Ethics in Action
Socially Responsible Investing - understand Environmental, Social, and Governance (ESG) ratings.
Rating component breakdown- how companies manage risks and opportunities related to environmental, social, and governance factors
Environmental - company performance as a steward of the natural environmen including
1) Climate Change Policies and Carbon Footprint - Measures taken to reduce greenhouse gas emissions
2) Resource Depletion - Use of sustainable resources and reduction of wastage
3) Waste and Pollution Management - Systems in place to manage and reduce waste and pollution
4) Deforestation - Actions taken to prevent deforestation in the company's supply chain
Social - management of relationships with employees, suppliers, customers, and the communities
1) Employee Relations and Diversity - Fair treatment of employees, diversity and inclusion policies, and labor standards
2) Community Relations - Engagement with local communities and impact on the
3) Human Rights and Child Labor - Upholding human rights and preventing abuses such as child labor in the supply chain
4) Consumer Protection and Privacy - Safeguarding customer privacy and providing fair customer service
Governance - system of rules, practices, and processes by which a company is directed and controlled, focusing on
1) Board Composition - Diversity and structure of the board
2) Audit Committee - Effectiveness of internal audits and risk management
3) Bribery and Corruption - Measures to prevent corrupt practices and ensure transparency
4) Executive Compensation - Fairness and appropriateness of executive pay in relation to company performance
### How to Assess ESG Ratings:
1. **Rating Agencies and Tools:** Various organizations provide ESG scores, such as MSCI, Sustainalytics, and Bloomberg ESG Data Service. These ratings are based on data collected from company disclosures, sustainability reports, and sometimes third-party data.
2. **Sustainability Reports:** Companies often publish sustainability reports detailing their ESG practices and performance. Reviewing these can provide insights into how seriously a company takes its ESG commitments.
3. **Third-Party Assessments and Certifications:** Certifications like LEED for buildings or Fair Trade for consumer goods can indicate compliance with certain environmental or social standards.
4. **Industry Comparisons:** It's useful to compare ESG ratings within the same industry to understand how well a company performs relative to its peers.
By considering these factors, investors, customers, and other stakeholders can make more informed decisions about a company based on its ESG rating, reflecting its overall sustainability and ethical impact.
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