The ethical philosophy and concept of sustainable investment emerged at the end of the 1960s and has enjoyed a meteoric rise ever since. Today, companies must invest in accordance with a set of sustainability standards in order to be profitable. These standards are the “ESG criteria”. What are they and why are they so important?
To discover the origin of ethical investments, we have to go back over 50 years to the period of the Vietnam War. This military conflict triggered a wave of protests at universities throughout the United States and students called on their universities to stop investing in arms companies. It was then that an interest in searching for ethical investments came to light. By the end of the 1990s, the progress in sustainable investment was a proven fact. The Dow Jones Sustainability Index was created as the first global index that introduced sustainability criteria. Shortly afterwards, the United Nations Organisation (UN) took a major step by implementing the Principles for Responsible Investment, which consist of six premises that consider sustainability. The concept of sustainable or responsible investment was here to stay.
But what makes an investment responsible? It must meet environmental, social and governance (ESG) criteria. Companies must follow these criteria as a means of strengthening their profits as well as their commitment to society.
The ESG criteria cover the following aspects:
These criteria are like a shopping list companies need to have on hand when making responsible and ethical investments. They are set as quality indicators for companies, like a type of small print that defines their level of responsibility to society.