What Is ESG? Meaning, Full Form, Pillars and Real Examples

01What Is ESG? The Quick Version

ESG means Environment, Social, and Governance. It's an evaluation tool used to assess corporate responsibility: environmental impact, social impact, and ethical performance.

It's like the report card of the business world. One report card is about whether a company turns a profit. The other is about how the company turned the profit, and how it will be able to continue to do so without hitting any obstacles.

Two main differences between ESG and a mere sustainability concept are:

• It's measurable. Greenhouse gases in tons, water usage in kilolitres, employee turnover rate. Numbers, not words.
• It's objective. Investors, banks, rating agencies, regulatory authorities and big customers evaluate ESG reports.

02The Three Pillars of ESG, with Examples

Each letter covers a different set of issues.

The Three Pillars of ESG

E: Environmental

This is concerned with the environmental footprint of an organization in terms of greenhouse gas emissions, energy, water consumption, waste generation, and effects on land and biodiversity.

Example: A textile mill which changes from a coal-based boiler to a biomass or electric one and begins recycling the water used in the dyeing process.

Greenhouse gas emissions take the most prominent position among issues in this pillar. In case you want to find out more about their measurement, check our guide on Scope 1, 2 and 3 emissions, and for further actions – How carbon credits work.

S: Social

The social dimension is about people within and outside of the organization: safety of workers, compensation, diversity, training, human rights in the value chain, and impacts on communities.

Example: An IT firm that monitors the gender pay gap, provides appropriate parental leave and ensures its contractors pay the minimum wage.

A lot of this data is with the Human Resources (HR) department; hence people analytics is now overlapping with ESG. This connection is explained in HR analytics.

G: Governance

Governance encompasses how a firm is managed, namely board independence, remuneration policy for executives, ethics, anti-corruption policies, and whistleblowing policy.

Example: A publicly listed firm, which has independent board members, links the compensation of the CEO to environmental and safety performance.

Poor governance is often the source of ESG challenges. A company could produce an impressive report, but if there are no board-level individuals who can vouch for its figures, the report will be meaningless.

03ESG vs CSR vs Sustainability

These three terms get mixed up all the time. They're related, but not the same.

An easy way to remember it: sustainability is the goal, ESG is how you measure progress, and CSR is one part of the social picture.

04Why ESG Matters

ESG didn’t get important overnight because firms became charitable. It became relevant when capital and regulations began to align.

• Capital: Investors perform ESG screening of companies before investing money.
• Credit: Increasingly, banks factor in climate and governance risks while giving loans.
• Regulation: SEBI makes ESG reporting mandatory for large companies listed on stock exchanges.
• Exporters: International buyers seek environmental and labour information from exporters.

Also, there’s a people factor. Many younger employees consider corporate principles before accepting any job offer. With the country’s commitment towards net zero by 2070, more and more pressure is expected on industries.

05How Does ESG Work in India?

The principal ESG framework in India is SEBI's Business Responsibility and Sustainability Report (BRSR).

• What firms file it: Largest 1,000 listed Indian companies by market capitalisation, as part of their annual report.
• What it is based on: Nine principles of responsible business conduct, including ethics, products, employees, stakeholders, human rights, environment, public policy, inclusive growth and customers.
• BRSR Core: Selected important indicators, like emissions, water, energy, waste and gender diversity, requiring independent assurance, phased in.

Indian firms use several other international frameworks. The most popular framework is GRI, explained on our GRI Standards Guide page. Others are: ISSB (IFRS S1 and S2) framework for investors and UN Sustainable Development Goals, which almost all firms align with.

There is also a compliance carbon market in India, for heavy industries. It is the Carbon Credit Trading Scheme, where the "E" of ESG is tied to targets and trading. We have a separate page explaining India's carbon credits program.

06Poor Practice of ESG: Greenwashing

Greenwashing refers to a situation whereby a company attempts to portray itself as being more sustainable than it actually is. The indicators of greenwashing include:

• Vagueness: Usage of words such as "eco-friendly" and "green" without supporting data.
• Cherry-picking: Focusing on one good figure and ignoring others; for example, talking about solar panels fitted on office roofs while forgetting about emissions from the supply chain.
• Targets without action: Talking about reaching net zero emissions by 2040 but having no plan to achieve the goal.

This is precisely what makes ESG data-driven and framework-based.

07Where to Go from Here

If this guide has sparked your interest, here are some next reads from our blog:

• GRI Standards Explained: How the world's most-used ESG framework works.
• Best ESG Certification Courses in India: If you're thinking about an ESG career.
• Why MBA Students Are Choosing ESG Careers: How ESG fits with business education.
• Best Carbon Credit Course in India: For the climate and carbon side of ESG.

And if you'd like structured, hands-on learning, the ESG & Sustainability Reporting program with IIT Roorkee is a good place to start. You can also browse all eAsia Academy courses.