A brief history of ESG: From pioneer to mainstream

A brief history of ESG – The definitive guide to explain the origins of the movement that commands so much of the modern boardroom agenda. 

Environmental, Social, and Governance (ESG) factors have elbowed their way into the boardroom and tend to feature in a lot of corporate decision-making. 

These days, ESG is an ever-present concept. It can easily polarise debate and is receiving a lot of pushback, but the undertow of funding remains very high. 

Let’s take a stroll down memory lane to see how ESG evolved from a fringe movement of ethically-minded investors to the business behemoth it is today.

Believe it or not, ESG has roots way back in the 18th century in religious circles, even though it might seem like a 1990s, post-Cold War idea. 

Groups such as Quakers and Methodists were among the first to introduce requirements that business methods shouldn’t cause harm to others. These weren’t just words; they actively steered clear of dodgy industries like tanning, chemicals, and anything to do with slavery. The modern concept of ethical investment is thought to have originated here, although the thinking underlying such rules can be seen in all major world religions for centuries prior.

So, how did we get to the 21st-century ESG? A few key moments really stand out:

• 1971: The Pax Fund launched in the US, the first ethical fund to explicitly avoid investments linked to the Vietnam War. 
• 1984: The UK got its first ethical unit trust, thanks to Friends Provident. 
• 1987: The UN’s Bruntland Commission’s report dropped, popularising the idea of sustainable development. Suddenly, everyone was talking about balancing the environment, society, and the economy.
• 2004: The UN Global Compact coined the term “ESG” in its “Who Cares Wins” report. Many summaries of ESG will highlight this moment as the official beginning.  
• 2006: The Principles for Responsible Investment (PRI) launched, giving investors a framework to put ESG into practice globally.
• Green Building Certifications: The rise of green building certifications, like BREEAM, ENERGY STAR, and LEED, began to convince key industries that it was in their interest to factor ESG into decision-making.

Several significant events jolted ESG into the spotlight:

• Social Movements: Think of the anti-apartheid movement’s powerful divestment campaigns that forced companies to cut ties with South Africa. Or the Vietnam War protests, which sparked the creation of ethical funds like the Pax Fund.
• Environmental Disasters: Events like the Bhopal gas tragedy in India and the BP oil spill served as brutal wake-up calls about the environmental risks of doing business. These kinds of disasters made corporate accountability front-page news.
• Regulatory Changes: Governments started getting in on the act. The UK’s Companies Act (2006) and the more recent Sustainability Disclosure Requirements (SDR) from the FCA are forcing companies to be more transparent about their ESG performance.

In the early days, ethical investing was all about saying “no” – no to tobacco, weapons, or anything that felt morally questionable. 

ESG has moved on from that simplistic exclusionary approach. Now, it’s about actively seeking out companies that are doing good, not just avoiding bad. ESG frameworks have become much more sophisticated, looking at everything from a company’s products to its impact on the planet. The goal? To make smarter investment decisions that align with your values and potentially boost your returns.

To ensure companies are walking the walk, not just talking the talk, ESG standards and certifications have emerged and strengthened through the years. Think of it as a stamp of approval that shows stakeholders you’re serious about sustainability.

The language around ESG has also evolved. We’ve gone from terms like “socially responsible investing” (SRI) and “corporate social responsibility” (CSR) to the more comprehensive “ESG” framework. Various ESG reporting frameworks have also emerged to guide companies on how to measure and report their performance:

• Global Reporting Initiative (GRI): Provides a comprehensive framework for organisations to disclose their impacts.
• Sustainability Accounting Standards Board (SASB): Develops industry-specific accounting standards.
• Corporate Sustainability Reporting Directive (CSRD): Requires companies to disclose ESG data in their reporting, increasing transparency and accountability.
• Task Force on Climate-related Financial Disclosures (TCFD): Offers reporting guidelines for climate-related disclosures.

These frameworks are helping to standardise ESG reporting, making it easier to compare companies and make informed decisions.

Want to see ESG in action? Here are some examples. 

• Unilever: This consumer goods giant is committed to sourcing sustainable raw materials and shrinking its environmental footprint.
• Patagonia: The outdoor clothing company is all about reducing water consumption and chemical pollution in its production processes.
• Ørsted: This energy company ditched oil and coal in favour of offshore wind farms.
• Toyota: The Prius paved the way for eco-friendly transportation.
• IKEA: The furniture giant sources sustainable wood and emphasizes eco-friendly production.

The history of ESG is a story of growing awareness and commitment to sustainable and responsible business practices. From its humble beginnings to its current status as a mainstream force, ESG has come a long way. And it’s not slowing down anytime soon. To get further insight from business leaders, exploring “2024 ESG Statistics: Insights for Business Leaders” would be beneficial.