Environmental, social and governance - origins and investment
Sustainability - social concerns - governance - investment.
Author: James Leather FCT CGMA, Corium Treasury Limited.
Environmental, social and governance (ESG) is a broad framework for evaluating, reporting and improving policies and performance in sustainability.
Origins
Despite its recent rise to popularity as a subject, ‘ESG’ has no universally accepted definition.
One early usage of the term ‘ESG’ - possibly the first - was in 2004/2005 as a result of former UN secretary general, Kofi Annan, forming a joint initiative under the UN Global Compact with the International Finance Corporation (part of the World Bank) and the Swiss Government.
Whilst ESG has become mainstream, it extends and integrates models of corporate social responsibility, environmental concerns and corporate governance, that have been around for a long time.
Ethical investing
The origins of modern day ethical (or socially responsible) investing are derived from the practice of organisations excluding investments that conflicted with personal and social moral values or ethical beliefs, which has its roots in the faith based, civil rights, anti-war and environmental movements of the 1960s and 1970s.
Examples include students lobbying university endowment funds not to invest in defence contractors during the Vietnam War, or organisations doing business in South Africa, in the apartheid era.
Islamic finance, however, might be viewed as one of the earliest forms of ethical investing (adhering to Islamic principles and Shariah law), as it dates back to the origins of Islam in the 7th century.
Benefits
Research to date appears to support sustainable investing as a financially beneficial strategy, with companies that promote sustainable practices (environmental stewardship, consumer protection, human rights and support for social good) being shown to benefit investors financially more than companies that don’t.
See also
- Corporate governance
- Corporate Governance Institute
- Corporate social responsibility (CSR)
- Environmental concerns
- ESG Credit Impact Scores
- ESG investment
- ESG Issuer Profile Scores
- ESG ratings
- ESG Relevance Score
- ESG Vulnerability Score
- Governance
- Green Finance Initiative (GFI)
- Human rights
- IFC ESG Standards
- International Finance Corporation (IFC)
- Islamic finance
- Social concerns
- Sustainability
- United Nations Global Compact
- United Nations (UN)
- World Bank
