History and Evolution of Sustainable Investing

History and Evolution of Sustainable Investing

For thousands of years, conscientious individuals have aligned their business and investment practices with a concern for the world around them. Early adopters in the western world were motivated largely by religion: they included the Roman Catholics, Quakers and Methodists, who advised their members against investing money in trades deemed sinful, such as alcohol, slavery, and weapons. Islamic finance has long prohibited a number of financial practices on ethical grounds, such as charging interest and investing in certain types of derivatives (charging of interest was also, for a time, regulated in Christian societies for religious reasons).

The modern era of responsible investing began in the mid-20th century, when activists, investment funds, and government bodies began to address social concerns such as civil rights, labor, women’s equality, and urban decay, with the view that money could be part of a proactive solution. In the 1970s through the early 1990s, South Africa was a high-profile example as businesses, universities and government bodies divested from companies doing business in that nation to help end apartheid.

Some modern highlights include the following¹:

• In 1971, Pax World launched the world’s first mutual fund recognized as socially responsible.
• In 1984, the U.S. Sustainable Investing Forum was founded.
• By the mid-1990s, over 25 sustainable mutual funds were available, with assets over $2 trillion.
• Sustainable funds achieved an inflow of $115 billion during 2022.

Each of these built on earlier initiatives and carried momentum forward to additional actions.

In recent years, social media has put pressure on individuals and institutions to adopt a sustainability perspective. It has been haphazard, however, with competing people and priorities leaving a muddied perspective on what an investment approach should be. But social media illustrates in a dramatic way how society as a whole is attempting to find consensus.

Guiding frameworks for sustainability adoption

Like any approach to investing, sustainability benefits from using guiding frameworks that set down what should be achieved and how to assess progress toward those achievements. Frameworks have been developed by several sources. They are useful for policymakers, investors, and institutions.

The United Nations’ SDGs. The Sustainable Development Goals (SDGs) are a series of 17 targets set by the United Nations in 2015 and adopted by its member states. These goals apply to all nations and represent a widespread consensus. They are designed as a roadmap to achieve a better and more sustainable future by 2030. The SDGs outline a practical and measurable range of opportunities for governments and businesses. Information about their targets, events, publications, and actions can be found at https://sdgs.un.org/goals.

Others. While the UN’s SDGs are influential, there are others. For example, the UN Principles for Responsible Investment (PRI), the World Economic Forum (WEF) Stakeholder Capitalism Metrics, and the Sustainability Accounting Standards Board (SASB) also provide guiding standards.

¹(Source: Morningstar)