectus of the ETF for more details.  

    Investments are subject to investment risks including the possible loss of the principal amount invested. The purchase of a unit in a fund is not the same as placing your money on deposit with a bank or deposit-taking company. There is no guarantee as to the amount of capital invested or return received. The value of the units and the income accruing to the units may fall or rise. Past performance is not necessarily indicative of the future or likely performance of the Products. There can be no assurance that investment objectives will be achieved.  

    Where applicable, fund(s) may invest in financial derivatives and/or participate in securities lending and repurchase transactions for the purpose of hedging and/or efficient portfolio management, subject to the relevant regulatory requirements. PCM reserves the discretion to determine if currency exposure should be hedged actively, passively or not at all, in the best interest of the Products.  

    The regular dividend distributions, out of either income and/or capital, are not guaranteed and subject to PCM’s discretion. Past payout yields and payments do not represent future payout yields and payments. Such dividend distributions will reduce the available capital for reinvestment and may result in an immediate decrease in the net asset value (“NAV”) of the Products. Please refer to <> for more information in relation to the dividend distributions.  

    The information provided herein may be obtained or compiled from public and/or third party sources that PCM has no reason to believe are unreliable. Any opinion or view herein is an expression of belief of the individual author or the indicated source (as applicable) only. PCM makes no representation or warranty that such information is accurate, complete, verified or should be relied upon as such. The information does not constitute, and should not be used as a substitute for tax, legal or investment advice.  

    The information herein are not for any person in any jurisdiction or country where such distribution or availability for use would contravene any applicable law or regulation or would subject PCM to any registration or licensing requirement in such jurisdiction or country. The Products is not offered to U.S. Persons. PhillipCapital Group of Companies, including PCM, their affiliates and/or their officers, directors and/or employees may own or have positions in the Products. Any member of the PhillipCapital Group of Companies may have acted upon or used the information, analyses and opinions herein before they have been published. 

    This advertisement has not been reviewed by the Monetary Authority of Singapore.  


    Phillip Capital Management (S) Ltd (Co. Reg. No. 199905233W)  
    250 North Bridge Road #06-00, Raffles City Tower ,Singapore 179101 
    Tel: (65) 6230 8133 Fax: (65) 65383066