**The History and Evolution of ESG Investing**

**Summary:**
The concept of ESG (environmental, social, and governance) investing may have been officially coined in 2004, but its roots go back much further. Dating back to the 1970s as socially responsible investing (SRI), the movement gained traction in the 80s with the divestment campaigns against companies in apartheid-era South Africa. The 90s saw the emergence of ESG considerations in mainstream investment strategies, which was followed by a flurry of institutional initiatives. By the turn of the millennium, the United Nations Millennium Summit set the stage for ESG discussions, and organizations like the Global Reporting Initiative began addressing environmental concerns. The following decade witnessed the replacement of MDGs with SDGs, the establishment of the TCFD, and the signing of the Compact for Responsive and Responsible Leadership. As of today, ESG data is used to evaluate a company’s performance on specific ESG issues, and new regulations like the CSR Directive and the potential implementation of mandatory ESG reporting by the SEC and other countries are reshaping ESG considerations.

**Article:**

ESG, short for environmental, social, and governance, is a widely recognized term in the investment community, signaling a set of metrics used to measure an organization’s environmental and social impact. The concept, which has become increasingly influential in investment decision-making, has an intriguing historical journey.

The roots of responsible investment can be traced back to the 1970s when socially responsible investing (SRI) emerged as a means for investors to align their values with their portfolios. The movement gained momentum in the 1980s, particularly through divestment campaigns against companies involved in South Africa during apartheid. Over time, SRI evolved to look similar to today’s corporate social responsibility (CSR) and primarily focused on social issues like human rights and supply chain ethics.

However, it wasn’t until the 1990s that ESG considerations started to appear in mainstream investment strategies. In 1995, the U.S Social Investment Forum (SIF) Foundation took inventory of sustainable investments in North America, revealing a total of $639 billion, shedding light on shareholders’ growing investment out of principle rather than purely for profit.

As the years progressed, institutional investors began to acknowledge the potential for companies to enhance financial performance and risk management by focusing on ESG issues such as greenhouse gas emissions. Consequently, asset managers initiated the development of ESG strategies and metrics to assess the environmental and social impact of their investments. In 1997, the Global Reporting Initiative (GRI) was established, initially concentrating on environmental concerns before broadening its scope to encompass social and governance issues.

In 1998, John Elkington introduced the concept of the triple bottom line – a sustainability framework revolving around the three P’s: people, planet, and profit. This highlighted a growing body of non-financial considerations to be included when evaluating companies and aimed to sway businesses to operate in the best interest of people and the planet.

The turn of the millennium witnessed the United Nations Millennium Summit, which laid the foundation for discussions around ESG factors, ultimately leading to the creation of the Millennium Development Goals (MDGs). Concurrently, the Carbon Disclosure Project (CDP) was founded, encouraging institutional investors to request companies to report on their climate impact. This endeavor normalized the practice of ESG reporting and, by 2002, 245 companies had responded to the 35 investors who asked for climate disclosures.

In 2004, the term “ESG” was officially coined after its first mainstream appearance in the report “Who Cares Wins,” which outlined how to integrate ESG factors into company operations. Subsequently, in the following years, other principles and frameworks were established, offering guidance on integrating and reporting ESG factors. Examples include the Principles for Responsible Investment (PRI), the Climate Disclosure Standards Board (CDSB), and the Sustainability Accounting Standards Board (SASB), which are still relied upon by companies and investors today.

Moving forward to 2015, the Sustainable Development Goals (SDGs) replaced the MDGs, outlining seventeen sustainability targets and setting a global agenda for sustainable development with the aim of achieving a more sustainable future by 2030. The adoption of the SDGs represented a shift from ESG being a mere talking point to something that could (and should) be measured.

Subsequent years saw the establishment of the Taskforce on Climate-related Financial Disclosure (TCFD) and the drafting of the Compact for Responsive and Responsible Leadership by the World Economic Forum, signed by 140 CEOs in 2017. The COVID-19 pandemic placed a spotlight on companies with strong ESG performance, revealing their improved resilience in navigating disruptions.

Today, ESG has become a standard for both companies and investors, with ESG data used to evaluate a company’s performance on specific ESG issues. Various ESG strategies and metrics continue to be developed by asset managers to measure the environmental and social impact of companies, with some focusing on excluding organizations that do not meet certain ESG criteria and others on actively selecting companies with strong ESG profiles. New regulations, such as the European Union’s Corporate Sustainability Reporting Directive (CSRD), are requiring businesses to report on the environmental and social impact of their activities.

Moreover, ESG ratings and indices, including those offered by Morgan Stanley Capital International (MSCI), have gained popularity with investors looking to integrate ESG factors into their portfolios. As the world grapples with increasingly significant challenges related to climate change and social issues, ESG considerations are projected to continue playing a critical role in the way companies and investors operate and measure their performance.

**FAQs**

Q: What are ESG factors?
A: ESG stands for environmental, social, and governance and refers to a set of metrics used to evaluate a company’s performance in these areas.

Q: Why is ESG investing important?
A: ESG investing is important as it allows investors to put their money into companies that align with their values and consider long-term sustainability.

Q: What are some examples of ESG metrics?
A: Examples of ESG metrics include carbon emissions per unit of revenue for environmental impact, and employee turnover rates for labor practices.