Apartheid in South Africa was a policy that governed relations between the white minority and non-white majority for much of the latter half of the 20th century. It sanctioned racial segregation and political and economic discrimination against non-whites. Internationally, this gave impetus for a policy of divestment whereby individual and institutional investors pulled their money away from companies that had operations in South Africa. As part of this pressure, Rev. Leon Sullivan issued a set of six criteria for the treatment of workers by companies operating in South Africa. These were used to assess corporate social responsibility, and companies who did not follow these were targeted for divestment. By 1993, $625 billion worth of investments had been redirected from South Africa which contributed to the collapse of the apartheid system due to the economic instability that was created within the country. At the end of the century, the United Nations adopted an updated version of the “Sullivan Principles” for corporate social responsibility.
The 21st century has seen the introduction of many more funds and initiatives that operate in the socially responsible investment space. In 2006, the United Nations Principles for Responsible Investment (PRI) was launched and as of August 2021 had over 2,700 participating financial institutions. These institutions are signatories to the PRI’s six key principles for which they have to fill regular reports on their progress. These principles establish guidelines for mainstream investors to incorporate ESG into their investment practices. Many socially conscious investors are now going further and seeking to make a positive impact, taking a more forward-thinking approach. This trend was reinforced by the UN’s Sustainable Development Goals in 2015, these 17 goals were backed by all 193 UN member states and are a call to solve the world’s most pressing development challenges. These goals provided a springboard for impact funds that targeted investments that worked towards their solutions.
Today there is a wide “Spectrum of Capital” that covers investments from mild negative screens to high impact funds. The increasing availability of data has enabled a number of ESG rating agencies to develop products that give scores to companies and funds based upon their current practices. Much of this scoring focuses on the ESG risks rather than the doing of good or bad, but from this data ESG leader indices have been produced and a number of passive tracker funds and ETFs follow them. Although there is plenty of data, the application and use of it remains subjective and terms such as “greenwashing”, developed in the early 2000s, are used when investors feel the ESG case is spurious.
Investing in a socially responsible way is finally becoming the norm, yet its concepts and practices have been developing over 3,500 years. Its formation was entwined with religious beliefs which dominated people’s value systems, but today many more considerations are involved. What is important is that values and beliefs vary, and what may constitute as being ethical for one person is out of the question for another. Despite this history, investing based on personal ethics has long been on the fringes of investment management. When King & Shaxson first began running Bespoke portfolios in 2002 the market was very limited. Nearly 20 years later, after a year and a half of Covid-19, Black Lives Matter, climate protests and greater social consciousness, ESG credibility is at the forefront of the financial sector’s mind.
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This is an except from IFA Magazine’s comprehensive 2021/22 ESG report. To access the full report, please click here.
