[Ads-l] ESG

[Baker, John]

ESG may or may not be a familiar term to you, but it is hugely important in the world of finance and investment (which is to say, in my day job).  ESG is an initialism standing for environmental, social, and corporate governance, or simply environmental, social, and governance.  This is a term associated with socially responsible investing, and adherents argue that consideration of ESG factors will enhance, or at least not harm, long-term returns.

This is a controversial assertion in some quarters, and the U.S. Department of Labor recently issued for notice and comment guidance stating that  fiduciaries must not too readily treat ESG factors as economically relevant to the particular investment choices at issue when making a decision.  However, for present purposes my focus is on the history of the term.

The ESG initialism seems to have been first popularized, and perhaps even originated, by a report released in 2005 and known as the Freshfields Report, because it was prepared by Freshfields Bruckhaus Deringer, an international law firm, https://www.unepfi.org/fileadmin/documents/freshfields_legal_resp_20051123.pdf.  According to the cover, the report is "A legal framework for the integration of environmental, social and governance issues into institutional investment" and was "Produced for the Asset Management Working Group of the UNEP Finance Initiative (October 2005)."  The UNEP Finance Initiative, or United Nations Environment Programme Finance Initiative (UNEP FI), is a global partnership between the United Nations Environment Programme and the private financial sector.  The first reference in the report to ESG states, "A major focus has been the work of UNEP FI's Asset Management Working Group (AMWG) on the materiality of environmental, social and governance (ESG) issues to securities valuation."  The report also states, "In this report, 'ESG investment' is intended to refer broadly to investment decision-making that takes account of environmental, social and governance considerations" (which it then expands upon).

There was an earlier reference to ESG in the Financial Times on June 24, 2004 (NewsBank), but it apparently referred to the then forthcoming report:  "But according to a report to be presented to the UN's Global Compact Summit, if only the right tools can be developed to score ESG - environmental, social and corporate governance factors - investors and analysts will be in a far better position to assess a company's true worth."

There are earlier references to the phrase that do not include the now ubiquitous ESG initialism.  In a report in the (Hobart, Australia) Mercury on December 19, 2001 (NewsBank), the author wrote, "Westpac Investment Management will provide ongoing advice to the scheme trustees in relation to environmental, social and corporate governance."  The "schemes," or retirement funds, in question were the Public Sector Superannuation Scheme and the Commonwealth Superannuation Scheme.

An early use without "corporate" appeared in the (Johannesburg, South Africa) Business Day on September 23, 2002 (NewsBank):  "Corporate sustainability is about that: engendering confidence among all stakeholders, especially investors, that a business is there for long-term value as opposed to short-term gains. It is a philosophy that embraces the importance of economic performance, by the use of best practice tools. It also recognises the value of best environmental, social and governance practices."

There is also earlier use by the UNEP FI, which in 2004 posted a report on The Materiality of Social, Environmental and Corporate Governance Issues to Equity Pricing, https://www.unepfi.org/fileadmin/publications/amwg/amwg_materiality_equity_pricing_report_2004.pdf.  But I do not see the ESG initialism used in the report.

I would be interested in any other findings on the origin and evolution of the term, and especially any antedatings of the above.  While few dictionaries currently include ESG, I have to assume that it is likely bound for inclusion in the OED and other standard references.


John Baker




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