Environmental, social and governance (ESG) investing is a strategy you can use to put your money to work with companies that strive to make the world a better place. ESG investing relies on independent ratings that help you assess a company’s behavior and policies when it comes to environmental performance, social impact and governance issues.

The ESG strategy means investing in companies that score highly on environmental and societal responsibility scales as determined by third-party, independent companies and research groups.

“At its core, ESG investing is about influencing positive changes in society by being a better investor,” says Hank Smith, Head of Investment Strategy at The Haverford Trust Company.

According to Smith, ESG investing assumes that there are certain environmental, social and corporate governance factors that impact a company’s overall performance. By considering ESG factors, investors get a more holistic view of the companies they back, which can help mitigate risk and identify opportunities.

Here’s a closer look at the three criteria used to evaluate companies for ESG investing:

• Environment. What kind of impact does a company have on the environment? This can include a company’s carbon footprint, toxic chemicals involved in its manufacturing processes and sustainability efforts that make up its supply chain.
• Social. How does the company improve its social impact, both within the company and in the broader community? Social factors include everything from LGBTQ+ equality, racial diversity in both the executive suite and staff overall, and inclusion programs and hiring practices. It even looks at how a company advocates for social good in the wider world, beyond its limited sphere of business.
• Governance. How does the company’s board and management drive positive change? Governance includes everything from issues surrounding executive pay to diversity in leadership as well as how well that leadership responds to and interacts with shareholders.