Finally, governance relates to the company’s corporate oversight. Here, ESG investors will analyse how the business is run, factoring in things like its transparency with shareholders, the diversity of the board, and the perks and payouts executives are entitled to. By investing in a company that has a positive corporate culture, not only can investors feel secure that they are supporting a fair organisation, but they may also be limiting their risk exposure. Companies that are well regarded for their corporate governance tend to be better performing and less scandal-prone.
The biggest issue with this strategy is that it can be difficult to find a company that ticks all the boxes. ESG investors may prefer to decide what issues are the most important to them rather than looking for the perfect company.