Glossary entry

ESG

Definitions

Option 1

ESG means environmental, social and governance [of which the latter shall include, but is not limited to issues of, health and safety, safeguarding and gender].

Option 2

Environmental, social and governance (ESG) means factors which include, but are not limited to, Climate Change, resource depletion, waste, pollution, deforestation, human rights, modern slavery ,safeguarding, child labour, local and indigenous communities, conflict, work conditions, health and safety, employee relations, bribery and corruption, remuneration, board diversity and structure, political lobbying and donations, transparency, shareholder rights and tax strategies.

Option 3 (based on the definition in Kaia's Clause)

ESG means Environmental, Social and Governance factors and standards forming a [published] policy, framework, strategy or objective of a party.

Option 4 (sustainable finance context)

ESG means environmental, social and governance considerations. Environmental considerations may refer to Climate Change Mitigation and Climate Change Adaptation, as well as the environment more broadly, such as the preservation of Biodiversity, pollution prevention and the circular economy. Social considerations may refer to issues of inequality, inclusiveness, labour relations, investment in human capital and communities, as well as human rights issues; and the governance of public and private institutions, including management structures, employee relations and executive remuneration.

Option 5 (sustainable finance context)

ESG refers to environmentally sustainable objectives including Climate Change Mitigation; Climate Change Adaptation; the sustainable use and protection of water and marine resources; the transition to a circular economy, waste prevention and recycling; pollution prevention and control; and the protection of healthy ecosystems.

Option 6 (non-EU specific)

ESG means environmental, social and governance factors considered by companies, investors, public sector and other organisations in a wide range of decision-making processes and situations including strategy, purpose financing, company reporting and supply chain management.

Drafting notes

ESG is commonly referred to as “environmental, social and governance”. It is sometimes also referred to as corporate social responsibility (CSR) or corporate responsibility (CR).

ESG factors are considered by companies, investors, public sector and other organisations in a wide range of decision-making processes and situations including financing, company reporting and supply chain management.

ESG factors include the environment, climate change, diversity, human rights, labour chain, modern slavery, philanthropy, accountability, sustainability, community, transparency, and fair trade.

Option 1 includes drafting to highlight health and safety, safeguarding and gender issues, which can often be overlooked.

Option 4 is particularly relevant in a sustainable finance context (see EU Commission: What is sustainable finance? in References below). It references the social factors in the EU Disclosure Regulation ((EU) 2019/2088), which imposes transparency and disclosure requirements on certain firms in the financial services sector.

Also in this context, Option 5 provides drafters with a definition that is linked to the environmental objectives in Article 9 of the EU Taxonomy Regulation (Regulation (EU) 2020/852), which establishes an EU wide classification system or framework to facilitate sustainable investment.

Application

All legal agreements where being socially conscious and a steward of nature is a key aspect of the transaction, e.g. Articles of Association, financing agreements, project financing agreements, shareholder agreements, supplier contracts and policy documents.