What ESG stands for
ESG stands for Environmental, Social and Governance — three groups of factors used to judge how well a company manages risks, impacts and responsibilities that sit alongside, and increasingly affect, its financial performance.
The term began life in investment, as a way to capture non-financial issues that are nonetheless financially relevant.
Today it underpins corporate reporting, regulation and stakeholder expectations — and in the UK it is converging on the UK Sustainability Reporting Standards.
The three pillars
ESG breaks into three pillars, each covering a distinct set of issues.
Each pillar is explored in detail, with UK examples, in the ESG pillars guide.
Where the term came from
The acronym was coined in 2004, in the UN Global Compact report "Who Cares Wins", which deliberately chose the phrase "environmental, social and governance issues" to stress that the three are closely inter-linked.
The initiative followed a January 2004 letter from UN Secretary-General Kofi Annan to the chief executives of leading financial institutions.
Two years later, the UN-supported Principles for Responsible Investment (PRI) turned ESG integration into a mainstream commitment for asset managers.
ESG timeline
ESG moved from a niche investor idea to the centre of corporate reporting in two decades.
ESG in the UK
There is no single "ESG Act" in the UK, but many ESG disclosures are already mandatory — from climate-related financial disclosure to energy and emissions reporting.
The forthcoming UK SRS brings much of this under one investor-focused framework.
For the detail of what UK companies must report, see ESG reporting requirements UK and ESG integration under UK SRS.
Frequently asked questions
What does ESG stand for?
ESG stands for Environmental, Social and Governance — three groups of factors used to assess how a company manages risks and impacts beyond its pure financial performance.
What is the meaning of ESG?
ESG is a set of criteria investors and stakeholders use to evaluate a company's environmental impact, its relationships with people and society, and the quality of its governance and oversight. It grew out of responsible-investment practice and is now central to corporate reporting.
What are the three pillars of ESG?
Environmental (climate, emissions, resource use, nature), Social (employees, health and safety, communities, human rights, supply chains) and Governance (board oversight, ethics, executive pay, risk management and transparency).
Is ESG mandatory in the UK?
There is no single "ESG law", but many ESG-related disclosures are mandatory in the UK — including climate-related financial disclosure for listed and large companies, and, going forward, the UK Sustainability Reporting Standards (UK SRS S1 and S2).
