ESG is the latest acronym which you see everywhere in the corporate world.  Boardrooms, senior management, consultants, press, webinars or blogs, everyone talks about the importance of ESG.  Every policy, strategy, or investment is now evaluated with an ESG lens.  You just can’t miss it!  So, what is it?

ESG stands for Environmental, Social, and Governance (ESG), a term which first appeared in the August 2005 Conference Report ‘Investing for Long-Term Value’. The conference in Zurich, Switzerland was part of the Who Cares Wins initiative by the United Nations Global Compact, voluntary corporate citizenship initiative launched by the United Nations Secretary-General Kofi Annan. The objective of the conference was to Integrate environmental, social and governance value drivers in asset management and financial research.

Subsequently in April 2006, the United Nation’s Principles for Responsible Investment was launched by the UN Secretary-General.  The principles were developed during a nearly year-long process, coordinated by the United Nations with participation by a group of the world’s largest institutional investors, who became the initial signatories to the principles.  It also resulted in the formation of The UN Principles for Responsible Investment (PRI), an international organization that works to promote the incorporation of environmental, social, and corporate governance factors into investment decision-making.

There are six Principles for Responsible Investment, which have been adopted by the signatories, to develop a more sustainable global financial system.  These six Principles for Responsible Investment offer a menu of possible actions for incorporating ESG issues into investment practice. They are as follows:

• 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.

There are more than 2500 participating financial institutions. These institutions participate as signatories and file regular reports on their progress towards implementing the six principles in making their investments.