If you’re based in the U.S., you may have recently started hearing about ESG – environmental, social, and governance – investing. But while ESG is relatively new, the concept of sustainable investing that it’s rooted in has a much longer history.
A Timeline of Sustainable Investing
Sustainable investing dates to the 1700s, when religious groups like the Quakers introduced the earliest version of what we now call socially responsible investing (SRI). These groups forbid their followers from transacting with people or businesses that were involved in “sinful” activities – unethical or ethically suspect activities like gambling, slave trading, or the sales of guns, alcohol, and tobacco.
In the 1960s and 1970s, investors who opposed the Vietnam War began avoiding manufacturers of biochemical warfare agents, such as napalm. The Pax World Fund was the first SI mutual fund, launched by a pair of United Methodist ministers who didn’t want their church’s portfolio to invest in any companies that profited from the war.
Into the 1980s, two more issues arose that captured the attention of sustainable investors: apartheid and fossil fuels. In 1986, the U.S. passed a law prohibiting new investment in South Africa. After the Exxon Valdez oil spill in 1989, environmental activists, investors and businesses joined forces to promote sustainable business methods as the nonprofit entity Ceres. By the mid-1990s, more than two dozen sustainable mutual funds were available.
Sustainable Investing in the 21st Century
In 2006, the United Nations’ Principles for Responsible Investing (UN PRI) was created. This initiative now boasts more than 4,600 businesses around the globe that are working together to address sustainability risks across the ESG spectrum, such as human rights, environmental concerns, and anti-corruption.
Signatories to the UN PRI commit to six guiding principles designed to help incorporate sustainability into investment management and business practices. The six principles are:
- Incorporating ESG data into investment analysis and decision-making processes
- Integrating sustainability into ownership policies and practices
- Seeking appropriate disclosures on sustainability risk factors from the entities in which the organization invests
- Promoting acceptance and implementation of the Principles for Responsible Investing across the investment industry
- Working with other PRI signatories to enhance effectiveness in applying the Principles
- Reporting on activities and progress towards implementing the Principles
With the growth of ESG, sustainable investing is becoming less of a trend and more of a recognized practice that is being adopted by an increasing number of money managers as well as corporations.
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