A brief history of ESG

ESG investing has grown rapidly in recent years.  Originally, its roots were in the religious movements of Anglo-American countries in the 19th century, who restricted members from investing in businesses that dealt in alcohol, tobacco and gambling.  This form of participation became known as Ethical Investing.  In the late 20th century, protest movements demanded institutions to avoid capitalizing on social issues such as war, the slave trade, civil rights, apartheid, and to support fair trade.  This became known as Socially Responsible Investing.

These beliefs shaped the earliest instances of Sustainable Responsible Investing (SRI); the desire to invest consistently with personal values.  The rise of SRI has been closely linked to the major changes in society such as environmentalism, human rights, gender diversity and wildlife conservation.

Over the last two decades SRI continued to grow globally, propelled by government legislation and international organisations like the United Nations, and their creation of the UN Sustainable Development Goals (SDGs).  The seventeen SDGs acknowledge that ending poverty and other deprivations must go in conjunction with strategies that improve health and education, reduce inequality, and spur economic growth, as well as tackling climate change and working to preserve the oceans and forests.  Many investment organisations adopted the UN SDGs as a way to focus their aim of gaining influence or having an impact on issues that investors care about.

However, as sustainability means different things to different people, defining the concept from an investment perspective is challenging.  There are also a growing number of investors beginning to insist that their portfolios better reflect their values, across a spectrum of Environmental, Social and Governance (ESG) issues.  As this becomes more prevalent there is a requisite to measure ESG performance of these companies.  The demand for better metrics and reporting has accelerated.

The incorporation of ESG ratings into the process of investment decision-making is increasingly becoming recognised not only for its positive impact on the environment and society but also on improving long-term investment returns.

FSL have a keen interest in understanding ESG issues and data.  We have previously posted articles that illustrate the different types of data provider and metrics available, and clarify the changes in regulations. We will continue to monitor the market for ESG trends and are in the process of developing a tool to help organisations like our customers manage and communicate portfolio ESG ratings to their clients.