ESG as a framework - with the example of Microsoft

March 22, 2022
Anna Rohrhofer
Yuchen Xia

To further de-mystify the concept of ESG, we are looking to break down its components and sub-factors, as well as introducing some questions asset managers ask when assessing a company’s ESG score.

What are E, S and G?

1. Environmental

  • Climate change
  • Natural resources
  • Pollution and waste
  • Environmental opportunities

2. Social

  • Human capital
  • Product liability
  • Stakeholder opposition
  • Social opportunities

3. Governance

  • Corporate Governance
  • Corporate Behaviour

How can companies be examined and what is inside of each category?

Within those categories, there are various factors asset managers look at. Taking the example of the ESG leader Microsoft, environmental consultants might look at its initiatives in terms of climate change to valuate its ‘E’ score, such as efforts to reach a global net zero by reducing CO2 emissions, toxic waste (since Microsoft produces technological equipment of various sorts, their actual production plays a very important factor here) and resources used (as an example: tech companies do need space to store various data mediums, but where are they stored, and how is the land being used? How has it been acquired and modified?).

Looking at the social category, an analyst might look at a company’s labor relations, security and how it treats its employees and customers. Returning to the Microsoft example, privacy and data security play a very important role in its ‘S’ score when being examined. As more and more attention is being paid to data security, big tech has to adapt. However, especially in intense political climates, factors such as stakeholder opposition and social opportunities have to be taken into account as well. Microsoft’s part in the production of the Moderna COVID-19 vaccine or potential Russian relations during the Ukraine-Russia conflict just being two examples of how stakeholder opposition can affect its ESG evaluation.

And last but not least, a company’s governance score. This score is made up of corporate governance and corporate behaviour, such as the diversity of its board of directors, whether its structures are in accord with shareholder outcomes and company culture, e.g. the behaviour of the company’s managers.

If you are interested in Microsoft's ESG score, make sure to head to its security page in the app to get a detailed overview of its latest rankings.

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