ESG criteria (for Environmental, Social and Governance criteria) make it possible to assess the extent to which sustainable development and long-term issues are taken into account in the strategy of economic players (companies, local authorities, etc.).
These are all the criteria used to evaluate an economic player outside the usual financial criteria such as profitability, share price, growth prospects, etc.
These criteria take into account a company's impact on the environment and society, the management of human resources or the treatment of minority shareholders for example.
ESG implies sustainability
"Sustainability and the transition to a safe, climate-neutral, climate-resilient, more resource-efficient and circular economy are crucial to ensure the long-term competitiveness of the EU economy." - European Commission
Environment, Social and Governance
Let us take a look at some criteria from the three categories:
- environment: CO2 emissions, electricity consumption, waste recycling, surface area occupied by plants/seats, share of RE;
- social: Quality of social dialogue, employment of disabled people, employee training, proportion of women in the workforce;
- governance: transparency of executive compensation, fight against corruption, women on boards of directors.
"Credit institutions are expected to understand the short, medium and long-term impact of climate and environmental risks on the economic environment in which they operate, so that they can make informed strategic and operational decisions. "European Central Bank
ESG risks include environmental, social and governance risks and the resulting impact on banks' income statement and liquidity.
The specificity of the topic regarding banks/banking sector is that ESG risks can affect the bank directly (e.g. storm damage to the bank's buildings), but also the customers (change in sales opportunities, production disruptions, etc.).