The unusual history of ESG and sustainable investing

ESG and sustainable investing faith based investing

ESG and sustainable investing is big business. But have you ever wondered about the history of this global trend? Some of the founders and drivers of environmental, social and governance (ESG) and sustainable investing might surprise you.

Faith-based investing
history of esg investing
Photo by Zac Frith

Did you know that religions came up with the earliest version of ESG and sustainable investing, called values-based or faith-based investing?

 

Jewish ethical investing

Firstly, responsible property ownership was mandated in Jewish law in biblical times. Jewish people had moral responsibilities to prevent harm to society from their property and economic activity. From the 16th century on, Rabbis extended this concept to shareholders and company boards. Some argued that Jewish people should exercise higher moral responsibilities and not invest in weapons, or companies that cause environmental harm. Rabbi Lawrence Troster wrote this interesting history of Jewish ethical investing.

 

Islamic ethical investing

Secondly, Islamic finance is based on Sharia (Islamic) law. Sharia has developed since the 7th century, and Islamic finance concepts grew quickly when the Gulf States found oil in the 20th century. Islamic finance prohibits:

 

  • Charging or paying interest as it is seen as exploitation. Investors and investees should share profits and losses;
  • Investments in activities that are banned under Sharia, such as gambling, alcohol or pork;
  • Investments in excessively risky activity. Today this could mean short-selling. A lot of hedge funds would not qualify for Islamic finance.

 

Today, around $2 trillion is invested in Islamic finance institutions and there are many products on offer.

 

pexels-photo-965875.jpeg
Photo by Jonathan Petersson on Pexels.com
The unusual history of ESG and sustainable investing: Gambling has often been prohibited in ethical investing

Christian ethical investing

Thirdly, in the English-speaking world, Methodist and Quaker Christians took up responsible and sustainable investing in the 16th century. They opposed the evils of slavery and war. In addition, Methodists and Quakers counseled against drinking, smoking and gambling. Accordingly, they forbid congregants to invest in these trades. Many Christian denominations have followed and added prohibitions, such as pornography.

 

Undoubtedly, their legacy lives on. Many financial institutions offer “sin free” ESG and sustainable investing, as well as the opposite, “sin stocks” funds.

 

In addition, Buddhist and Sikh concepts of ethical investing are also now starting to grow.

 

 

20th Century Campaigners

 

Congo campaigners

Later, the 20th century’s first human rights movement was the Congo Reform Association (CRA) in the UK and USA. The CRA exposed Belgian King Leopold’s vile human rights violations in the Congo. Leopold required Congolese people to only trade with Belgium and his concessions, which mainly traded elephant tusks and rubber. What is more, Leopold took slaves to work as laborers for the concessions. Workers’ wives and children were held hostage until men met their quotas.

 

Worse still, when workers did not meet their quotas, their limbs were chopped off or they were killed. In fact, about 10 million Congolese people died under the cruel system. Even by the very low imperialist standards of the time, the public in the USA and Europe were outraged. In 1908, the CRA’s campaign finally forced Leopold to relinquish control of Congo and set a precedent for very minimum expectations of ESG and sustainable investing.

 

To this day, ESG and sustainable investing campaigners focus on the involvement of multinational corporations in the violence used to control Congo’s vast resources. Sadly, the trade in diamonds, timber, wildlife and cobalt continues to cause untold suffering in the Democratic Republic of Congo. This is Leopold’s devastating legacy.

 

Civil Rights and Anti-War Protestors

The next wave of ESG and sustainable investing was driven by protestors in the USA.

 

Firstly, in the 1960s, the anti-Vietnam war movement encouraged American investors to divest from the arms trade.

 

Secondly, in the 1970s, the civil rights and feminist movements convinced the U.S. Congress to pass laws forbidding racial and gender-based discrimination in the private sector, and to create an Equal Opportunity framework to protect employees.

 

Thirdly, in the 1980s, the Anti-Apartheid movement organized a global campaign to boycott and divest from South Africa. The campaign cost the country billions of South African Rand. Arguably, the damage helped persuade the Apartheid regime to embark on negotiations to end its heinous racial system. Companies are making similar major moves to divest from Russia since Putin’s invasion of Ukraine.

 

South Africa Boycott ESG and sustainable investing
Photo by Magda Ehlers on Pexels.com
The unusual history of ESG and sustainable investing: Boycott and divestment helped end South Africa’s heinous Apartheid system

The United Nations defines 21st Century ESG and sustainable investing

 

The late UN Secretary-General, Kofi Annan, first coined the term ESG. Of course, he understood that business and private capital would shape the world in the 21st century. Therefore, Kofi Annan encouraged business to take their ESG and sustainable investing responsibilities seriously. In 2004, Annan wrote a letter to 50 CEOs of the top financial institutions asking them to include responsible financial management and ESG factors in capital markets. Furthermore, he asked CEOs to join him in a global compact to give modern capitalism a human and sustainable face.

 

By US Mission in Geneva – https://www.flickr.com/photos/us-mission/7474208582/, Public Domain, https://commons.wikimedia.org/w/index.php?curid=31838940

 

CEOs responded favorably to Annan’s call. Today, around $30 trillion in assets is defined as aligned with ESG. Kofi Annan’s impact on modern investing is so great that he is sometimes called the father of the corporate sustainability movement.

 

UN Principles for Responsible and Sustainable Investing

 

In 2006, Kofi Annan brought together major institutional investors to agree the UN Principles for Responsible Investment (PRI). The PRI principles are voluntary and the PRI now have over 4600 global signatories who own or manage assets. Notably, the PRI helps investors to develop standards, guidelines, methodologies and strategies, and the PRI works with governments on their policies.

 

The six PRI principles are:

Principle 1: We will incorporate ESG issues into investment analysis and decision-making processes.

Principle 2: We will be active owners and incorporate ESG issues into our ownership policies and practices.

Principle 3: We will seek appropriate disclosure on ESG issues by the entities in which we invest.

Principle 4: We will promote acceptance and implementation of the Principles within the investment industry.

Principle 5: We will work together to enhance our effectiveness in implementing the Principles.

Principle 6: We will each report on our activities and progress towards implementing the Principles.

United Nations PRI

 

If you would like to know if your asset manager or owner is a signatory, you can look them up and find their reports here. Furthermore, you can also get online training with the PRI Academy here. Also, the PRI’s blog gives financial professionals case studies and best practices for including ESG and sustainable investing in investment strategies and models.

 

 
UN Global Compact: ESG and sustainable practices

 

In addition, Kofi Annan started the UN Global Compact. This is a partnership between the UN and the CEOs of major companies in over 160 countries. The Compact defines ten voluntary principles for ESG and sustainable and responsible business practices that are based on existing UN conventions and frameworks.

It is worth noting that any company of any size can join the Global Compact. Here’s how.

Companies sign up to these ten principles:

Human Rights
1: Businesses should support and respect the protection of internationally proclaimed human rights; and
2: make sure that they are not complicit in human rights abuses.
Labour
3: Businesses should uphold the freedom of association and the effective recognition of the right to collective bargaining;
4: the elimination of all forms of forced and compulsory labour;
5: the effective abolition of child labour; and
6: the elimination of discrimination in respect of employment and occupation.
Environment
7: Businesses should support a precautionary approach to environmental challenges;
8: undertake initiatives to promote greater environmental responsibility; and
9: encourage the development and diffusion of environmentally friendly technologies.
Anti-Corruption
10: Businesses should work against corruption in all its forms, including extortion and bribery.

the ten principles of the UN Global compact

 

You define ESG and sustainable investing

 

Hopefully, you see the unusual path that all kinds of non-financial people and organizations have taken to shape the history of ESG and sustainable investing.

 

Obviously, not everything is decided by big financial institutions. Importantly, just one person or group can bring about improvements in the sustainability, responsibility and impact of money and business. With principles and determination, change-makers can be a religious community, a political figure or a campaigner. It could be you.

 

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Community impact,Conflict,DEI,Divestment,Environment,ESG Basics,ESG Investing,Governance,Human Rights,Labor practices,Shareholder activism,Social
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