ESG Criteria in Investment Decision Making: Trends and Perspectives

The impacts of climate change on our daily lives (including exacerbation of societal inequalities) and on the environment require the adoption of mitigation and adaptation measures and policies as well as the reconfiguration of human activity in a way that it is not harmful to the natural systems. From a business perspective, this entails redirection of capital towards more sustainable investments. In the European Union, the bloc's initiatives and, in particular, its taxonomy policies and unified reporting standards can be a catalyst in this endeavour, encouraging the flow of money; accordingly, this is also reflected in the growing interest of investors in more sustainable portfolios. This study aims to highlight the opportunities and prospects for society lying in improved management of methodologies related to sustainable investments that take into account environmental, social, and corporate governance (ESG) aspects. Based on the ESG framework evaluating a company's/organisation's investment today should largely focus on the environmental (E) dimension, but this does not imply overshadowing the social (S) dimension, as this may lead to both stranded assets and significant inequalities among communities and individuals. Furthermore, by focusing on the governance (G) dimension, greenwashing can be avoided, and sustainable practices effectively promoted through open systems and governance tools based on transparent methods. We thus revisit the framework for promoting sustainable initiatives and investments at the corporate level from an ESG lens, as the key factor in investment decision-making. We present the most prevalent reporting standards for corporate sustainability reporting and the most widely established ESG assessment methodologies, while reviewing shortcomings to the current ESG investment landscape. We argue that enhancing the role of ESG, while ensuring its credibility, should contribute to the expansion of sustainable strategies and practices, for business and the environment alike.