This concept, translated into Turkish as Environmental, Social and Corporate Governance and is generally abbreviated as ESG (Environmental, Social, and Governance), expresses the environmental, social, and institutional factors that affect investments. ESG is an application that considers non-financial factors, allowing investors to have a broader range of opportunities while evaluating risks and opportunities and enabling companies to achieve sustainable, future-oriented financial performance. In other words, ESG refers to standards covering environmental, social, and governance areas developed in the sector to evaluate whether companies manage the environment, the people they deal with, and themselves responsibly.
To look at these areas one by one, In its shortest form, environmental governance can be considered a company's impact on the environment. The use of natural resources, travel policies, and policies to reduce waste are evaluated within this field. The second component of ESG is social governance, which is the area where a company's basic standards are assessed. Such as how it communicates with the social environment it interacts with, such as workers, suppliers, and consumers, and if it has basic standards such as equality and justice. Finally, corporate governance covers the area where the issues related to the company's management style and how the decision-making mechanisms work are evaluated.
When we look at all this, ESG is a suitable strategy for investors who want to contribute to environmental protection and rights-based governance. Still, it is more than just this contribution for companies and investors. A company that complies with the ESG criteria also significantly improves company performance by reducing the risk of sanctions associated with environmentally unsafe practices. At the same time, it is expected that an economic actor that fits social and corporate governance models will be less exposed to performance declines due to internal crises. In short, ESG is a promising strategy preferred to ensure long-term, durable, sustainable, and responsible financial governance for companies.
Today, ESG criteria are promoted through the United Nations Principles for Responsible Investment to ensure responsible financial governance. The number of signatories of the text has increased from 63 to 3038 since 2006. Its assets have increased from 6.5 trillion USD (6.5 billion USD) to 103.4 trillion USD (1.034.000.000.000 USD), revealing the importance of ESG for the present and future financial system.
Author:
İrem Derya
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