ESG investing is on the rise globally, driven by a shift towards sustainable practices. | HotCopper posted on the topic | LinkedIn (2024)

FAQs

What led to the rise of ESG? ›

The early days of ESG can be traced back to the 1960s and 1970s, when socially responsible investing (SRI) began to gain popularity. SRI involves selecting investments based on a company's social or environmental impact, as well as its financial performance.

The COVID-19 pandemic has reinforced the importance of ESG issues and accelerated the transition to a more inclusive capitalism. Investors increasingly believe companies that perform well on ESG are less risky, better positioned for the long term and better prepared for uncertainty.

ESG stands for environment, social and governance. ESG investors aim to buy the shares of companies that have demonstrated a willingness to improve their performance in these three areas.

Over time, SRI steadily evolved to look much like today's corporate social responsibility (CSR) and was focused primarily on social issues such as human rights and supply chain ethics. However, it wasn't until the 1990s that ESG considerations started to appear in mainstream investment strategies.

Amidst this global trend, BlackRock, the world's largest asset manager, has taken a bold step by transitioning its investment strategy from ESG investing to a broader approach called transition investing. This move has significant implications not only for BlackRock but for the entire financial industry.

ESG can give companies a competitive edge

Companies are acknowledging that the way things have traditionally been done is flawed, and that changes must be made to ensure a sustainable future for the company. By default, a focus on ESG issues motivates innovation.

Critics say ESG investments allocate money based on political agendas, such as a drive against climate change, rather than on earning the best returns for savers. They say ESG is just the latest example of the world trying to get “woke.”

ESG stands for Environmental, Social and Governance. This is often called sustainability. In a business context, sustainability is about the company's business model, i.e. how its products and services contribute to sustainable development.

The term ESG first came to prominence in a 2004 report titled "Who Cares Wins", which was a joint initiative of financial institutions at the invitation of the United Nations (UN).

Does ESG really matter and why? ›

Successful companies are implementing ESG strategies that increase financial, societal, and environmental impact as well as ensure long-term competitiveness.

ESG funds have similarities to other funds

While the results from these time periods have been generally encouraging for ESG funds as a whole, we don't see convincing evidence that ESG funds are reliably better than non-ESG funds.

Exactly 90 years ago, the young Professor Adolf Berle, from the Business School of Columbia University, who today is considered the father of the ESG concept, saw major state-owned corporations as the most powerful entities capable of initiating social change.

While sustainability and ESG are closely related concepts, they have distinct focuses and governance implications. Sustainability takes a broader, holistic view, encompassing environmental, social, and economic dimensions, while ESG provides a structured framework for evaluating specific performance criteria.

Global ESG investing

The vast majority of ESG fund assets are held in Europe, where sustainable funds account for 20 percent of overall fund assets, according to Morningstar.

A 2004 report from the United Nations – titled Who Cares Wins – carried what is widely considered the first mainstream mention of ESG in the modern context. This report leaned in heavily, encouraging all business stakeholders to embrace ESG long-term.