The concept of Environmental, Social, and Governance (ESG) investing has transformed from a niche ethical consideration into a mainstream financial framework that shapes trillions of dollars in investment decisions worldwide. This evolution reflects a fundamental shift in how investors, corporations, and society understand the relationship between financial performance and broader social and environmental impacts.
ESG investing represents the integration of environmental stewardship, social responsibility, and corporate governance factors into investment analysis and decision-making processes. Rather than focusing solely on traditional financial metrics, ESG investing recognizes that non-financial factors can materially affect a company’s long-term performance, risk profile, and contribution to society. Today, ESG considerations influence investment strategies across asset classes, from public equities and fixed income to private equity and real estate.
1960s-1970s: The Seeds of Socially Responsible Investing
The roots of ESG investing trace back to the socially responsible investing (SRI) movement of the 1960s and 1970s. During this era, investors began using moral and ethical screens to exclude certain industries from their portfolios. The anti-war movement drove investors to divest from companies involved in the Vietnam War, particularly those manufacturing weapons and defense equipment. Environmental consciousness also began emerging, catalyzed by Rachel Carson’s groundbreaking 1962 book “Silent Spring,” which exposed the dangers of pesticides and sparked the modern environmental movement.
The 1970s witnessed several pivotal developments. The first Earth Day in 1970 mobilized millions of Americans and elevated environmental concerns to national prominence. Religious institutions, particularly churches and universities, pioneered ethical investment approaches by screening out “sin stocks” related to tobacco, alcohol, gambling, and weapons. The Pax World Fund, launched in 1971, became one of the first mutual funds to incorporate social and environmental criteria alongside financial objectives, avoiding investments in weapons manufacturers during the Vietnam War era.
1980s: Divestment and Growing Awareness
The 1980s marked a significant acceleration in socially conscious investing, largely driven by the global anti-apartheid movement. Institutional investors, universities, pension funds, and individual shareholders organized coordinated divestment campaigns targeting companies doing business in South Africa under its apartheid regime. This movement demonstrated that investor activism could exert meaningful pressure on corporate behavior and even influence geopolitical outcomes.
The decade also saw increased attention to corporate governance failures and environmental disasters. The 1984 Bhopal gas tragedy in India, which killed thousands, and the 1989 Exxon Valdez oil spill in Alaska heightened public awareness of corporate environmental responsibility. These catastrophic events illustrated the material risks that environmental and social factors posed to both communities and shareholder value, laying groundwork for more systematic risk assessment approaches.
1990s: Institutionalization and the Triple Bottom Line
The 1990s brought greater sophistication and institutionalization to sustainable investing. The concept of the “triple bottom line” emerged, articulated by John Elkington in 1994, proposing that companies should measure success across three dimensions: people, planet, and profit. This framework provided a conceptual foundation for evaluating corporate performance beyond purely financial metrics.
Environmental management standards gained traction during this period. The ISO 14000 series of environmental management standards was introduced in 1996, providing organizations with frameworks for managing environmental responsibilities. The Global Reporting Initiative (GRI) was founded in 1997, establishing the first comprehensive framework for sustainability reporting that would eventually become the global standard for corporate disclosure on environmental, social, and governance issues.
Investment approaches evolved from simple negative screening to more nuanced positive screening and best-in-class strategies. Rather than merely excluding harmful industries, investors began actively seeking companies demonstrating superior environmental and social performance within their sectors. The Dow Jones Sustainability Index, launched in 1999, became the first global index tracking the financial performance of leading sustainability-driven companies.
2000s: The Birth of Modern ESG
The 2000s witnessed the formal emergence of ESG as a distinct investment framework. The term “ESG” itself gained prominence following the 2004 report “Who Cares Wins,” produced by a coalition of financial institutions at the invitation of the United Nations. This report made the business case for integrating ESG factors into capital markets, arguing that such integration would lead to more sustainable markets and better outcomes for societies.
In 2006, the United Nations Principles for Responsible Investment (UN PRI) was launched, establishing six principles for incorporating ESG issues into investment practices. The UN PRI provided institutional investors with a framework for responsible investment and created a global network for collaboration and knowledge sharing. What began with 63 signatories representing $6.5 trillion in assets would grow exponentially in subsequent years.
Corporate scandals and financial crises during this decade underscored the importance of governance factors. The collapse of Enron in 2001 and WorldCom in 2002 revealed massive accounting frauds and highlighted the risks of poor corporate governance. The 2008 global financial crisis further demonstrated how governance failures, excessive risk-taking, and short-term thinking could destabilize entire economic systems. These events convinced many mainstream investors that ESG factors were material to investment risk and performance.
Climate change emerged as a central ESG concern. Al Gore’s 2006 documentary “An Inconvenient Truth” brought climate science to mainstream audiences, while the 2006 Stern Review on the Economics of Climate Change, commissioned by the UK government, quantified the economic costs of inaction. The Intergovernmental Panel on Climate Change (IPCC) continued producing increasingly urgent assessments of climate risks, making the environmental dimension of ESG investing more salient.
2010s: Mainstream Adoption and Integration
The 2010s marked ESG’s transition from a specialized approach to mainstream investment practice. Several converging trends accelerated this shift. First, mounting scientific evidence of climate change and environmental degradation made environmental risks impossible for fiduciaries to ignore. The Paris Agreement of 2015, in which 196 parties committed to limiting global temperature increases, signaled unprecedented international consensus on climate action and created new policy frameworks affecting corporate operations.
Social factors gained prominence through increased focus on human rights, labor practices, diversity and inclusion, and community impacts. High-profile incidents like the 2013 Rana Plaza factory collapse in Bangladesh, which killed over 1,100 garment workers, spotlighted supply chain risks and corporate social responsibility. The #MeToo movement and growing attention to workplace culture, diversity, and equity made social factors increasingly material to corporate reputation and performance.
Technology transformed ESG investing by making data more accessible and analysis more sophisticated. Specialized ESG data providers like MSCI, Sustainalytics, and Bloomberg expanded their offerings, while artificial intelligence and big data analytics enabled more comprehensive ESG assessment. Investors could now access detailed ESG ratings and metrics for thousands of companies, facilitating integration into investment processes.
Regulatory developments provided additional momentum. The European Union emerged as a global leader in sustainable finance regulation, introducing the Non-Financial Reporting Directive in 2014, which required large companies to disclose information on environmental, social, and governance matters. France’s Article 173 of the Energy Transition Law (2015) mandated that institutional investors disclose climate-related financial risks, setting a precedent for climate-focused financial regulation.
The concept of materiality evolved during this decade. The Sustainability Accounting Standards Board (SASB), founded in 2011, developed industry-specific standards identifying the financially material sustainability issues for 77 industries. This materiality framework helped mainstream investors understand which ESG factors were most relevant for different sectors, facilitating more targeted integration.
2020-Present: ESG Becomes Central to Investment Strategy
The current decade has witnessed ESG investing reach unprecedented scale and influence, while also facing growing scrutiny and backlash. The COVID-19 pandemic, beginning in 2020, highlighted the interconnectedness of environmental, social, and economic systems. The crisis revealed vulnerabilities in global supply chains, underscored the importance of stakeholder capitalism, and demonstrated that companies with strong ESG practices often proved more resilient.
Climate action accelerated dramatically. Asset managers launched climate-focused funds, pension funds committed to net-zero portfolios, and divestment from fossil fuels gained momentum. The Network for Greening the Financial System, a group of central banks and supervisors, recognized climate change as a source of financial risk. The Task Force on Climate-related Financial Disclosures (TCFD) framework gained widespread adoption, with thousands of organizations supporting its recommendations for climate risk disclosure.
Social issues moved to the forefront following the racial justice protests of 2020. Companies faced pressure to address diversity, equity, and inclusion (DEI) both within their organizations and throughout their value chains. Investors increasingly scrutinized corporate commitments to racial equity, fair labor practices, and community investment. The “S” in ESG, long considered the most difficult to measure and integrate, received renewed attention and resources.
Regulatory momentum intensified globally. The European Union’s Sustainable Finance Disclosure Regulation (SFDR), implemented in 2021, required financial market participants to disclose how they integrate sustainability risks. The EU Taxonomy created a classification system for environmentally sustainable economic activities. The Securities and Exchange Commission (SEC) in the United States proposed climate disclosure rules in 2022, signaling potential standardization of corporate climate reporting.
The convergence of ESG standards represents an ongoing challenge and opportunity. Multiple competing frameworks for sustainability disclosure created confusion and inefficiency. In 2021, the International Financial Reporting Standards (IFRS) Foundation announced the creation of the International Sustainability Standards Board (ISSB) to develop a global baseline of sustainability disclosure standards. The ISSB absorbed the TCFD and worked to consolidate various frameworks, potentially creating the comprehensive, comparable disclosure system that investors had long sought.
As of 2025, ESG investing has become deeply embedded in mainstream finance, with trillions of dollars managed according to ESG principles. Major asset managers integrate ESG factors across their investment processes, institutional investors incorporate sustainability criteria into manager selection, and corporations face mounting pressure to demonstrate ESG performance. The conversation has shifted from whether ESG matters to how to implement it most effectively and measure its impact accurately.
ESG Timeline: A Snapshot
1960s-1970s: Origins
- 1962: Rachel Carson publishes “Silent Spring,” catalyzing environmental movement
- 1970: First Earth Day celebrated, raising environmental awareness
- 1971: Pax World Fund launches, pioneering socially responsible mutual fund
- 1970s: Religious institutions begin ethical investment screening
1980s: Divestment Era
- 1980s: Anti-apartheid divestment campaigns target companies in South Africa
- 1984: Bhopal gas tragedy highlights corporate environmental risks
- 1989: Exxon Valdez oil spill intensifies focus on environmental responsibility
1990s: Frameworks Emerge
- 1994: John Elkington introduces “triple bottom line” concept
- 1996: ISO 14000 environmental management standards introduced
- 1997: Global Reporting Initiative (GRI) founded
- 1999: Dow Jones Sustainability Index launches
2000s: ESG Formalized
- 2004: “Who Cares Wins” report coins the term ESG
- 2006: UN Principles for Responsible Investment (PRI) launched
- 2006: Stern Review quantifies economic costs of climate change
- 2008: Global financial crisis underscores governance importance
2010s: Mainstream Integration
- 2011: Sustainability Accounting Standards Board (SASB) founded
- 2013: Rana Plaza collapse spotlights supply chain risks
- 2014: EU Non-Financial Reporting Directive enacted
- 2015: Paris Agreement on climate change adopted
- 2017: Task Force on Climate-related Financial Disclosures (TCFD) releases recommendations
- 2019: Business Roundtable redefines corporate purpose beyond shareholders
2020s: Scale and Scrutiny
- 2020: COVID-19 pandemic highlights ESG resilience; racial justice movements emphasize social factors
- 2021: EU Sustainable Finance Disclosure Regulation (SFDR) takes effect
- 2021: IFRS Foundation announces International Sustainability Standards Board (ISSB)
- 2022: SEC proposes climate disclosure rules
- 2023-2024: Political backlash and anti-ESG legislation in some U.S. states
- 2024-2025: Focus shifts to implementation, impact measurement, and combating greenwashing
FAQs
ESG stands for Environmental, Social, and Governance – a framework used to assess how responsibly a company operates beyond financial performance.
ESG’s roots go back to the 1960s SRI movement, but the modern term emerged in 2004 with the UN’s Who Cares Wins report and gained momentum after 2006 with the launch of UN PRI.
No. SRI uses ethical screens to exclude certain industries, while ESG integrates environmental, social, and governance factors into financial analysis to assess risks and opportunities.
Key milestones include anti-apartheid divestment, the Exxon Valdez spill, Enron scandal, GRI standards, the 2008 financial crisis, Paris Agreement, and the COVID-19 pandemic.
Climate risks, better ESG data, stricter regulations, investor demand, and generational shifts toward sustainability have driven widespread global adoption.
Climate change became central to ESG through initiatives like the Paris Agreement and TCFD disclosures, pushing investors to assess carbon risks and transition strategies.
Social issues expanded from labor rights to include diversity, equity, supply chain safety, data privacy, and worker wellbeing, especially after events like Rana Plaza and COVID-19.
ESG is expected to become more regulated, data-driven, and performance-focused, with stronger emphasis on climate action, transparency, and measurable impact.