Q&A
ESG stands for environmental, social and governance principles. These principles are constantly evolving and are being adopted in various guises internationally either voluntarily, under pressure from investor representative bodies or by laws and regulations in individual countries.
Many historic laws and regulations can be grouped under ESG principles.
Examples –
- Laws on Pollution
- Equality & Diversity
- Employee Rights
- Health & Safety
In summary –
- Environmental goals are closely associated with the drive towards mitigation of climate change and the transition towards a low-carbon economy
- Social goals are closely associated with diversity, equality and fair treatment of workers
- Governance is the mechanism by which companies (or other organisations) manage themselves responsibly to meet these and other objectives and to avoid conflicts of interest
ESG has evolved from international bodies; and national laws on environmental, social and governance matters.
The genesis appears to be as follows –
The term ESG appears to have been coined in a report commissioned by the United Nations in 2004 entitled “Who Cares Wins”.
The report’s assertion was that “Companies that perform better with regard to these issues can increase shareholder value by, for example, properly managing risks, anticipating regulatory action or accessing new markets, while at the same time contributing to the sustainable development of the societies in which they operate.”
The roots of ESG can perhaps be traced back further to the influence of the of the Swiss based World Economic Forum (“WEF”) founded by Professor Klaus Schwab – famous for its annual gatherings of the great and the good in Davos – which has long been an advocate of so called ‘stakeholder capitalism’.
This contrasts with the model advocated by Milton Friedman summarised in his famous article published in 1970 in the NY Times which championed the idea that the responsibility of the corporate executive is to maximise profit for the shareholders with social responsibility being a matter best left to legislators.
The ascendency of ESG suggests that the WEF stakeholder capitalism model is prevailing as global (particularly Western) companies are increasingly agreeing to meet and/or report upon ESG objectives in accordance with applicable reporting standards or requirements of investors.
There are many individual laws and regulations in the UK which pre-date ESG.
Examples –
- Laws on pollution
- Equality & Diversity
- Employee Rights
- Health & Safety
