The concept of ESG investing has come undone lately on Wall Street, of all places, with various news outlets reporting flat growth and the Wall Street Journal calling ESG a craze that is fading as investors pull out $14 Billion from sustainable funds before the end of 2023. In another article, Goldman Sachs (a major contributor to the ESG paper published by the UN) is saying that the implementation of Basel 3: Endgame will hurt the chances of the deals made in COP28 coming to fruition and even go as far as claiming that the upcoming capital requirements will drive green projects into the “murkier realm of shadow banking” as a lot of finance is set to move away from banks that work in the light, with their supposed unparalleled transparency and clean money-making ways. One would think that looking into the past of ESG would bring about its noble intentions and keep it going and safe from murky financing, however ESG has to some extent come and gone.
Initially coined by the United Nations paper aptly titled “Who Cares Wins”, the UN and joint cooperation of concerned Financial Services firms recommended that Environmental, Social, and Governance factors are paramount and should be included in every facet of the financial market from regulators to the analysts churning out reports. This came out in 2004 and is now to this day being peddled to Emerging Markets under the United Nations Development Programme’s (UNDP) collaboration with various economy’s SEC under their Sustainable Development Goals (SDG) Guidebook for Listed Companies and SDG Impact Standards, both guides by the UNDP have been kind enough to highlight reporting requirements to make the financing less murky, as Emerging Markets reporting requirements are the last bastion of integrity out there.
Unrelated to ESG, another term was supposedly coined by the Rockefeller Foundation in 2007 is Impact Investing and incubated through the Global Impact Investing Network (GIIN), these set of financial investments have a more general outlook and focus on the outcome of the investments rather than the factors that go into the decision-making process. However, we’re not here to go into which is better as both are just an extension of the Corporate Social Responsibility (CSR) craze that has swept the business world since 1953. Initially coined by American economist Howard Bowen, CSR has grown from a cry of transparency to one of the biggest marketing tools of today’s businesses and has since grown to impact economies and governments alike.
Initially focused on charitable contributions and reduced working hours, CSR has transformed into a comprehensive initiative influencing various aspects of business operations. The shift began in the 1960s when scholars and businesses responded to emerging societal issues, the S came first. However, early CSR perspectives were relatively narrow, with a limited responsibility attributed to companies. The 1970s and 80s witnessed a steady adoption of CSR, gaining further importance in the face of increased business deregulation. During this period, CSR primarily addressed human and labor rights, pollution, and waste management, now the E has arrived. The 1990s, marked by globalization, played a pivotal role in expanding the scope of CSR. International events and agreements prompted multinational corporations to consider global impacts rather than focusing solely on local communities.
The shift in CSR rhetoric from minimizing local harm to addressing global issues became evident throughout the 90s and early 2000s. Now a global phenomenon, the G in ESG came to be known as Governance. After being reminded that someone must run all these amazing E and S initiatives, the United Nations along with all the major contributors of the Who Cares Wins program (it’s worth noting most were banks) was literally to tell everyone to do their part. Which in 2024 should be to up the ante as financing of ESG projects might end up in the murky depths of private equity in the US (where most impact investing is coming from), which according to Wall Street banks is bad for some reason.