ESG acronym, coined by investing expert  Ivo Knoepfel , in the report titled  “Who Cares Wins” , stands for Environmental, Social, and Governance. In the report, Knoepfel argued that ESG factors in financial analysis should be accounted for in capital markets since they help identify risks, impact the evaluation of a business, and lead to positive social change. Failure to assess ESG exposures could result in significant financial losses to the organization.

• Environmental: The environmental aspect of ESG addresses impact on environment and the risk of the company and its supplier/vendor ecosystem from climate perspective. This covers all aspects of sustainability, including circularity, water and wastewater management, air pollution, waste and hazardous materials management, biodiversity, deforestation, climate change, and more.

• Social: Within ESG, the social criterion examines the impact of an organization's operations on their employees, customers, and communities it operates in. This covers labour and human rights and safety, diversity and inclusion, workplace conditions, and pay parity and equity, local economic contribution. 

  Though the environmental aspect of ESG can outshine the social or governance aspects as the impact is more easily quantifiable, however an organization's impact on workers and employees is essential in reducing risk and ensuring the business runs responsibly.

• Governance: The governance aspect of ESG aims to examine how a corporation is governed. While the environmental and social aspects are relatively straightforward, the governance aspect has wider implication. A proper governance structure is critical to the transparency, accountability, and compliance. This includes using accurate and transparent accounting methods, policies and disclosures, diversity in leadership, avoiding conflicts of interest, business ethics and data security, accountability to shareholders, avoiding any illegal activity, and more.

The risk factors like Carbon emission, Fair compensation, diversity and inclusion have significant material value regardless of the overarching ESG categories. Historically, the focus on Social and Environmental factors was significantly less, but ESG reporting has become increasingly important to the business model, as it aims to reduce risk and increase corporate accountability.

Due to rising investor, customer, employee and community interest, growing numbers of organizations are targeting sustainability performance improvements, setting ESG goals and reporting on their performance. As a result, corporate sustainability reporting is becoming the standard for corporations. Failure to take ESG risks seriously could result in many negative impacts for firms - from shareholder action at annual general meetings to divestment by asset managers.