ESG data assess the externalities that an organization produces in terms of environment, social welfare, and corporate governance.
ESG data helps investors determine how risky an organization is, and the organization can use the data to measure success. But that's not all- investors may also value a company more highly if it takes sustainability into consideration for all stakeholders. This reflects in their long-term risk-adjusted return on investment. Organizational stakeholders include but not limited to customers, suppliers, employees, leadership, and the environment.
ESG goals were first established by the UN in 2004, and there has been a recent focus on incorporating this data with SDGs. The term "ESG" was coined in a report called "Who Cares Wins", put together by financial institutions at the request of UN. In the past two decades, the ESG movement has exploded in popularity worldwide. What started as a corporate social responsibility initiative by the United Nations now represents more than US$30 trillion in assets under management.
According to Morningstar, Inc., in 2019 capital amounting to $17.67 billion flowed into ESG-linked products--a 525 percent increase from 2015. Critics contend that ESG linked-products have not had and are improbable to have the intended effect of raising the cost of capital for firms that pollute. They have also accused the movement of greenwashing.
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