Environmental, Social and Governance – everyone knows what it is, everyone is talking about it, and everyone is trying to implement improvements. 

But, whilst ESG has become a huge part of life and every business leader has it on their radar, how many of us know where it began?  

 

ESG is rooted in the finance industry 

The origin of ESG is rooted firmly in the finance industry, with the focus originally placed on asset management before becoming a wider business concept.  

The actual term ‘ESG’ was born in the 2004 United Nation’s “Who Cares Wins” report, when all business stakeholders – whether managers, directors, investors, analysts or brokers – were encouraged to embrace ESG long-term. 

The thinking behind this was that businesses that deliver good performance in relation to ESG, and demonstrate they are good corporate citizens, will increase shareholder value.  

According to Paul Clements-Hunt, the man who led the team that created the term ‘ESG’, it was initially going to be called ‘GES’ as governance was considered the most important area. However, they decided that the E was “sexy” at the front and that the S should go in the middle – leaving ESG as the winning acronym.  

Despite how important ESG is now, it did take a while for it to catch on after Paul and his team introduced the idea. According to analysis by asset manager, Pimco, ESG was mentioned in fewer than 1% of earnings calls between May 2005 and May 2018. It wasn’t until May 2021, after a surge in prominence during the Covid-19 pandemic, that it was mentioned in almost a fifth of earnings calls.  

 

What about now?  

It’s been nearly two decades since the “Who Cares Wins” report and it has had a huge impact on governments around the world, who have since updated their laws to have a greater focus on ESG. 

The UK government passed the Companies Act (2006) which set standards in the Governance category and, elsewhere, environmental laws have been passed around the world, underpinned by the urgency of the climate crisis and international summits like COP26. The Social element of ESG has also been considered in law, with legislation passed that criminalise discrimination and encourage diversity.  

In terms of the finance industry, there is a big focus on sustainable investing in the current market. This refers to specific investment approaches that aim to generate long-term financial returns while advancing sustainable solutions and outcomes.  

ESG investing has been on a rollercoaster ride over the past few years for many reasons, including the invasion of Ukraine and the Covid-19 pandemic, but it’s now back on the up – according to Morningstar, sustainable investing kept pace with conventional investing in 2022 and generated returns similar to those of the overall market. 

Communication surrounding ESG is also vital, as it allows companies to showcase their ESG score and encourage investment. This is mainly done through ESG reporting, but implementing a solid and strategic ESG communication strategy is becoming more and more important to stand out as more companies start shouting about their credentials.  

Here at Liquid, we have a team of experts who are passionate about helping our clients to communicate their ESG agenda. If you’re looking for support with this from a Birmingham or Brisbane PR agency, then we’d love to hear from you.