History and Emergence of Responsible Investing
Responsible investing has grown exponentially over the last decade, with an explosion of new thematic funds and the integration of ESG analysis into more traditional stock selection methods, however investing in a responsible manner is not a new concept.
Religious roots
It is believed that religious motivations drove the first examples of responsible investing; whether the Methodist church asking its congregations not to profit at the expense of those around them, or the Quakers forbidding members from profiting from the slave trade. The categorisation of companies or industries as ‘sinful’ is directly from this period of time, with alcohol, tobacco and weapon companies prohibited from investment by parishioners. Islamic principles also sought to avoid investment in companies with activities that are not permitted under Shariah.
The rise of activism
People power, or the positive stewardship of capital, became a driving force from the 1960’s onwards. The avoidance of investment into apartheid South Africa contributed to pressure on the government to end racial segregation. Many other examples were to follow.
In 2006, the ongoing genocide and humanitarian disaster in the Darfur region of Sudan led to the Sudan Divestment Task Force, which lobbied investors in companies operating in the country to disinvest.
BP saw a heavy financial impact following the Deepwater Horizon catastrophe in 2010, with many shocked by the extent of the oil spill and the environmental damage caused in the Gulf of Mexico.
Volkswagen were also heavily fined and saw a fall in share price following the emissions scandal in 2015.
The coming of age for responsible investing
The world’s first sustainable mutual fund was launched in 1971, the Pax World fund, which was created by Methodist ministers in the US who did not want church money to be invested in companies involved in the Vietnam War. The fund is still running today in the US. By 1994, there are only 26 sustainable funds, with assets under management of USD $1.9 billion.
The nineties and noughties saw landmark protocols and agreements globally in respect of environmental and social issues, such as the Kyoto Protocol in 1997, which convened world leaders to set global warming goals, the 2006 UN Principles of Responsible Investing and the Paris Agreement of 2015, where consensus was reached by world leaders to combat climate change.
The responsible investing universe has grown exponentially in the last decade. Estimated net flows into open-end funds and exchange traded sustainable funds in the US totalled USD $20.6 billion for 2019, which is four times the previous annual record set in 2018.
The world of responsible investing is clearly not new but it is now mature, significant in size, effective and, most importantly, available to all.