Factsheet

What is ESG?

ESG stands for environmental, social, and governance. It refers to the way in which an organisation manages its impacts on, risks related to, and opportunities arising from, environmental, social and governance issues.

Originally a term used by investors, ESG refers to a variety of non-financial criteria which are used to evaluate companies’ performance and inform investment decision-making. ESG has also taken on a wider definition, to mean an organisation’s approach to ethical and sustainability issues, which is often see as linked to the organisation’s purpose and values.

“Environmental” covers both the organisation’s impact on the natural environment and the environment’s impact on the organisation, including climate change impacts, direct impacts (the organisation’s own activities) and indirect impacts (throughout its value chain, including suppliers and customers or investments).

Environmental issues include:

  • Climate change
  • Biodiversity and nature loss
  • Greenhouse gas emissions
  • Resource use and circularity
  • Energy consumption
  • Carbon footprints
  • Waste management and pollution
  • Land and water management
  • Environmental targets and disclosures
  • Net zero transition planning

“Social” covers the organisation’s interactions with, responsibilities towards, and impacts on a range of stakeholders, including society at large.

Social issues include:

  • Diversity, equity & inclusion, both at board-level and throughout the workforce
  • Fair pay policies, and ethnic and gender pay gaps
  • Health & safety
  • Workforce wellbeing, both physical and mental
  • Workplace policies
  • Culture within an organisation
  • Duties towards customers and consumers
  • Ethical procurement
  • Modern slavery
  • Human rights
  • Social or community projects and partnerships
  • Charitable giving

“Governance” is the process by which decisions are made and implemented in an organisation. It covers the compliant and ethical conduct of an organisation’s activities and the controls in place for monitoring them, in line with the organisational purpose and enabled through effective decision making and oversight.

Governance issues include:

  • Board oversight and boardroom dynamics
  • Adherence to governance codes and frameworks
  • Effective integration of ESG into strategy and operations
  • Compliance policies
  • Codes of conduct
  • Due diligence 
  • Internal controls
  • Data privacy and cyber security
  • Transparency and accuracy of reporting
  • Management of bribery, corruption and money laundering risk
  • Supply chain controls
  • Setting and applying organisational values, culture and purpose

The board’s role in relation to ESG includes:

  • Overseeing the development of an ESG strategy or framework and assessing the effectiveness of its implementation.
  • Overseeing the appropriate use of metrics and targets relating to ESG, and monitoring progress on these.
  • Reviewing the content, integrity and completeness of any ESG-related reporting.
  • Identifying current and emerging ESG-related trends, standards, good practice, legislation and regulation, and evaluating the impact of these on the organisation.
  • Monitoring the establishment of appropriate ESG policies and procedures.
  • Overseeing the organisation’s tolerance of ESG-related risk and identifying material ESG risks to ensure these are managed appropriately.

Further resources

  • Governing Sustainability: Are sustainability committees the answer? – this research paper looks at the rising number of dedicated ESG and sustainability committees at board level. It covers the pros and cons of these committees, as well as what skills are needed at board level to tackle ESG issues. CGI has also produced a model set of terms of reference for these committees.
  • Tackling greenwashing from a governance perspective – this thought leadership sets the different types of greenwashing, which is when an organisation’s reporting or messaging about ESG does not match up to its actions. The report explains why greenwashing is risky, from a reputational, financial and legal perspective, and gives organisations three practical steps to avoid it.
  • ESG: A maturity matrix for charities – all types of organisations – whether in the corporate, charitable or public sectors – can benefit from thinking through the risks, impacts and opportunities that arise from ESG. This maturity matrix sets out a roadmap for not-for-profits, to support them in moving from a fledgling, compliance-based approach to ESG to one which is strategic and embedded.
  • ABC of ESG – a glossary of key terms relating to ESG.