The three core elements can be broken down into more detail as follows: 

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Environmental criteria – looks at how a company safeguards the environment, particularly focusing on: 

· Waste and pollution 

· Energy efficiency 

· Greenhouse gas emissions 

· Deforestation 

· Climate change 

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Social criteria – looks at a company’s relationship with stakeholders and how it treats people, mainly focusing on: 

· Employee relations and diversity 

· Local communities – does the company fund projects to serve poor communities? 

· Health and safety 

· Operating an ethical supply chain 

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Governance criteria – looks at how the company is internally governed and policed, concentrating on: 

· Avoiding conflicts of interest 

· Ensuring there is a diverse set of board members 

· Not engaging in illegal conduct 

· Not using donations for the purpose of political lobbying 

· Corporate transparency

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There has traditionally been a misconception of ESG as being your typical ‘ethical’ fund, whereby a fund manager will deliberately screen out unethical industries such as weapons, tobacco and oil companies when choosing where to invest. As you can see from the criteria detailed above, ESG aims to do so much more than this and will aim for positive inclusion, seeking to incorporate companies which can demonstrate sustainable behaviour. Some ESG-focussed fund managers will actively seek to invest in companies where they feel they can positively influence a company from within and deliver a greater push towards sustainability. 

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However, the world of ESG funds still remains fairly subjective and with so many different criteria to measure against, it can often be hard to determine how companies and fund managers are proving their ESG credentials. Unfortunately, a lot of fund managers are now jumping on the ESG bandwagon and are claiming their funds are sustainable with very little evidence to back this up. This is why it is very important to seek regulated financial advice if you are interested in investing in ESG funds, as a good adviser should be able to guide you towards funds that are truly meeting your ESG criteria.