The History of ESG

Only recently, it seems that ESG has skyrocketed in popularity, and businesses and firms all over the world are making the transition into focusing on ESG to adapt to the changing market. But where did ESG come from? When was the concept of ESG introduced and established?

ESG was first introduced as a concept in January of 2004, where former UN Secretary General Kofi Annan met with over 50 CEOs of major financial institutions with the argument that it makes good “business sense” to incorporate environment, social, and governance factors into markets. He met to discuss ways in which this new ESG concept could be implemented into markets, and ultimately lead to a more sustainable market and better outcomes for society. A year after this meeting, a monumental report entitled “Who Cares Wins” by Ivo Knoepfel marked the first time the term ESG was used.

At around the same time, the United Nations Environmental Program/Financial Initiative (UNEP/FI) produced the “Freshfield Report”, which showed that ESG issues are relevant for the financial evaluation of a company. These two reports accompanied the launch of the Principles for Responsible Investment (PRI) at the New York Stock Exchange in 2006 and the launch of the Sustainable Stock Exchange Initiative (SSEI) the following year, spurring the start of the development of ESG in the market.

Over the years ESG would continue to grow steadily, but unsurprisingly there were concerns and an overall attitude of reluctance to invest. Investors worried that impacts on Environmental, Social, and Governance would be limited in the interest of maximizing shareholder return. There was also a relative lack of publicly available information, as many companies displayed fragmented and incomplete information on ESG. However, the popularity of ESG greatly increased when it was able to financially appeal to the investor, establishing a reputation as an investment that had less risk compared to the traditional investment. Around 2013-2014 was when the first studies showing the correlation between good corporate sustainability performance and overall financial results was published. Although ESG was still in its infancy, these studies greatly encouraged investors to take the chance and invest in ESG because it gave investors a reason to believe that their investments would be rewarded.

As we all know now, ESG would continue to grow at an astronomical rate, and would soon become a market worth more than $20 trillion in assets. The idea that investors who consider environmental, social and governance factors can improve returns is now rapidly spreading across capital markets on all continents. The global investor community has been developing a variety of methods for optimally integrating ESG information, making investing in ESG much easier for the average individual investor. With the danger of climate change looming, the demand for responsible and sustainable investing has become more prominent than ever before.