ESG, moving beyond the box tick

Executive summary

Environmental, social and governance (ESG) factors have evolved rapidly over a relatively short time frame. Global ESG assets, now calculated at approximately $35tn, will likely surpass $41tn by the end of 2022 and $50tn by 2025. These assets now comprise one-third of the projected total assets under management globally. ESG has become of such importance to capital markets that by 2020, 88% of publicly listed companies, 79% of venture and private equity-backed companies and 67% of privately-owned companies had already put initiatives in place.

This discussion paper sets out in general terms what ESG is and how the theme is developing from the perspective of corporate and financial market engagement. The paper outlines the current model of engagement and how the regulatory landscape is developing, detailing the challenges companies face in assessing and disclosing ESG risks. Additionally, the paper explains the role of ESG ratings and assesses what the future of ESG may look like, while considering relevant purpose, strategic focus and capacity constraints.

This discussion paper is not a comprehensive summary of the current ESG landscape. Instead, it introduces the key topics of note, within the context of the fast-changing environment, and will outline core touchpoints designed to spark further discussion.


Sustainability is a choice, a conscious decision to look beyond near-term profit and consider our future impact on the planet and on society. The concept of ESG is not new. It is a further development of sustainable finance. A rebirth of socially responsible investing 30 years ago in the early to mid-1990s saw a move away from investment in industries perceived to have negative social effects, like alcohol, tobacco, fast food, gambling, pornography, weapons, fossil fuel production and the military. This followed on from the ‘green’ movement of the 1960s and 1970s, which was fundamental in establishing the US Environmental Protection Agency and the Clean Air Act. In the mid-1800s, the conservation movement developed the US National Parks and laid the groundwork for future environmental legislation. The genus of ESG though, can be found as far back as the 1700s, in the work of clerical environmentalists like John Wesley, who believed that ‘we ought not to gain money at the expense of life, nor at the expense of our health.

The term ESG was first proposed over 15 years ago (although initially the acronym was GES). This version was rejected, as ‘environmental’ needed to be prioritised and there were concerns ‘social’ considerations would become marginalised after ‘governance’. The acronym’s main purpose was to promote consideration of environmental, social and governance factors in capital market thinking, on the premise that doing so made good business sense. The objective was to create more sustainable markets and, ultimately, better outcomes for societies. These efforts were followed up by the 2005 publication of the ‘Who Cares Wins’ report, which became the springboard for the creation of the UN supported Principles for Responsible Investment. Despite these initiatives, for years financial institutions were slow to embrace ESG, arguing that their fiduciary duty was limited to the maximisation of shareholder value. Milton Friedman argued that because a CEO is an ‘employee’ of a company’s shareholders, he or she must act in their interest and focus on giving them the highest return possible.

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