Environmental, social and corporate governance investing is rooted in ethical investing, which in the U.S. dates to the 18th century and the American Revolutionary War when a group of pacifists boycotted bonds being issued by the Continental Congress because they believed the money would be funding war efforts.
The practice of investing according to a set of moral or ethical beliefs continued to gain a following during the height of the Vietnam War in the 1960s, with investors boycotting stocks of companies involved in the war effort, and later following the first Earth Day in 1970 when socially responsible investors began focusing on issues such as nuclear power and auto emissions. Apartheid in South Africa led institutional investors to use their influence on a grander scale in the 1990s. Since then, a series of regulatory changes helped to shape what is now combined under the umbrella term of ESG.
1995: In the U.K., a clause in the Pension Act 1995 required pension fund executives to disclose how they consider ESG issues in the investment process. Similar regulations were subsequently introduced throughout Europe and pushed demand for investment strategies that integrate ESG factors in the region.
2000: First regulation introduced in the U.K. establishing that ESG considerations are legal within the fiduciary framework for pension fund trustees. Broader implications for Europe helped to drive ESG investing forward on the Continent.
2003: The U.S. Securities and Exchange Commission adopted amendments to require managers of mutual funds to disclose relevant information about their proxy voting practices.
2005: The United Nations' Principles for Responsible Investment launched. During the same year, a separate study by the U.N. Environment Program and London-based law firm Freshfields Bruckhaus Deringer LLP went further to say that ESG is not only legal, but an essential part of the fiduciary duties of pension fund trustees.
2010: Establishment of the U.K. Stewardship Code, which sets out best practices for institutional investors to be responsible shareholders. The code encourages investors to explain the extent to which they have complied with the code, or explain why they haven't. Similar policies are being considered in the Netherlands and the European Union. Separately, the SEC published guidance on climate risk disclosure in SEC filings.