A timeline and history of ESG investing, rules and practices

1990: Domini 400 Social Index

Amy Domini, Peter Kinder and Steve Lydenberg, who jointly managed KLD Research and Analytics, created the Domini 400 Social Index, which focused on companies prioritizing social and environmental responsibility. During this time, including social and environmental issues among business priorities was considered a bad gamble for investors.

The following year, the Domini Social Impact Equity Fund was launched to test the waters on such investments. The fund attracted $1.3 billion by 2001 and showed returns of 15.08% compared to 15.25% for the S&P 500, demonstrating that investing in socially responsible issues can deliver strong financial returns.

The Domini 400 is now called the MSCI KLD 400 Social Index. The weighted index, which consists of 400 U.S. securities, "provides exposure to companies with outstanding ESG ratings and excludes companies whose products have negative social or environmental impacts."

1992: United Nations Framework Convention on Climate Change

A group of 154 nations signed a treaty to mitigate "dangerous human interference with the climate system" at the Earth Summit in Rio de Janeiro. The treaty called for research and ongoing meetings and planted the seeds for future policy agreements. It also launched an annual meeting of participants called the Conference of the Parties (COP) to hash out details and revise goals. This action helped galvanize international efforts to mitigate temperature increases caused by human greenhouse gas emissions with plans to cap and reduce them over time.

1995: First sustainable investment inventory in the U.S.

The Washington, D.C.-based Social Investment Forum Foundation, now known as the U.S. SIF Foundation, took the first inventory of the total size of sustainable investments, revealing a total of $639 billion in assets managed in the U.S. By 2020, the Global Sustainable Investment Alliance estimated $35.3 trillion in sustainable assets worldwide.

Meanwhile, the U.S. SIF's December 2022 report listed $8.4 trillion in ESG and sustainable investments in the U.S. That was down from $17.1 trillion in 2020 due to a decision to remove investors that don't provide specific information on what ESG criteria they follow. But U.S. SIF said the $8.4 trillion still amounted to 12.6% of all the professionally managed investment assets in the U.S.

1997: Kyoto Protocol

The Kyoto Protocol was adopted in 1997 and entered into force in 2005. An agreement to specific greenhouse gas reduction targets was eventually ratified by 192 countries, 36 of which signed up for the first commitment period. All 36 countries met their obligations, but nine of them had to fund climate reduction programs in other countries because they went over their targets.

The two largest emitters, China and the U.S., were absent. China set no binding targets, while the U.S. never ratified the treaty. Canada initially participated but withdrew in 2012 after realizing it would be obligated to pay $14 billion in fines for missing targets.

1997: Global Reporting Initiative

The Global Reporting Initiative (GRI) was launched to address disclosures by companies related to environmental concerns. The group later expanded its mandate to also cover reporting on social and governance issues. In 2016, it shifted from providing guidelines to releasing the first global standards for sustainability reporting. As of 2022, 78% of the world's largest 250 companies used the GRI Standards, according to a KPMG survey.

2000: United Nations Global Compact

The U.N.'s Global Compact established a set of 10 principles for organizations to adopt across diverse areas, including human rights, labor practices, the environment and anti-corruption efforts. Presented as a forum rather than regulations, the Global Compact's goals are deliberately vague and intended to spark discussions and negotiations through dialogue-specific projects.

However, participating companies file an annual report on their adherence to the principles, and the Global Compact replaced the report's original narrative format with a standardized questionnaire in 2023. Currently, it says more than 20,000 companies and 3,800 other organizations submit progress reports.

2000: Carbon Disclosure Project

After previously starting two businesses, Paul Dickinson founded the Carbon Disclosure Project, now known simply as CDP, to organize and empower large investors to ask companies to report on their climate performance and ways to mitigate related risks. In 2002, 35 investors requested climate disclosures from the 500 largest businesses to help normalize the disclosure process.

By 2021, companies with 64% of market capitalization responded with disclosures. CDP also expanded its reporting system to include water security and deforestation issues -- initially through separate questionnaires, which were combined into a single one in 2024. In 2023, CDP represented investors with more than $136 trillion in assets, and more than 23,000 companies worldwide used its system.

2004: First "Who Cares Wins" report published with the term ESG

At the invitation of the U.N., a group of banks and other investment firms summarized the critical issues in a report titled "Who Cares Wins," which popularized the term ESG. The report provided several recommendations for integrating ESG issues in analysis, asset management and securities brokerages. The group proposed that greater inclusion of ESG factors in investment decisions will contribute to more stable and predictable markets. Four more reports were published from 2005 to 2008.

2005: Freshfields report

With backing from the U.N., the London-based law firm Freshfields Bruckhaus Deringer published "A legal framework for impact: Sustainability impact in investor decision-making." The report suggested that financial trustees should include environmental and social considerations in their analysis of companies. Over the years, this proposal has been refined into investing for sustainability impact (IFSI).

2006: Principles for Responsible Investment

At the invitation of the U.N., a group of 70 investment and environmental experts published six principles advocating institutional investors should incorporate ESG considerations into their decisions. The principles call for investors to include ESG issues, become active owners, seek appropriate disclosures, promote acceptance of ESG analysis, enhance effectiveness in addressing ESG issues, and report on activities and progress.

2007: Climate Disclosure Standards Board

Many of the largest organizations working on climate issues came together to establish the Climate Disclosure Standards Board (CDSB). The new group created a reporting framework, first released in 2010, that focused on the risks and opportunities posed by climate change on an organization's strategies, financial performance and condition. It later added considerations for disclosures related to water usage, deforestation, biodiversity loss and other environmental issues, as well as the social factors of ESG.

The CDSB Framework enabled companies to incorporate ESG reporting into mainstream reports, including their annual reports and 10-K filings. At its peak, nearly 375 companies in 32 countries used the framework, according to the CDSB.

2011: Sustainability Accounting Standards Board

Management and sustainable development consultant Jean Rogers launched the Sustainability Accounting Standards Board (SASB) to create standards that reflect the impact of ESG factors on the bottom line of companies in a specific industry. Beverage companies, for example, would have to account for water security, while sustainable energy companies would need to account for the environmental impact of mining activities.

The SASB Standards aimed to provide the same consistency in reporting on the risks and opportunities of meeting sustainability goals that traditional accounting metrics bring to financial investment decisions. SASB went on to develop standards for 77 industries across 11 sectors.

2015: U.N. Sustainable Development Goals

The U.N. General Assembly formulated 17 Sustainable Development Goals (SDGs). A few years later, the SDGs were further clarified with 169 specific targets and 232 unique indicators of progress. They cover many issues, including poverty, food security, health, equality, water, clean energy, work, infrastructure, sustainability, climate, oceans, ecosystems, justice and partnership.

2015: Task Force on Climate-related Financial Disclosures

The Financial Stability Board, an industry consortium that makes recommendations on various risks and regulatory actions, launched the Task Force on Climate-related Financial Disclosures. Two years later, the new group, commonly known as the TCFD, published 11 recommendations for companies on reporting information about financial risks posed by climate change. The goal was to help banks, insurers and investors assess the potential impact of climate risks on a company's bottom line. Eventually, more than 4,000 companies declared support for the TCFD recommendations.

2016: Workforce Disclosure Initiative

ShareAction, a charity that supports responsible investment, launched the Workforce Disclosure Initiative. The WDI program, which was transferred to the Thomson Reuters Foundation in 2024, aims to increase the value and quality of data that companies report on workforce health, safety and risk management metrics. More than 50 institutional investors with a total of $7.5 trillion in assets under management currently support the program, and about 170 large employers respond to the WDI's annual survey.

2017: The Compact for Responsive and Responsible Leadership

More than 140 CEOs signed The Compact for Responsive and Responsible Leadership at the World Economic Forum (WEF) meeting in Davos, Switzerland. The CEOs made a commitment to collaborate on the U.N.'s SDGs to benefit both the companies they run and the world. One of the compact's essential points: "Society is best served by corporations that have aligned their goals to serve the long-term goals of society."

2017: State Street Global Advisors and board diversity issues

Asset management firm State Street Global Advisors, in conjunction with the installation of its "Fearless Girl" statue on Wall Street, told 600 companies in the U.S., U.K. and Australia that it would vote against the chairs of boards that have no female directors or candidates. In a matter of months, 42 companies committed to increasing diversity, and seven of them added women board members. State Street Global Advisors later voted against 400 companies that failed to initiate diversity efforts.

2019: Davos Manifesto 2020

The WEF published the Davos Manifesto 2020 as a set of ethical principles to guide companies through the Fourth Industrial Revolution. The document expressed the need to serve employees, customers, suppliers and other stakeholders, as well as local communities and society as a whole. It emphasized that companies should treat people with dignity and respect, integrate human rights into the supply chain, pay their fair share of taxes and achieve ESG objectives.

2020: COVID-19 pandemic and other events

The COVID-19 pandemic forced millions of employees to work from home and caused widespread supply chain disruptions, showing how an unforeseen danger can upend the world economy and the well-being of individuals. Many businesses struggled to keep pace with the new operating realities driven by the pandemic.

A 2020 J.P. Morgan survey of institutional investors found that 71% of the respondents believed an event like the pandemic would "increase awareness and actions globally to tackle high-impact/high-probability risks such as those related to climate change and biodiversity losses."

Meantime, environmental disasters, including extreme heat, forest fires, floods and hurridcanes, continued to become more commonplace events. Also, the mistreatment and subsequent death of George Floyd at the hands of Minneapolis police, later resulting in convictions for second-degree murder and other charges, stoked increased concerns about police brutality and racism.

2020: Standardized stakeholder capitalism metrics

The WEF and Big Four accounting firms released a whitepaper standardizing a set of metrics for companies reporting on their ESG progress. The metrics helped align reporting on ESG indicators with progress toward the SDGs. Since the release, more than 150 companies have incorporated the 21 core and 34 expanded metrics into their reports.

2021: E.U.'s Sustainable Finance Disclosure Regulation

The European Union's Sustainable Finance Disclosure Regulation imposed requirements on describing funds with specific sustainable investment objectives that promote environmental or social characteristics and those that are non-sustainable. The rules introduced Principal Adverse Impact, which characterizes the negative impacts of investments on sustainability goals. By 2023, funds that promote sustainability must report on protecting water resources, transitioning to a circular economy, controlling pollution and restoring biodiversity.

2022: Tesla ejected from S&P 500 ESG Index

About a month after Tesla CEO Elon Musk began negotiating to buy Twitter, the maker of electric cars was cut from the S&P 500 ESG Index due to a "rebalance" and its "decline in criteria level scores" for lack of "low carbon energy and codes of business conduct," wrote Margaret Dorn, senior director and head of ESG indices in North America at S&P Dow Jones Indices (DJI). While the ESG score given to Tesla by S&P DJI "has remained fairly stable year-over-year, it was pushed further down the ranks relative to its global industry group peers," Dorn added in a May 2022 blog post.

Other reasons she cited for the company's removal from the index were claims of racial discrimination and poor working conditions at one factory, as well as Tesla's handling of a National Highway Traffic Safety Administration investigation into 17 injuries and one death linked to crashes involving the company's Autopilot feature .

2022: Consolidation of sustainability standards

Previously, the International Financial Reporting Standards (IFRS) Foundation maintained accounting standards for most countries, except the U.S. Now it initiated plans to create a global set of unified standards for sustainability disclosures. The Value Reporting Foundation, which took over management of the SASB Standards in 2021, and the Climate Disclosure Standards Board were both consolidated into the IFRS Foundation. It then created the International Sustainability Standards Board (ISSB) to develop the new standards while also overseeing the SASB ones.

Separately, the U.S. Securities and Exchange Commission (SEC) proposed new rules requiring publicly traded companies and businesses filing for stock offerings "to provide certain climate-related information in their registration statements and annual reports."

2023: EU's Corporate Sustainability Reporting Directive

A new European Union directive went into force, specifying that an estimated 50,000 EU companies and non-EU businesses operating in the region make annual disclosures on their business risks and opportunities related to social and environmental issues. The Corporate Sustainability Reporting Directive also requires affected companies to report on the impact their operations have on people and the environment. These reports should include information on human rights, anti-corruption, diversity and other environmental and social matters. The CSRD's reporting requirements take effect in stages from 2025 to 2029.

2023: ESG investing becomes a political issue in the U.S.

The U.S. Congress adopted a joint resolution to rescind a final rule issued by the Department of Labor in 2022 that allows retirement fund managers to consider ESG metrics in investment decisions. President Biden vetoed the measure, leaving the rule in effect. An ideological battle is unfolding between states that have embraced ESG-focused investing and states seeking to exclude it. Investors might gamble on better returns from ESG investments that take advantage of Inflation Reduction Act climate-related incentives.

2023: IFRS Sustainability Disclosure Standards

The ISSB released two reporting standards: one on sustainability-related financial information, and the other covering information about climate-related risks and opportunities. The IFRS Sustainability Disclosure Standards build on the SASB ones and also incorporate elements of other reporting guidelines and frameworks. For example, the TCFD recommendations are included. As a result, the TCFD handed off monitoring of their use to the ISSB and disbanded. Also, the CDSB Framework's technical guidance was used as "part of the evidence base" for the climate disclosure standard, according to the ISSB.

Separately, the Taskforce on Nature-related Financial Disclosures (TNFD) -- a group modeled on the TCFD -- published a set of 14 recommendations on disclosing financial information connected to nature and biodiversity issues. The ISSB is now looking into how it can build upon the TNFD recommendations as part of its standards.

2024: SEC climate risk disclosure rules finalized but stayed

The SEC finalized the rules on climate risk disclosures for publicly traded companies that it first proposed in 2022. The new rules would require companies to disclose climate-related risks that have a material impact on their business strategies or financial performance. Information on actions to mitigate or adapt to the risks would also need to be reported. But multiple legal challenges were filed against the rules, which prompted the SEC to voluntarily put their implementation on hold while the lawsuits proceed.

2024: EU's Corporate Sustainability Due Diligence Directive

Another sustainability-related measure went into force in the EU: the Corporate Sustainability Due Diligence Directive (CSDDD). Starting in 2027, it will require qualifying companies to identify and act on adverse human rights and environmental impacts. The CSDDD applies to both internal operations and supply chains. It also requires annual reporting on due diligence activities, which companies subject to the CSRD are expected to include in those reports.

Future of ESG investing

The ESG landscape will continue to evolve rapidly. There has been a significant regulatory shift in climate-related disclosures during the last few years that will likely continue, observed Rita N. Soni, principal analyst for impact sourcing and sustainability at Everest Group. Central banks around the globe, for example, are planning to proceed with climate stress tests.

ESG investing and regulation will continue to expand and cover more topics, said Sammy Lakshmanan, ESG principal at PwC. Much of the focus in the U.S. is currently on climate, while the EU's ESG reporting is expanding to include areas like waste, circular economy, biodiversity, diversity and inclusion. "This means that enterprises have to manage the increased regulatory reporting at a more granular level with greater complexity," Lakshmanan added.

To manage the growing number of metrics that were once voluntarily disclosed but are now required, CIOs will have to invest in the automation and industrialization of ESG data collection and metrics reporting. As a result, data processing speed, efficiency and interoperability will need to improve. To provide the required "verification and independent assurance," Lakshmanan said, "CIOs will also need to ensure the data has the right governance and controls in place."

This article was updated in August 2024 to add new information.

George Lawton is a journalist based in London. Over the last 30 years, he has written more than 3,000 stories about computers, communications, knowledge management, business, health and other areas that interest him.