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What Is ESG (And Why Does It Matter)?

What Is ESG (And Why Does It Matter)?

ESG — an acronym that stands for Environmental, Social, and Governance — is an umbrella term used by investors to refer to factors that measure the sustainability and ethical impact of an investment in a business or company.

It’s a lens through which investors can evaluate the behavior of a company, as well as how it’ll perform financially. And doing so is a trend that’s growing rapidly as more and more consumers show that they’re willing to pay more for products that are socially and environmentally conscious.

Here, we dive into the criteria for the ESG metric and discuss why it’s key for companies to consider creating an ESG strategy.

What defines ESG?

There are three factors that make up ESG: environmental, social, and governance. Each of these categories comprises specific criteria.

Environmental looks at how a business acts as a good steward of the environment. Criteria include:

  • Climate change
  • Air and water pollution
  • Waste management
  • Energy generation and usage
  • Greenhouse gas emissions

Social evaluates how a business manages relationships with people, from its employees, to its customers, and the communities it serves. Criteria include:

  • Working conditions
  • Employee training opportunities
  • Community engagement
  • Diversity
  • Health and safety

Governance examines a company’s leadership, executive pay, and its internal controls and audits. Criteria includes:

  • Company operation and ethics
  • Executive pay
  • Board diversity and structure
  • Tax strategy
  • Political lobbying and donations

Why is ESG important?

Consumers’ buying behavior over the past 10 years has proven the power of ESG reporting — customers seek out companies with strong ESG performance, even if purchasing products from those businesses is more expensive or more difficult. In fact, a recent report from Forbes says that nearly 75% of millennials are willing to spend more money on sustainable conscious products.

Beyond the bottom line benefits of increased consumer spending, additional reasons that companies should consider ESG as part of their business strategy are:

  • ESG provides investor insights.

Reporting on ESG metrics gives investors greater intel about company risks and how to overcome those risks.

  • ESG brings financial returns.

Studies show that approximately 90% of companies with strong ESG profiles have equal or better financial performance than their non-ESG counterparts.

  • ESG helps combat climate change.

ESG reporting offers a peek at how companies are handling climate change, arguably one of the greatest issues our world faces today. In the near future, it will likely become mandatory for companies to share how they are responding to climate change, from how they’re mitigating the physical risks (extreme weather, biodiversity loss) to how they’re managing the transition risks (the economic shift to a low-carbon society).

How can a company generate positive ESG performance?

Across all three ESG factors, there are myriad options for how a business can boost its ESG evaluation.


  • Publish carbon or sustainability reports
  • Use renewable energy sources
  • Partner with an energy solutions provider to offer residents whole-home packages


  • Support diverse hiring practices
  • Pay fair wages
  • Operate ethical supply chains


  • Establish corporate transparency
  • Embrace diversity on governing boards
  • Building executive bonuses that rely on more than just revenue or income

Learn More About How Elevation’s Impact on ESG

Contact us to discuss our three-pronged approach to whole-home solutions — solar, smart technology, and energy efficiency — and discover how companies that partner with us are improving their ESG.

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