Socially responsible and sustainable investment (ESG) is neither a passing fad nor a new trend. There has surely been significant growth in the last 10 years, but the initial movements related to this theme go back decades.
Continuing the series of publications on ESG practices, this article looks at various events in time from the global history involving the pillars of sustainability until reaching this topic’s current level.
There are various versions of the timeline in literature justifying the roots of the ESG concept; however, some events were undeniably a major influence in driving what we see now in the sustainable economic environment and these are discussed below.
Vietnam War and Apartheid (1970s)
US involvement in the Vietnam War increased activism in the country and the world, especially regarding the use of chemical weapons. This anti-war movement powered sustainable investment and some advocates for responsible corporate practices began to stand out and influence the global discourse.
In an effort to prevent church dollars from going to companies that contributed to the Vietnam War, United Methodist Church reverends Luther Tyson and Jack Corbett created the so-called Pax World Fund investment fund. They intended for other religious investors to follow their ethical and moral principles by adhering to a standard of social and environmental responsibility. This was the first investment fund geared toward social responsibility and it later grew to become the Pax World Balanced Fund, which still exists today.
Apartheid was a policy of social and racial segregation in South Africa from 1948 to 1994. In 1977, the Reverend Leon Sullivan, an American civil rights leader, developed a code of corporate conduct called the Sullivan Principles, which were directly related to this segregationist policy. These principles were aimed at promoting social corporate responsibility and exerting economic pressure on South America, in response to the Apartheid system of racial segregation. Decades later, the United Nations adopted an updated version of Sullivan’s code of corporate conduct as part of the United Nations Global Compact.
Sustainable Investment Forum and Exxon Valdez (1980s)
Repercussions from Chernobyl and the Three Mile Island nuclear disaster in the 1980s created anxiety in relation to the environment and climate change, which led to the launch of the U.S. Sustainable Investment Forum (US SIF) in 1984.
Also in relation to Apartheid, students at Columbia University organized a protest in 1985, demanding that the University halt investments in companies doing business with South Africa. These protests later resulted in the redirection of US$ 625 billion in investments that had been going to South Africa. In addition, in 1986, the US Congress passed the Anti-Apartheid Act, prohibiting new investments in South Africa and particularly in government-run companies, but which also covered most of the country’s private sector.
In March 1989, the enormous Exxon Valdez oil tanker struck the Bligh Reef in Alaska, spilling nearly 11 million gallons of crude oil into the water. Attempts to contain the oil failed and in subsequent moths the oil spill spread and there was no oil recovery or water cleaning equipment in the region. At the time, it was the largest oil spill in US waters, resulting in various protests and efforts by activists, leading to the creation of the “Coalition of Environmentally Responsible Economies,” a non-profit bringing together investors, business leaders and public interest groups to accelerate adoption of sustainable business practices and the transition to a low-carbon economy.
Domini 400 Social Index, RIO-92 and the Kyoto Protocol (1990s)
The Domini 400 Social Index was launched as the first Socially Responsible Investment (SRI) index in 1980. It is now called the MSCI KLD 400 Social Index and is aimed at companies with a socially and environmentally responsible reputation.
While in 1992, the United Nations organized the Conference on Environment and Development, also known as Rio-92, Eco-92 or the Earth Summit. This resulted in a global summit to discuss the connection between economic development and environmental protection. The meeting, held in Rio de Janeiro, led to an international environmental treaty signed by 154 countries, aimed at reducing the global environmental impacts.
The consequences of RIO-92 were felt in 1997, in Kyoto, Japan, during negotiations on the prior treaty, defining how and the context in which climate protection should move forward. The Kyoto Protocol only took effect on February 16, 2005, when 38 industrialized nations committed to reducing their emissions of gasses harmful to the climate by an average of 5.2% by 2012, in relation to 1990 levels.
It is also worth noting that in 1997, the Global Reporting Initiative (GRI) was founded in Boston as an independent international organization helping companies and organizations to assume responsibility for their impacts.
Who Cares Wins, PRI and GRI Standards (2000-2010)
The Global Reporting Initiative (GRI) published the first version of its so-called GRI Guidelines, providing the first global structure for sustainability reporting. These international and independent standards helped companies with how to communicate their impact on matters such as climate change, human rights and corruption.
The Who Cares Wins conference gathered various groups connected to investing for the first time in 2005, including: asset managers, buy-side and sell-side research analysts, investors, global consultants, government agencies and regulators. The goal of this conference was to question the role of drivers of environmental, social and governance (ESG) value in management assets and financial research. The meeting resulted in a report that provided recommendations on how to incorporate ESG issues in analyses, asset management and securities brokerage. This initiative coined the term ESG Investment.
The United Nations Principles for Responsible Investment (PRI) were created in 2006 by an international group of institutional investors and they reflect the growing importance of environmental, social and corporate governance issues to investment practices.
Paris Accord, SDG and Black Rock (2011 – 2021)
The United Nations Sustainable Development Summit, held in September 2015, established 17 Sustainable Development Goals (SDGs) that serve as a guide for countries that are committed to global development by 2030. They cover different aspects of social development, environmental protection and economic growth.
In 2016, the Paris Agreement was developed, an international treaty that had a single goal: slow global warming. It was discussed by 195 countries during the 21st Climate Change Conference (COP21), in Paris, and approved in December 2015, officially taking effect on November 4, 2016.
The theme of sustainability has been a major theme of letters by BlackRock CEO Larry since at least 2016. In 2012, he also called attention to corporate governance matters as a necessary factor in long-term organizational durability and performance. BlackRock is the world’s largest fund manager, with US$ 6.96 trilling in assets under management. Nevertheless, the topic of sustainability took on a sense urgency in 2020 that was unprecedented in his previous letters.
In addition to underscoring the need for companies to begin to consider ESG practices in their business models, BlackRock served as an example to the rest of the world by announcing a variety of changes in investment strategies and product offerings, stating that it might divest from company assets without any clear plans regarding environmental matters. This engagement by Larry resulted in a huge wave of sustainable engagement at many organizations around the world, since nobody wants to “get left behind” and be ruled out or badly regarded by BlackRock.
The pandemic and ESG practices
The COVID-19 pandemic put ESG-related matters front and center. On the one hand, consumers are more concerned with trends connected to environmental and sustainability issues, such as the approach to the environment and social consciousness. On the other, organizations expect growth in actions aimed at ESG as a way to add value and show greater resilience. The pandemic also demonstrated that more fragile companies and societies suffer more in crises, and supportive and agile organizations take advantage of these extremely challenging moments to grow.
We find ourselves at what is expected to be the end stages of the pandemic, and many feel ready to return to normal. Yet immediate and extreme changes need to be made, since we will very soon be subject to a variety of other devastating global events, such as climate change. Maximum time and effort needs to be placed in developing solutions that will give the world a smaller ecological footprint. Investing in ESG is a powerful solution, since it engages companies to become more sustainable and to be concerned with various social, environmental and corporate governance matters.
Are you interested in learning more about ESG after having read this article? If so, I would like to invite you to view some of the other content that has already been prepared on this topic here on our blog!
