The evolution of responsible investing

Responsible investing has evolved from ethical and value-based decisions into a fundamental component of building resilient, future-focused responsible investment portfolios. There have been key milestones in the development of this industry, from its roots in religious and social values to the establishment of formal responsible investing frameworks and regulatory standards. Recognising this history highlights how integrating responsible investment principles helps manage risks, identify opportunities, and align investments with personal values for sustainable growth.

18th & 19th Century: Early Value-based Investing

• 1700s: Responsible investment principles have deep historical roots. As early as the 1700s, religious and ethical values influenced investment decisions. For example, the Quakers and Methodists in both the United States and Europe excluded investments linked to slave labour, laying the foundation for exclusion-based investing based on moral and cultural beliefs.
• 1800s: In an early example of investment considerations around Environment, Social & Governance (ESG) constraints, the Rothschild Bank in 1818 arranged a bond for Prussia that required governance reforms, including debt ceilings and revenue earmarking overseen by the Prussian Estates. There is further evidence of a Brazilian bond issue communications received by Rothschild Bank in 1886 around concerns of British investors about the progress being made towards abolishing slavery in Brazil. Reference.

1960s–1970s: Foundations of Ethical and Responsible Investing (RI)

• 1960s: Investors begin avoiding stocks of companies involved in tobacco, apartheid South Africa, and the Vietnam War.

• 1971: Pax World Fund is launched — the first socially responsible mutual fund in the U.S. This fund factored social and environmental criteria into investment decisions.

1980s–1990s: Rise of Responsible Investments and Global Frameworks

• 1984: First ethical fund in Europe, the Friends Provident Stewardship Fund, is launched in the UK.
• 1990: Launch of the Domini 400 Social Index (now MSCI KLD 400 Social Index), one of the first SRI stock indices. The MSCI KLD 400 Social Index product was held in Davy RI portfolio solutions from launch in 2014 till 2018.
• 1992: UN Earth Summit in Rio reinforces global environmental and social responsibility frameworks, in the form of the UN Framework Convention on Climate Change.
• 1997: The Kyoto Protocol is signed, setting greenhouse gas reduction targets and raising awareness of climate-related investment risks.

2000s: Responsible Investing Emerges as a Formal Investment Framework

• 2000: FTSE4Good Index launched in the UK, providing a benchmark for responsible investment.
• 2004: “Who Cares Wins” report by the UN Global Compact formally introduces the term Environment, Social and Governance (ESG), calling on investors to integrate ESG factors.
• 2006: Launch of the UN Principles for Responsible Investment (PRI) with 63 signatories and US$6.5 trillion in AUM.
• 2007: Formation of the Carbon Disclosure Project (CDP) and growing emphasis on climate risk disclosure.

2010s: Responsible Investing Goes Mainstream

• 2015: The UN launches the Sustainable Development Goals (SDGs); the Paris Agreement is signed by 196 countries, aligning global policy with sustainability objectives. 
• 2016: Task Force on Climate-related Financial Disclosures (TCFD) is launched by the Financial Stability Board.
• 2018: EU Action Plan on Sustainable Finance is published, laying the groundwork for the EU Taxonomy.
• 2019: The EU Taxonomy Regulation is introduced, providing a classification system for environmentally sustainable activities.

2020s: Regulatory Developments and ESG Asset Growth

• 2020: ESG funds see record inflows; BlackRock CEO Larry Fink’s letter underscores climate risk as investment risk.
• 2021: EU Sustainable Finance Disclosure Regulation (SFDR) comes into effect, requiring asset managers to disclose how sustainability risks and considered.
• 2022: ESG assets cross US$35 trillion, about one-third of global AUM. They are expected to head towards US$50 trillion by 2030. Reference.
• 2024: Rising concerns over greenwashing and political pushback spark increased scrutiny and calls for standardized ESG metrics and reporting frameworks.