Mar 2, 2022

The meaning of ESG, and why we go for impact instead

When it comes to responsible investing, many different terms are used. This blog talks about the meaning of ESG.

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The meaning of ESG, and why we go for impact instead

ESG stands for Environmental, Social and Governance. The abbreviation is used in many different ways and somewhat loosely. But the original meaning is to highlight the risks a company faces with its business model.


Curious about Echo Impact Exchange?

Echo is a trading platform for impact rating. That’s right: you can rate companies’ impact by trading their impact certificates. Joining Echo is free for the time being and the profits you make from trading with the Echo Coin (Ǝ) will become convertible to other currencies in 2023!


Take a car manufacturer. A car manufacturer produces cars. This is its business model. And this business model comes with certain risks. It comes with environmental risks, for example when it has many models that rely on combustion engines. It comes with social risks, say, if it mainly builds electric cars but sources the raw materials in countries where child labor is a big problem. It comes with governance risks, if the company is not well managed; say, only male employees with an engineering background make it to the top positions.

If you think about buying the shares of that car manufacturer, then all of these risks are important. For every single one of them might lead to a drastic decline in prices. This is the original meaning of ESG: it points to potential risks to the stock price of a company.

Why Echo prefers impact ratings over ESG

At Echo, we do support the trend that more and more companies are reporting their ESG risks. Also, it is a good thing that more and more investors care about ESG issues when making investment decisions.

However, we think that ESG reporting is insufficient. For it does not address the main thing. Namely, what a company actually does. A car manufacturer, a chemical company or a firm producing household appliances might all face similar ESG issues. Still, they are entirely different companies.

At Echo, we consider the impact of everything a company does – not only the ESG risks it faces. This is why we compare companies’ impacts.

If you want to learn more about why we focus on rating companies’ impact, then this blog is also for you.

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Curious about Echo Impact Exchange?

Echo is a trading platform for impact rating. That’s right: you can rate companies’ impact by trading their impact certificates. Joining Echo is free for the time being and the profits you make from trading with the Echo Coin (Ǝ) will become convertible to other currencies in 2023!