Mapping the ESG Landscape: Complexities, Complications and Considerations
Authored by: Rajul Mittal, Head of Sustainable Finance, Synechron, The Netherlands
Bermet Dordoeva, Senior Consultant, Synechron, The Netherlands
Hachem Ohlale, Head of Analytics & Data Science, Synechron, The Netherlands
The Industrial Revolution was the catalyst for not only unprecedented scientific development, but also the onset of considerable CO2 emissions. Cumulative greenhouse gases emissions over the last couple of centuries have led us into a time where the world needs to focus on a wide and growing array of Environmental, Social and Governance (ESG) issues. ESG concerns are central to the larger Sustainable Finance movement itself which has become mainstream in recent years.
The first, early iteration of ESG, in concept, dates back to 1960. That was followed by the 1971 launch of the very first mutual fund, the Pax World Fund, dedicated to then-called ‘socially responsible investing’. That definition has evolved over the years, with both exclusionary and inclusionary investing mandates in focus. Up until about 1990, few took notice of the climate impact as long as the economy was thriving, and shareholder value was created. But those two worlds have since collided.
In 1990, the very first US ESG index was born, followed by the creation of the first global ESG index nine years later in 1999. In 2004, the former UN Secretary General Kofi Annan wrote to more than 50 CEOs of major financial institutions, inviting them to participate in a joint initiative whose goal was to find ways to integrate ESG metrics into capital markets. The term “ESG” was coined in 2005, as part of this initiative, which included the release of the report “Who Cares Wins”.i It stated that embedding ESG factors into capital markets makes good business sense and leads to more sustainable markets and better outcomes for societies.
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