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Concept
Environmental, social, and corporate governance
Summary
Environmental, social, and corporate governance (ESG), also known as environmental, social, and governance, is a set of aspects considered when investing in companies, that recommends taking environmental issues, social issues and corporate governance issues into account.
Since 2020, there have been accelerating incentives from the United Nations (UN) to overlay ESG data with the Sustainable Development Goals (SDGs), based on their work, which began in the 1980s.
The term ESG was popularly used first in a 2004 report titled "Who Cares Wins", which was a joint initiative of financial institutions at the invitation of UN. In less than 20 years, the ESG movement has grown from a corporate social responsibility initiative launched by the United Nations into a global phenomenon representing more than US17.67 billion flowed into ESG-linked products, an almost 525 per cent increase from 2015, according to Morningstar, Inc.
Critics claim ESG linked-products have not had and are unlikely to have the intended impact of raising the cost of capital for polluting firms, and have accused the movement of greenwashing.
Historical decisions of where financial assets would be placed were based on various criteria with financial return being predominant. However, there have always been many other criteria for deciding where to place money—from political considerations to heavenly reward. It was in the 1950s and 60s that the vast pension funds managed by the trades unions recognised the opportunity to affect the wider social environment using their capital assets—in the United States the International Brotherhood of Electrical Workers (IBEW) invested their considerable capital in developing affordable housing projects, whilst the United Mine Workers invested in health facilities.
In the 1970s, the worldwide abhorrence of the apartheid regime in South Africa led to one of the most renowned examples of selective disinvestment along ethical lines.
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