As global concerns intensify around climate change, inequality, and ethical considerations, the concept of Environmental, Social, and Governance (ESG) has gained prominence. ESG goes beyond financial gains, emphasizing sustainable practices and positive societal contributions. But how did ESG come into existence, and what milestones shaped its journey? Let’s delve into the captivating history of ESG.

1950s to 1970s: Realizing Corporate Responsibility

Corporate Accountability Emerges

In 1953, Howard Bowen’s groundbreaking book, “Social Responsibilities of the Businessman,” kickstarted discussions on corporate accountability. However, this notion clashed with prevailing theories that a company’s primary duty was to maximize shareholder wealth.

Social Movements and Investor Activism

The 1960s witnessed political movements like black power, women’s rights, and opposition to the Vietnam War. Activists urged large funds (including university endowments) to divest from companies supporting the war. Investors began paying closer attention to social issues.

Earth Day and Environmental Awareness

In 1970, US Senator Gaylord Nelson mobilized nearly 10% of the country for the world’s first Earth Day. This event highlighted public concerns about pollution, environmental degradation, and health risks stemming from industrial practices. Prior to Earth Day, no legal mechanisms protected the environment, allowing factories to freely dispose of toxic waste into waterways.

Pioneering ESG Investing

In 1971, two United Methodist ministers created the Pax World Funds (now Impax Funds). It was the first publicly available mutual fund in the US to consider social and environmental factors in investment decisions. This laid the groundwork for future ESG investing.

1980s to 1990s: Global Engagement

World Bank and Environmental Challenges

Throughout the 1980s, the World Bank played a crucial role in shaping economic and social strategies in the Third World. Environmental issues like pollution and ozone depletion became unavoidable. Countries sought growth, but sustainability concerns loomed large.

United Nations and Responsible Investment

In 1983, the United Nations established an autonomous body to investigate the connection between human activity, the environment, and economic.

In 1992, the United Nations Environment Program (UNEP) acknowledged financial institutions’ role in sustainable development. Later that same year, at the Rio Earth Summit, 154 countries came together to sign the United Nations Framework Convention on Climate Change (UNFCCC) that laid the groundwork for collective global efforts to address environmental challenges, emphasizing the integration of environmental considerations into a broader ESG strategy. 

The 1997 Kyoto Protocol further emphasized curbing greenhouse gas emissions as a collective responsibility, aligning with ESG principles. policy.

2000s and Beyond: ESG Goes Global

Coining the Term “ESG”

In 2004, the UN Global Compact Initiative’s report titled “Who Cares Wins” officially introduced the term “ESG.” Initially associated with Socially Responsible Investing (SRI), ESG grouped the three main pillars of ethical finance: environmental, social, and governance.

The launch of the UN Principles of Responsible Investment (UNPRI) in 2006 further catalysed ESG adoption.

In 2011, Jean Rogers founded SASB to develop industry-specific accounting rules reflecting ESG’s impact on a company’s bottom line. So, companies began accounting for specific ESG factors, such as water security for beverage companies and environmental impact for energy firms.

In 2015, the United Nations introduced the 17 Sustainable Development Goals (SDGs), emphasizing global priorities. Simultaneously, the Financial Stability Board (FSB) established the Taskforce on Climate-related Financial Disclosures (TCFD) to guide climate-related reporting. Additionally, countries worldwide committed to the Paris Agreement, reinforcing their collective commitment to climate action.

In 2016, The Global Reporting Initiative (GRI) introduced the GRI Standards, providing a structured framework for ESG reporting.

In 2017, over 140 CEOs signed the Compact for Responsive and Responsible Leadership at the World Economic Forum 2017 Summit in Davos, committing to aligning their goals with UN SDGs.

ESG has come a long way, from early discussions on corporate responsibility to global adoption. Today, it shapes responsible business practices, influences investment decisions, and drives positive change. As we navigate complex challenges, ESG remains a beacon for sustainable and equitable progress.