ESG factors stand for Environmental, Social, and Governance elements that investors use to assess a company’s long-term performance and ethical impact. These factors help understand how a business handles its environmental duties, treats people and communities, and maintains fair and transparent leadership. For example, pollution control, employee rights, and board independence are part of ESG. Valuing ESG factors means checking how these practices affect the company’s financial health, brand value, and future risks. Investors now use ESG valuation to pick companies that not only make profits but also act responsibly toward society and the planet.
What are ESG Factors?
ESG factors allow us to hold a company to account on the three big things — environment, society and rules. These areas help people understand if a company is good for the planet and good for people. ESG means:
- E for Environmental – What a company does for nature. Does it pollute water or air? Does it save energy?
- S for Social – How an organisation treats people. Does it care for workers? Is it fair to all?
- G for Governance – How a company follows rules. Does it cheat? Is it honest?
These three categories are known as environmental, social and governance ESG dimensions.
ESG Factors List
Here is a brief ESG factors list that many professionals follow:
| Type | ESG Factors Examples |
| Environmental | Pollution prevention, waste reduction, energy conservation, water efficiency |
| Social | Worker safety and fair pay, customer data safety, and diversity |
| Governance | Fair boards, no bribes, good audits, clear rules |
This ESG factors list makes it easier for companies to know what they must work on.
Importance of ESG Factors to Business
Companies today have to do ESG well to grow well. They must love the earth and people. Failure to do so can erode trust or expose them to danger.
Why Do Companies Need ESG?
Companies rely on environmental, social, and governance (ESG) factors to create trust over time. An ESG score in the right direction helps them win more customers and investors. It also protects them from fines or harm to their name.
Here is why ESG is important:
- Consumers are looking to shop clean and fair brands.
- People want to work in safe and equitable places.
- Those with money to invest want to reward honest companies.
These days, ESG (environmental, social, and governance) governance is a planned part of many companies’ plans. They scrutinize how they run, hire, and treat people. They’ve established clear rules while avoiding fraud.
ESG Risk Factors in Business
If companies are not paying attention to ESG, they are at risk. They’re known as ESG risk factors. For example:
- A factory that pollutes could be fined.
- A company that hides data might lose customers.
- A board without rules can scare away investors.
ESG risk factors hurt growth. They lead to loss of money, a bad name, and legal tangles.
How Do ESG Factors in Corporate Valuation Affect Investment?
Valuation is the process of figuring out what a company is worth. In today’s world, ESG factors in corporate valuation are critical. The data on ESG can inform investors whether a company is truly safe, smart, and ready for the future.
ESG Adds to Company Value
- Good ESG behavior increases the value of a company in all of these ways:
- Save waste and energy to reduce cost
- Gain customers’ trust and appeal to repeat buyers
- Raise funds from ESG-focused investors
- Retain skilled employees with a safe, fair place to work
For instance, high ESG social factors mean no strikes or employee problems. This helps keep the company humming along, increasing its stock market value.
ESG Protects from Risks
Faulting ESG can backfire. These are what are known as ESG risk factors. Some examples are
- A company that pollutes can be fined or shut down
- A business that does a poor job of protecting data may find that it scares off consumers
- A board with no effective rules could be liable for the sin of corruption
So, investors use environmental, social, and governance (ESG) factors as risk checks. These reduced probabilities of losses and enhanced stock performance over time.
ESG and Indian Businesses
In India, ESG is increasingly factoring into the valuation of companies. The SEBI (Securities and Exchange Board of India) is now inviting top companies to disclose ESG scores. That makes it easier for more investors to choose funds to invest in based on ESG criteria.
ESG Factor Investing: A Growing Trend
Factor investing ESG is investing in companies that score well in ESG. That is a smart investment in today’s world.
What is ESG factor investing?
With such investing, one looks at
- How green the company is (E)
- How fair and caring it is (S)
- How well it follows rules (G)
Today, big investors abide by this rule. They don’t want to fund pollution, unfair labor, or fraud. They want to invest in the future, and the ESG factors help them decide.
Advantages of Investing in ESG Factors
- Stands up for the planet and people
- Provides consistent long-term returns
- Draws young and savvy investors
- Minimizes the risk of business failure
There are now many online platforms that provide ESG ratings. They also employ the ESG factors list to rate companies. This makes investors better consumers.
Examples of ESG Factors
Examples of ESG factors allow individuals to visualize tangible things that companies are doing to implement ESG. They’re showing how much companies care about nature, society, and fairness. Illustrate ESG: The clarity and simplicity of ESG through examples.
Examples of Environmental ESG Factors
Companies that prioritize the environment and how they do so range widely. These are all about the way a company is helping the planet. Some examples are
- If renewable energy were in use instead of coal
- Water and Air Pollution Decrease
- Manufacturing ground-based products out of recyclable materials
- Saving energy in factories
- Preserving forests and wildlife
- Corporations like Tata Power are incorporating solar power to decrease pollution. Infosys cuts CO₂ by building green.
Social ESG Factors Examples
These relate to people. All people should be treated equally by companies. Good ESG social factors are
- Paying all of its workers a living wage
- The employment of women and people of all sorts
- Giving safe working spaces
- Helping local communities
- Protecting customer data
- Infosys is an equal opportunity employer and supports numerous schools in rural India.
Examples of Governance ESG Factors
These have to do with leadership and laws. Corporations have to obey laws and be fair. High ESG governance factors are
- You can’t beat honest leadership and no bribery
- A Fifty/fifty board (Running a government or an office with an equal number of males and females)
- Clear company policies
- Regular financial audits
- Strong whistleblower policies
Wipro has an independent board, and it’s ethical. It is an effective, well-governed country that has drawn a lot of investment.
Why ESG Factors Matter More Than Ever?
Governance is the “G” in ESG. ESG governance factors are concerned with how a business is run and who calls the shots. These are the rules and systems that keep the business honest.
Corporate Governance Issues that Companies Confront
Trust can be ruined by governance problems. And if leaders are cheating or acting unfairly, the entire company is affected. Here are some of the major governance issues:
- Fraud in company accounts
- Bribery or illegal payments
- Unfair board decisions
- No checks or internal audits
- To prevent this, companies need to adhere to the clean approach to governance.
Strong ESG Governance: ESG Factors to Continue to Follow
Here are the best governance policies with which solid companies comply:
- Create a board that includes men and women
- Inject outside board members and those with no bias
- Disclose company rules and decisions in public reports
- Take action to punish fraud or rule-breaking
- Maintain periodic scrutiny and review
Good governance, in its own small way, inspires confidence among investors, employees, and customers. It guarantees that the company operates decently, does not commit fraud, and respects its own values.
Why Does It Matter Today?
In the future, there’s even a term for such an event on which the company relies. In today’s world, a single scam can destroy a company. Investors ask about governance before investing. ESG governance factors help keep leaders in check and accountable. Thereby protecting not just the company but also the people who believe in it.
Relevance to ACCA Syllabus
At ACCA level, ESG is incorporated in the Strategic Business Leader (SBL), Advanced Audit & Assurance (AAA) and Strategic Business Reporting (SBR) papers. Students evaluate corporate ethics, sustainability reporting, integrated thinking and governance risks in their decision-making and reporting.
ESG Factors ACCA Questions
Q1: Which of the below explains ESG in corporate decision making best?
A. Examples of inventory valuation techniques
B. Environmental, Social and Governance performance measures
C. The tax law standards of compliance
D. Dividend payout policies
Answer: B
Q2: What area of ESG is centered around treating your employees well and giving back to the community?
A. Environmental
B. Governance
C. Strategic planning
D. Social
Answer: D
Q3: What is the importance of ESG for auditors in ACCA’s AAA paper?
A. ESG Financial Disclosure Substitution
B. The Impact of ESG on the Internal Audit Budget
C. ESG reporting introduces assurance requirements and risk concerns
D. ESG isn’t auditable. None of this is an audit issue.
Answer: C
Q4: What is an ESG factor where a company would be reducing water usage?
A. Governance
B. Environmental
C. Legal
D. Social
Answer: B
Q5: How will ESG come into SBL?
A. Disregarded unless tied to revenue
B. Only helpful in tax filings
C. A key element of strategic and stakeholder attitude due diligence
D. For industrial use only
Answer: C
Relevance to US CMA Syllabus
In US CMA Part 2 – Strategic Financial Management, ESG is related to such areas as investment analysis, the risk faced by the enterprise, performance assessment, and ethical management. ESG matters to long-term strategy, value creation, and controls.
ESG Factors US CMA Questions
Q1: What does ESG refer to that focuses on mandating that companies lower their carbon emissions?
A. Social
B. Governance
C. Environmental
D. Ethical
Answer: C
Q2: Why does ESG reporting matter for management accountants?
A. It is useful for forecasting daily cash flows
B. It is useful in the preparation of journal entries.
C. Performance and Risk Monitoring It helps in performance measurement and risk control
D. It increases the turnover of accounts receivable
Answer: C
Q3: Of the below in ESG factor investing, what would be good for green investors to like?
A. Oil drilling profits
B. Low ESG disclosure
C. High employee turnover
D. Renewable energy usage
Answer: D
Q4: Which ESG aspect is associated with board independence and audit committee composition?
A. Environmental
B. Governance
C. Social
D. Operational
Answer: B
Q5: A firm with robust ESG believes it is likely to:
A. Be more expensive in the short-run, but save money long-term
B. Avoid regulations
C. Delay tax filings
D. Outsource without control
Answer: A
Relevance to US CPA Syllabus
In US CPA exam’s BEC and AUD examinations, ESG interconnects with ethics, business risk and internal control assessment, as well as corporate social disclosure. For CPAs, ESG can be about spotting non-financial risks and ethical lapses in audits and governance.
ESG Factors US CPA Questions
Q1: What Risk Does Weak ESG Performance Pose to an Audit?
A. Foreign currency risk
B. Business reputation risk
C. Tax penalty risk
D. Payroll error
Answer: B
Q2: What are examples of ESG governance factors?
A. Using solar panels
B. Community donations
C. Commercial bribery and anti-corruption measures
D. Pollution control
Answer: C
Q3: ESG reporting in annual reports can be beneficial for:
A. Adapting ledger balances.
B. Improving transparency and trust among stakeholders
C. Updating payroll systems
D. Calculating depreciation
Answer: B
Q4: What ESG factor should be tested for purposes of internal controls testing?
A. Employee bonuses
B. CEO travel expenses
C. Data privacy and cybersecurity
D. Credit terms
Answer: C
Q5: How will ESG affect audit planning?
A. Adds external legal teams
B. Lower sample size
C. Mandating Risk Assessment on Non-Financial Disclosures
D. Changes tax treatment
Answer: C
Relevance to CFA Syllabus
ESG is now a focus in all three levels of the CFA exam. Subjects are covered in Ethics, Equity Analysis, and Portfolio Management, which focus on ESG investing, risk-adjusted returns, and fiduciary responsibilities. Candidates must consider ESG within investment research and asset selection.
ESG Factors CFA Questions
Q1: The term ESG factor investing refers to:
A. Not investing with a social impact/null.
B. Having an investment in short-term profitable companies only
C. Integration of ESG factors in investment decisions
D. Investing in shares of oil companies
Answer: C
Q2: What ESG factor impacts a company’s obligations under the carbon credit regime?
A. Social
B. Financial
C. Governance
D. Environmental
Answer: D
Q3: A High ESG Score in a company’s case, the signal would typically be:
A. Poor financial performance
B. Cheaper capital and less long-term risk
C. High tax burden
D. No dividend payments
Answer: B
Q4: For portfolio management purposes, ESG does a great deal in supporting investment decisions:
A. Avoid ethics
B. Maximize daily trades
C. Find assets that are sustainable and low-risk
D. Disregard all disclosures other than those relating to financial information
Answer: C
Q5: Which ESG measure is related to fair labor and workplace safety?
A. Environmental
B. Social
C. Economic
D. Financial
Answer: B
