The concept of ESG (Environmental, Social and Governance) has deep historical roots. The tradition of nature conservation in India dates back to the ancient Vedic period, reflecting a profound reverence for the natural world in the cultural and spiritual life of the period. The sensitisation and gratefulness about natural resources has been observed in the major beliefs and customs of India.
In the modern world in the 1960s and 1970s, divestments from South Africa were advocated to protest apartheid, driving socially responsible business strategies. In 1971, two United Methodist ministers opposed to the Vietnam War created the Pax World Fund, the first publicly available mutual fund in the US that incorporated social and environmental criteria into investment decisions. Pension funds also began targeting investments in healthcare and affordable housing. However, it took decades for these actions to formalise into the ESG framework we know today.
Over time, ESG has gained momentum, driven by pressure from investors and consumers, supported by various national and international regulations. Detailed ESG guidelines, adoption agreements, timelines, and compliance issues are still evolving and the regulatory standards will continue to expand beyond climate risks to include social issues.
Developing the right solution architecture to accommodate evolving regulations, processes, and technologies is essential. Compliance will require significant investment in time and money. Enterprises will need flexibility to adjust to these changes.
Key Events In ESG History
1990: Domini 400 Social Index Amy Domini, managing KLD Research and Analytics, created the Domini 400 Social Index, focusing on companies prioritizing social and environmental responsibility. Initially, including social and environmental issues in business priorities was seen as risky for investors. In 1991, Domini created the Domini Social Impact Equity Fund, which attracted $1.3 billion by 2001 and showed returns comparable to the S&P 500. The Domini 400 is now the MSCI KLD 400 Social Index, consisting of 400 U.S. securities that exclude companies with negative social or environmental impacts.
1992: United Nations Framework Convention on Climate Change At the Earth Summit in Rio de Janeiro, 154 nations signed a treaty to mitigate “dangerous human interference with the climate system.” This treaty called for research and ongoing meetings, planting the seeds for future policy agreements and launching the annual Conference of the Parties (COP) to address climate change.
1995: First Sustainable Investment Inventory in the U.S. The Social Investment Forum Foundation, now the U.S. SIF Foundation, took the first inventory of sustainable investments, revealing $639 billion in assets managed in the U.S. By 2020, the Global Sustainable Investment Alliance estimated $35.3 trillion in sustainable assets worldwide. The U.S. SIF’s December 2022 report listed $8.4 trillion in ESG and sustainable investments in the U.S., down from $17.1 trillion in 2020 due to stricter criteria for ESG reporting.
1997: Kyoto Protocol Adopted in 1997 and entering into force in 2005, the Kyoto Protocol set specific greenhouse gas reduction targets, eventually ratified by 192 countries. While all 36 countries in the first commitment period met their obligations, some had to fund climate reduction programs in other countries. The two largest emitters, China and the U.S., did not participate fully.
1997: Global Reporting Initiative The Global Reporting Initiative (GRI) was launched to address environmental concerns and later expanded to include social and governance issues. In 2016, GRI ratified the first global standards for sustainability reporting. By 2022, 78% of the world’s largest 250 companies used GRI standards.
2000: United Nations Global Compact The U.N.’s Global Compact established principles across human rights, labor, the environment, and anti-corruption. More than 13,000 corporate and agency stakeholders in 170 countries participate, with goals intended to spark discussions and negotiations.
2000: Carbon Disclosure Project Paul Dickinson co-founded the Carbon Disclosure Project (CDP) to encourage large investors to ask companies to report on their climate performance. By 2021, companies with 64% of market capitalization responded with climate disclosures. CDP now represents investors with over $136 trillion in assets.
2004: “Who Cares Wins” Report A U.N.-invited group of banks and investment firms published the “Who Cares Wins” report, popularizing the term ESG and recommending the integration of ESG issues in investment decisions to create stable markets.
2005: Freshfields Report The London-based law firm Freshfields Bruckhaus Deringer, backed by the U.N., published a report suggesting that financial trustees should include environmental and social considerations in their analyses. This proposal evolved into investing for sustainability impact (IFSI).
2006: Principles for Responsible Investment A U.N.-invited group of 70 experts published six principles advocating for the inclusion of ESG considerations in institutional investment decisions. These principles call for active ownership, appropriate disclosures, and reporting on ESG activities and progress.
2007: Climate Disclosure Standards Board The Climate Disclosure Standards Board (CDSB) was established to create a reporting framework for climate change risks and opportunities. The CDSB framework now includes considerations for water security and forest risks.
2011: Sustainability Accounting Standards Board Jean Rogers launched the Sustainability Accounting Standards Board (SASB) to create accounting standards reflecting the impact of ESG factors on companies’ bottom lines. SASB developed standards for 77 industries across 11 sectors. In India 2011 National Voluntary Guidelines (NVGs) Introduced by the Ministry of Corporate Affairs (MCA) to encourage businesses to adopt responsible practices and report on their sustainability initiatives voluntarily.
2012: Business Responsibility Report (BRR) In India SEBI mandated the top 100 listed companies by market capitalization to include a BRR as part of their annual reports, making the disclosure of non-financial information a standard practice.
2015: U.N. Sustainable Development Goals The U.N. General Assembly formulated 17 Sustainable Development Goals (SDGs), later clarified with 169 specific targets and 232 unique indicators. These goals cover issues like poverty, health, equality, clean energy, and climate action.
2015: Task Force on Climate-related Financial Disclosures The Financial Stability Board launched the Task Force on Climate-related Financial Disclosures (TCFD), which published 11 recommendations for reporting financial risks posed by climate change. Over 4,000 companies support the TCFD recommendations.
2016: Workforce Disclosure Initiative ShareAction, a charity promoting responsible investment, launched the Workforce Disclosure Initiative (WDI). This program aims to enhance the quality and value of data on workforce health, safety, and risk management metrics. Over 50 institutional investors, managing assets worth $7.5 trillion, support the program, and around 170 large employers participate in the WDI’s annual survey.
2017: The Compact for Responsive and Responsible Leadership At the World Economic Forum (WEF) meeting in Davos, Switzerland, more than 140 CEOs signed The Compact for Responsive and Responsible Leadership. They committed to collaborating on the U.N.’s Sustainable Development Goals (SDGs) to benefit both their companies and the world. A key point of the compact is that “society is best served by corporations that align their goals with the long-term goals of society.”
2017: State Street Global Advisors and Board Diversity Issues State Street Global Advisors, an asset management firm, installed the “Fearless Girl” statue on Wall Street and informed 600 companies in the U.S., U.K., and Australia that it would vote against the chairs of boards lacking female directors or candidates. Within months, 42 companies committed to increasing diversity, and seven added women to their boards. Global Advisors later voted against 400 companies that failed to initiate diversity efforts.
2019: Davos Manifesto 2020 The WEF published the Davos Manifesto 2020, a set of ethical principles to guide companies through the Fourth Industrial Revolution. The document emphasized the need for companies to serve employees, customers, suppliers, stakeholders, local communities, and society. It stressed treating people with dignity and respect, integrating human rights into the supply chain, paying fair taxes, and achieving ESG objectives.
2020: COVID-19 Pandemic and Other Events The COVID-19 pandemic forced millions to work from home, highlighting how an unseen danger can disrupt the global economy and individual well-being. Businesses struggled to adapt to new operating realities. Meanwhile, remote workers had more time to follow environmental disasters like extreme heat, forest fires, floods, and hurricanes. The death of George Floyd in police custody, leading to a second-degree murder conviction, heightened concerns about racism. A J.P. Morgan survey found that 71% of institutional investors believe events like the pandemic would increase global awareness and actions to tackle high-impact risks such as climate change and biodiversity loss.
2020: Standardized Stakeholder Capitalism Metrics The WEF and Big Four accounting firms released a whitepaper standardizing metrics for companies reporting on their ESG progress. These metrics helped align ESG reporting with progress toward SDGs. Since the release, over 150 companies have incorporated these metrics into their reports.
2021: E.U.’s Sustainable Finance Disclosure Regulation The European Union’s Sustainable Finance Disclosure Regulation introduced requirements for describing funds with specific sustainable investment objectives that promote environmental or social characteristics. The rules introduced Principal Adverse Impact, characterizing the negative impacts of investments on sustainability goals. By 2023, funds promoting sustainability must report on protecting water resources, transitioning to a circular economy, controlling pollution, and restoring biodiversity.
In India Transition to BRSR Recognizing the need for a more comprehensive and globally aligned reporting framework, SEBI initiated the transition from BRR to BRSR. This transition was influenced by global ESG frameworks like the Global Reporting Initiative (GRI) and the Task Force on Climate-related Financial Disclosures (TCFD)
2022: Consolidation of Sustainability Standards The International Financial Reporting Standards (IFRS) Foundation, which maintains accounting standards for most countries except the U.S., consolidated the Value Reporting Foundation and the Climate Disclosure Standards Board to create the International Sustainability Standards Board (ISSB). This created a global baseline for sustainability disclosures. The U.S. Generally Accepted Accounting Principles are managed separately by the Financial Accounting Standards Board. The SEC proposed new rules requiring companies to provide climate-related information in their registration statements and annual reports.
Mandatory BRSR Reporting SEBI made BRSR reporting mandatory for the top 1000 companies by market capitalization in India. This marked a significant step towards enhancing transparency and accountability in corporate ESG practices in India.
2023: EU’s Corporate Sustainability Reporting Directive A new European Union directive requires EU companies and non-EU businesses operating in the EU to make corporate sustainability disclosures related to their alignment with an EU ESG-related taxonomy and audit sustainability data. These reports must include information on environmental and social matters, human rights, anti-corruption, and diversity. This information must be included in 2024 year-end reports to be filed in 2025 by companies meeting certain criteria: more than 250 employees, €40 million in annual revenue, and €20 million in total assets.
2023: IFRS Sustainability Disclosure Standards The ISSB released two reporting standards: one on sustainability-related financial information and the other on climate-related risks and opportunities. These standards build on the SASB ones and incorporate elements of other reporting guidelines and frameworks, including the TCFD recommendations. The Taskforce on Nature-related Financial Disclosures (TNFD) published recommendations on disclosing financial information related to nature and biodiversity issues. The ISSB is considering how to incorporate TNFD recommendations into its standards.
2024: SEC Finalizes Climate Risk Disclosure Rules but Stays Them The SEC finalised rules on climate risk disclosures for publicly traded companies, requiring them to disclose climate-related risks impacting their business strategies or financial performance. However, multiple legal challenges prompted the SEC to put the implementation on hold while lawsuits proceed.
2024: EU’s Corporate Sustainability Due Diligence Directive The EU’s Corporate Sustainability Due Diligence Directive (CSDDD) went into force, requiring qualifying companies operating in the EU to identify and act on adverse human rights and environmental impacts. The CSDDD applies to both internal operations and supply chains and requires annual reporting on due diligence activities starting in 2027.