ESG has been a hot button topic for many years now. Asset managers globally are expected to increase ESG-related AUM to $33.9 trillion by 2026, up from $18.4 trillion in 2021. While ESG focused investing continues to be more popular than ever, there has also been a rise in an anti-ESG counter movement. An anti-ESG ETF debuted in 2021 so called “B.A.D”.
However, before there was “ESG” there was Corporate Social Responsibility (CSR).
I thought it would be helpful to take a step back and look at an overview of the history of CSR and how it has grown into the modern ESG Movement.
- The term CSR was first coined by American Economist Howard Bowen in the 1950s. The concept of CSR continued to accelerate in the 1980’s as this decade saw several environmental disasters at the hands of companies including a massive oil spill in Prudhoe Bay, Alaska.
- 1990-The Domini 400 Social Index was created, which is known today as the MSCI KLD 400 Social Index. This index was the first of its kind to track sustainable investment through a capitalization-weighted method. By 1994, investors had access to 26 sustainable funds, with assets of around $1.9 Billion.
- 1992-United Nations Framework Convention on Climate Change, also known as the Earth Summit, convened in Rio de Janeiro and 154 countries sign into an international environmental treaty aimed to curb environmental impacts across the globe.
- 1997-The Global Reporting Initiative (GRI) was founded in Boston Massachusetts. GRI is the independent, international organization that helps businesses and organizations take responsibility for their impacts, by providing them with the global common language to communicate those impacts.
- 2000– The United National Global Compact is launched. This pact is “a call to companies to align strategies and operations with universal principals on human rights, labour, environment, and anti-corruption, and take actions to advance those goals”. Today, the Global Compact includes signatories from 13,000+ companies across 160 countries.
- Early 2000s- CSR had become an essential strategy for many organizations, with multi-million dollar companies, such as Wells Fargo, Coca-Cola, Walt Disney, and Pfizer incorporating this concept into their businesses processes.
- 2004-The term ESG is first popularly used in the Through the Global Compact, the report “Who Cares Wins– Connecting Financial Markets to a Changing World”. It provided guidelines for companies to incorporate ESG into their operations.
- 2011-The Sustainability Accounting Standards Board (SASB) is launched to standardize sustainability accounting and measurements across 77 industries. The purpose of SASB is “to establish and improve industry specific disclosure standards across financially material environmental, social, and governance topics that facilitate communication between companies and investors about decision-useful information”
- 2015-At the United Nations Framework Convention, the Paris Agreement is drafted, and at the United Nations General Assembly the Sustainable Development Goals (SDGs) were created. The SDGs are a collection of 17 interlinked objectives designed to serve as a “shared blueprint for peace and prosperity for people and the planet now and into the future”.
- 2019- Business Roundtable publishes “The Purpose of a Corporation” which was a document signed by 181 CEOs who want to commit to leading their companies for the benefit of all stakeholders – customers, employees, suppliers, communities, and shareholders. This signals the shift from shareholder capitalism to stakeholder capitalism.
- 2020- The COVID-19 pandemic brought economic disparities to the forefront and highlighted gaps in healthcare systems and access across the world. Workforce issues take center stage. Work from home, focus on human capital. etc. George Floyds death. At annual Meeting in Davos, 120 of the world’s largest companies supported efforts to develop a core set of common metrics.
- 2021-Larry Fink, CEO of BlackRock, published his Annual Letter to Shareholders with a clear message- the time to act is now. ESG is a prominent theme throughout the letter and Fink examines the impacts of the pandemic and how the business community can/should play a role in creating a better world.
- 2022- Headlines of the year include: Russia invades Ukraine, Roe v. Wade, Don’t Say Gay Disney CEO backlash, Deutsche Bank Greenwashing scandal results in CEO resigning, rise in Anti-ESG ETFs (B.A.D.)
- 2023- SEC expected to announce new regulations in April (TBD). During the World Economic Forum Annual Meeting 2023in January, the Forum announced that 137 companies have already included the Stakeholder Capitalism Metrics in their mainstream reporting materials
The concept of ESG is deeply nuanced and interwoven with political trends / shifting consumer sentiment. Looking back at the 40+year history it is clear that ESG is not just a buzzword or a trendy topic. The concept will continue to evolve and perhaps the next iteration will have a new name.
Ultimately, no matter what the concept is dubbed, it is important for boards and leadership teams to stay up to date on the latest developments. Companies that are able to shift and grow to meet shifting consumer / societal demands will be the long-term winners.