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.
“ESG” was initially introduced in the Socially Responsible Investing (SRI) area. With this term, the objective was to group three of the main pillars of ethical finance: environmental, social, and governance.
When was the term “ESG” created?
In 2004, Kofi Annan (secretary of the United Nations) asked major financial institutions to collaborate with the United Nations and the International Finance Corporation in identifying ways to integrate environmental, social, and governance concerns into capital markets.
The resulting 2005 study “Who Cares Wins” marked the first use of the term ESG. The paper stated that incorporating ESG drivers into investments would not only benefit the company. It would also make good business sense.
This is ESG awareness in its infancy.
“A better inclusion of environmental, social and corporate governance (ESG) factors in investment decisions will ultimately contribute to more stable and predictable markets, which is in the interest of all market actors”.
“Who cares win – Connecting Financial Markets to a Changing World”, UN Global Compact, 2004
Subsequently, the report “A legal framework for the integration of environmental, social and governance issues into institutional investment” (so-called “Freshfield Report”) further stated that ESG dimensions were relevant to the financial assessment.
Despite the growing body of evidence that ESG issues can have a material impact on the financial performance of securities and an increased recognition of the importance of assessing ESG-related risks, those seeking a greater regard for ESG issues in investment decision-making often encounter resistance on the basis of a belief that institutional principals and their agents are legally prevented from taking account of such issues.
“A legal framework for the integration of environmental, social and governance issues into institutional investment”, UNEP Finance Initiative, October 2005
Who created the term “ESG”?
The name of the person who coined the term ESG is James Gifford.
But let’s start with order. With the story of the person behind the term “ESG”.
In 2003 James Gifford was a Ph.D. student in economics at the University of Sydney and a staunch ecologist. One day he read that the United Nations was setting up the Environment Program Finance Initiative at its Geneva headquarters.
At that point, he wrote them a letter asking if it was possible to do an internship at the new office. James was a regular twenty-something passionate about the environment. The United Nations accepted and James flew to Switzerland.
After the internship, this same department of the United Nations hired him. In the following years, the Environment Program Finance Initiative worked to outline the structure of a new sector of finance, starting to coin with the acronym ESG (Environment Social Governance). Specifically, the sector was that of securities and bonds issued by companies and countries aimed at environmental, social, and governance improvements.
Today James is the Head of Sustainable & Impact Advisory and Thought Leadership at Credit Suisse in Zurich.
Now the term ESG is universally recognized and taken for granted. But let’s think about 2000 when there was no such awareness on these topics.
Did you know that ESG is one of the trends of the last decades?
Do you want to find out what the other trends are? Learn more about the top sustainability trends of the last 15 years.
Featured image by Mourizal Zativa on Unsplash
