What does each of the categories mean?
Environmental: Includes anything to do with the company’s sustainability practices and environmental impact. These include carbon emissions, sustainable sourcing of materials, pollution, etc.
Social factors: Refers to the human side of business and how responsibly a company treats it’s people. It emphasises on how the Company policies affect employee-experience, work culture, fair wages and benefits, standard of working conditions, equal opportunities and inclusivity.
Governance: Focuses on the diversity and expertise of board members, how efficient the board is in overseeing structures, policies, and practices that guide corporate leadership and ensure transparency, integrity, and long-term value creation.It also examines how the company identifies and mitigates crucial risks related to climate, social unrests and reputational damages.
Why is ESG Due Diligence important?
Two-way win for Investors and companies:
The modern investment practices are shifting towards sustainability and ethical governance. The process checks for environmental liabilities, governance flaws, or social controversies that could hurt returns for the company or reputation of the company.
Smarter Decisions:
Investors gain deeper insights into long-term viability, helping them choose compliant and future-ready businesses. They can assess how well a company manages sustainability challenges and stakeholder expectations.
Mitigation of risks:
Satisfaction of stakeholders help mitigate reputation risks. Regulatory bodies have put stern measures on ESG, thereby helping to mitigate regulatory risks. ESG compliant Companies save money on major regulatory fines and this helps to gain major investor funds. And lastly, ESG compliant organizations helps developing long term strategic partnerships which aid in rapid growth.
Access to Capital and Market Advantage
ESG-compliant companies often enjoy lower borrowing costs and relations with investors.
Regulatory Compliance
ESG due diligence ensures alignment with global standardssuch as EU’s Corporate Sustainability Reporting Directive (CSRD) or the Security and Exchange Commission’s climate disclosure rules.
As global markets evolve and stakeholder expectations rise, ESG due diligence is no longer just a responsibility, it’s a strategic necessity. The process enables both companies and investors to identify hidden risks andalign with regulatory rules.
In a field where reputational and regulatory risks can quickly reduce value, ESG due diligence empowers investors to make smarter, future-ready decisions that benefit both their portfolios and the planet.