Who invented the term ESG?
The story behind the term ESG3 min read. The term ESG was officially coined in 2004 with the publication of the UN Global Compact Initiative's “Who Cares Wins” report.
MSCI ESG Ratings are created by MSCI ESG Research, one of the largest rating agencies. These ESG ratings are released for 14,000 different equity and fixed income issuers. MSCI ESG Ratings are generally known to be one of the industry leaders in publishing scores and ratings for ESG companies.
The practice of ESG investing began in the 1960s as socially responsible investing, with investors excluding stocks or entire industries from their portfolios based on business activities such as tobacco production or involvement in the South African apartheid regime.
The first group to coin the phrase ESG was the United Nations Environment Programme Initiative in the Freshfields Report in October 2005.
ESG stands for Environmental Social and Governance, and refers to the three key factors when measuring the sustainability and ethical impact of an investment in a business or company. Most socially responsible investors check companies out using ESG criteria to screen investments.
Most companies state that their board retains ultimate oversight over ESG issues, which is accurate even if the board has delegated various issues to one or multiple committees.
'G' or Governance relates to internal practices and policies that lead to effective decision making and legal compliance. ESG facilitates top-line growth in the long run, attracts talent, reduces costs, and forge a sense of trust amongst consumers.
In the '60s, ESG became much more mainstream, around the same time as the evolution of the mutual fund industry, the civil rights movement, and the protesting and boycotting of companies involved in or in support of the Vietnam War.
Environmental, social, and governance (ESG) criteria are a set of standards for a company's behavior used by socially conscious investors to screen potential investments. Environmental criteria consider how a company safeguards the environment, including corporate policies addressing climate change, for example.
Even though ESG isn't new, it's still very new in how Wall Street regulates it. “ESG is still a relatively new concept lacking in both standardization and regulation,” Moddasser says. “Often, corporate behavior is self-reported and “greenwashing” can occur.
What are the 3 essential pillars of ESG?
The 3 Pillars of ESG. Successful businesses focus on three core essentials: people, process, and product.
| Environmental | Social |
|---|---|
| Carbon emissions. Air and water pollution. Deforestation. Green energy initiatives. Waste management. Water usage. | Employee gender and diversity. Data security. Customer satisfaction. Company sexual harassment policies. Human rights at home and abroad. Fair labor practices. |
Your ESG goal is a set target that you are aiming to achieve for a given ESG issue. For example, Walmart has an climate change related ESG goal to achieve an 18% emissions reduction in its own operations by 2025 (over 2015 baseline).
The general counsel and the chief compliance officer ought to help establish an ESG tone at the top and ensure the authenticity of the company's commitment and full accountability in respect of ESG efforts.
All companies have an ESG story to tell about how they are managing the risks and leveraging the opportunities associated with a wide range of issues — from value chains to carbon footprint, supplier labor practices, the public health of customers and even tax transparency.
3. ESG is based on standards set by lawmakers, investors, and ESG reporting organizations (e.g., GRI, TCFD, MSCI), whereas sustainability standards — while also set by standards groups like GHG Protocol — are more science-based and standardized.
The pandemic has compelled organizations to rethink on what they believe is truly important, and sustainability has come out on top.
- Environmental. Conservation of the natural world. - Climate change and carbon emissions. - Air and water pollution. ...
- Social. Consideration of people & relationships. - Customer satisfaction. - Data protection and privacy. ...
- Governance. Standards for running a company. - Board composition. - Audit committee structure.
“Retail investors do not understand ESG investing, only 9 percent say they have ESG-related investments, and familiarity with the concept is not as comprehensive as some coverage on the topic of ESG investing might suggest,” said Gerry Walsh, president of the FINRA Investor Education Foundation.
ESG reporting has been adopted by over 50 companies.
Does ESG improve performance?
About a third (34%) thought that incorporating ESG would serve to enhance portfolio performance. At the same time, more than a third of respondents (35%) said they were willing to accept a lower performance in exchange for a better ESG score.
Sustainability cheaper for long-term investing goals
But the recent market pull-back in most asset prices has made ESG stocks better value for long-term investors wanting to increase their sustainable investing exposure.
Who cares about ESG? Obviously, investors care. Investment managers like BlackRock are widely viewed as leaders in ESG, but they are actually chasing … millennials.
ESG stands for Environment, Social, and Governance, and is a set of criteria that investors are considering in searching and filtering companies that are “socially responsible”.
The adoption of environmental, social and governance (ESG) considerations in private investments is evolving from a risk management practice to a driver of innovation and new opportunities that create long-term value for business and society.
ESG IS NOW A MUST-HAVE
“If you're an investment manager without ESG, you will soon have trouble attracting assets from clients because it has moved from a nice-to-have to a must-have,” she said. “Three to five years ago, the discussions were all about why and prove it, but now companies are asking how they can do it.”
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. The report has been endorsed by 20 prominent institutions.
Cost reductions ESG can also reduce costs substantially. Among other advantages, executing ESG effectively can help combat rising operating expenses (such as raw-material costs and the true cost of water or carbon), which McKinsey research has found can affect operating profits by as much as 60 percent.
Investors Prioritize Investment Performance Over ESG Factors
Seventy-eight percent of investors say they give a lot or fair amount of thought to the expected rate of return when choosing which companies or funds to invest in, and 74% give the same thought to the risk for potential losses.
According to Smith, ESG investing assumes that there are certain environmental, social and corporate governance factors that impact a company's overall performance. By considering ESG factors, investors get a more holistic view of the companies they back, which can help mitigate risk and identify opportunities.
What is the size of the ESG market?
The investor ESG software market size was valued at US$489.15 million in 2020 and is projected to reach US$1.49 billion by 2028; it is expected to grow at a CAGR of 15.4% during 2021–2028.
Social media marketing can help, but creating an environmental, social and governance (ESG) strategy is most effective. ESG not only helps businesses by attracting a more diverse workforce to bring in new ideas, but it also helps businesses have a greater positive impact on our world.
3. ESG is based on standards set by lawmakers, investors, and ESG reporting organizations (e.g., GRI, TCFD, MSCI), whereas sustainability standards — while also set by standards groups like GHG Protocol — are more science-based and standardized.
