EXPLAINER: ESG investing and the debate surrounding it

NEW YORK (AP) — Here's the latest sign ESG investing is now mainstream after starting as a niche corner of Wall Street: It's become the target of Republican politicians and billionaire Elon Musk amid the nation's cultural schism.

To use an ESG approach is to consider a company's performance on environmental and other measures before deciding whether to invest in it. The ESG industry says it helps highlight companies that may be riskier than traditional investing guidelines alone would suggest. It could also help investors find better opportunities.

ESG has become popular across a wide range of investors, from smaller-pocketed regular people to pension funds responsible for the retirements of millions of workers. ESG investments overall have amassed enough monetary might to buy all of the stock of the most valuable U.S. company, Apple, seven times over.

To critics, meanwhile, ESG is just the latest example of the world trying to get “woke.”

Here’s a look at what ESG is and how big it’s become:

WHAT IS ESG?

It's an acronym, with each of the letters describing an additional lens that some investors use to decide whether a particular stock or bond looks like a good buy.

Before risking their money, both traditional and ESG investors look at how much revenue a company is bringing in, how much profit it's making and what the prospects are for the future.

ESG investors then layer on a few more specific considerations.

WHAT IS E?

Environment. It can pay to avoid companies with poor records on the environment, the thinking goes, because they may be at greater risk of big fines from regulators. Or their businesses could be at particular risk of getting upended by future government attempts to protect the environment.

Such risks may not be exposed by traditional investment...