When did ESG investing become popular?
However, it wasn't until the 1990s that ESG considerations started to appear in mainstream investment strategies. In 1995, the U.S Social Investment Forum (SIF) Foundation took inventory of all the sustainable investments in North America.
ESG is popular due to the following factors:
It helps regulators to get information and process it as well. 3. Investors are increasingly choosing to invest in companies that align with their values and goals.
It is more and more becoming the standard in the investment industry, especially in Europe, where most of the sustainable fund's assets are concentrated. The most common approach to investing sustainably is through ESG integration - by explicitly and systematically factoring ESG issues into the investment decision.
“Since the launch of the first ESG ETF in 2002, the iShares MSCI A ESG Select ETF, the number and diversity of products have increased steadily,” ETFGI says.
ESG investing has grown in popularity in recent years due to the influence of factors such as climate change and social justice on investors, according to the CFA Institute. The practice began in the 1960s and has gained traction in the investing world since.
The business community is experiencing significant shifts around ESG priorities driven not just by Covid-19 but also by the economic downturn, social unrest and extreme weather events. “For consumers, ESG issues are influencing what companies they work for, buy from and invest in.
Some opponents also believe that ESG investing is politically motivated and could lead to biased investment decisions.” In a line used by proponents, those in opposition to the ESG movement also believe there is substantial support behind them.
ESG investing focuses on companies that follow positive environmental, social, and governance principles. Investors are increasingly eager to align their portfolios with ESG-related companies and fund providers, making it an area of growth with positive effects on society and the environment. S&P Global.
BlackRock ranked as the biggest ESG asset manager, accounting for 20 of the top 100 such funds, with total assets under management of $110 billion. DWS Group came in second place with $36 billion in AUM (comprising 11 funds), followed by Parnassus Investments with $33 billion (three funds).
| Rank | Name and Ticker | Market Cap (billions) |
|---|---|---|
| 1 | Nvidia (NASDAQ:NVDA) | $1,520 |
| 2 | Microsoft (NASDAQ:MSFT) | $2,952 |
| 3 | Best Buy (NYSE:BBY) | $15.7 |
| 4 | Adobe (NASDAQ:ADBE) | $279.2 |
Who started the ESG movement?
Since launching the ESG movement in 2004, the United Nations promoted incontestable aspirations such as to end poverty, hunger, and war and to promote “sustainable” living—defined as using only those resources that are necessary to meet current needs and thereby preserve resources for future generations to meet their ...
The core concept of ESG investing has existed for centuries, dating back to religious codes banning investments in slave labor. Fast-forwarding to the 1960s and 1970s, divestments from South Africa were first advocated to protest the country's system of apartheid.
The ESG moniker has become so politicized that it now prevents clear-headed thinking, said Alex Edmans, who teaches at London Business School. He's instead proposing the term “rational sustainability.” It may be bland, he said, but sustainability is about producing long-term value—and that's hard to politicize.
2021 brings collective demand for change around the globe. ESG ranked as the top asset class for increased allocations in J.P. Morgan's U.S. Fixed Income Strategy client survey for 2021.
However, there are also some cons to ESG investing. First, ESG funds may carry higher-than-average expense ratios. This is because ESG investing requires more research and due diligence, which can be costly. Second, ESG investing can be subjective.
In contrast to much of the positive reception ESG has received, some evidence suggests that it isn't even offering financial benefit for investors and businesses. A study conducted by researchers at the University of Chicago found that high sustainability funds hadn't outperformed any of the lowest rated funds.
Amidst this global trend, BlackRock, the world's largest asset manager, has taken a bold step by transitioning its investment strategy from ESG investing to a broader approach called transition investing. This move has significant implications not only for BlackRock but for the entire financial industry.
Critics argue fund managers are prioritizing political goals over generating returns. A number of states have enacted restrictions limiting how state pension funds can incorporate ESG factors into investments.
Because we believe that climate risk is investment risk, BlackRock's active portfolio managers seek to understand how they can use environmental, social, and governance (ESG) data as a lens to identify new risks and opportunities, and to build more resilient and better performing portfolios.
The firms' strong support of ESG investing in recent years has led some financial advisory firms and a segment of the public to question whether financial institutions should concentrate on financial performance rather than other considerations. BlackRock and Vanguard have a reputation for backing ESG initiatives.
What is the biggest ESG scandal?
In December 2022, Florida announced that it was taking $2 billion out of the management of BlackRock, the world's largest asset manager (and biggest lightning rod for ESG criticism). This was the largest such divestment thus far. These attacks have been coordinated.
The ESG movement, originally driven by good intentions, has been co-opted by lobbyists, special interest groups and various NGOs, and recent reviews have revealed its lackluster performance in creating meaningful environmental change and have highlighted chronic abuse of flawed methodologies.
ESG investing has been developed primarily by and for large institutional investors (pension funds, sovereign wealth funds, endowments, etc.).
ESG means using Environmental, Social and Governance factors to assess the sustainability of companies and countries. These three factors are seen as best embodying the three major challenges facing corporations and wider society, now encompassing climate change, human rights and adherence to laws.
Although financial industry groups claim that one-third of all investment assets are already sustainable, our research shows most ESG investing actually does not create any meaningful sustainability impact.
