Responsible Investment, The ESG Journey towards Sustainability

Environmental, social, and governance (ESG) is a set of standards used by socially conscious investors to assess company behavior and screen potential investments. ESG comprises three main pillars: environmental, social impact, and corporate governance.

Why is ESG Important?

ESG plays a crucial role in identifying sustainable and responsible companies, encouraging them to act responsibly. It also helps monitor companies to prevent involvement in risky and unethical practices.

The Origins of ESG

The concept of ESG first emerged in the 1960s when awareness of socially responsible investing began to grow. Two main factors contributed to this development: worsening environmental degradation and increasing awareness of social rights.

In the subsequent years, movements supporting greenhouse gas emissions limitations and climate change mitigation gained traction. In this context, ESG started to be applied to business issues.

The Evolution of ESG

In 1992, the United Nations held the Earth Summit in Rio de Janeiro, Brazil, to commemorate the 20th anniversary of the First Conference on the Human Environment in Stockholm, Sweden, in 1972. This conference became a significant milestone in addressing environmental issues.

Following that, the Conference of the Parties (COP) has been held annually since 1995, becoming one of the worlds largest climate conferences. This movement also contributed to the popularity and framework of ESG.

In 1997, the Kyoto Protocol was agreed upon, mandating countries to reduce greenhouse gas emissions to combat global warming.

In 2006, the United Nations introduced the Principles for Responsible Investment (PRI), aiming to understand the investment implications of ESG factors and promote sustainable investing.

Oil Spills and Accountability

In 2010, BPs oil spill in the Gulf of Mexico, the largest marine oil spill in the history of the oil industry, shook the world. This incident raised serious questions about the need to implement an ESG framework for companies.

Communities affected by the oil spill felt that BP lacked accountability, and no ESG metrics indicated that the company operated in line with internal ethical standards. This prompted the establishment of the Sustainability Accounting Standards Board (SASB) in 2011 to develop sustainable financial information.

SDGs and ESG

The year 2015 marked a significant turning point in the development of ESG. The United Nations adopted the Sustainable Development Goals (SDGs), consisting of 17 sustainable development objectives. ESG issues became a key part of the SDGs discussion.

In the same year, the Paris Agreement was ratified to limit global temperature rise to below 1.5 degrees Celsius. After a long journey since 1992, this push gave rise to the ESG framework.

The ESG framework allows companies to be more accountable and transparent to stakeholders. There are three main pillars in ESG: environmental, social, and corporate governance. These pillars assess how companies maintain the environment, manage relationships with various parties, and ensure good governance.