Environmental, social, and governance criteria — ESG — are a set of standards used by investors to evaluate companies beyond financial performance. The environmental component looks at carbon emissions, resource use, and waste. The social component covers labor practices, diversity, and community relations. Governance covers board structure, executive pay, and shareholder rights.

ESG investing grew rapidly in the 2010s as institutional investors, pension funds, and asset managers began screening companies on these criteria. Some funds exclude companies that fail certain thresholds, such as tobacco or fossil fuel producers. Others use ESG scores to tilt their portfolios toward better-rated companies. The premise is that companies with strong ESG practices are better managed and less exposed to long-term risks.

The field is controversial. Critics argue that ESG scores are inconsistent, that ratings agencies disagree with each other, and that some companies use ESG language for public relations without changing their behavior. Supporters argue that the framework pushes companies toward better practices and gives investors a way to align their money with their values. The debate is far from settled, and the standards are still evolving.