Sustainable (AKA ESG) and impact investing have a long and rich history, dating back to the earliest days of responsible investment and socially responsible investing (SRI). Over the years, these concepts have evolved and matured, and today sustainable and impact investing are two of the fastest-growing segments of the investment world.
The earliest forms of sustainable and impact investing date back to the late 1700s, when the Quakers, a religious group known for their commitment to social justice and peace, began using their investments to support causes they believed in. This early form of responsible investing was focused on avoiding investments in companies that were involved in activities that were contrary to the Quakers’ values, such as the slave trade.
In the late 1900s, the concept of socially responsible investing emerged, which was focused on using investments to promote social and environmental causes. Several events during this time, including the Vietnam War, the oil crisis, and apartheid, had significant impacts on the direction of sustainable and impact investing. Each of these events marked a turning point in the way the world approached social and environmental issues and sparked the beginning of a movement towards responsible investing.
During the Vietnam War, a growing number of individuals and organizations became concerned with the social and environmental impact of their investments. Many were concerned with the idea that their investments were being used to fund a war that was causing widespread destruction and human suffering. In response, some investors began to divest from companies that were seen as contributing to the war effort, and the anti-war movement helped to popularize the idea of socially responsible investing.
The oil crisis of the 1970s was characterized by global economic recession and sharp increases in oil prices due to the actions of the Organization of the Petroleum Exporting Countries (OPEC) cartel. The oil crisis created an urgent need for alternative sources of energy and increased public awareness of the environmental consequences of our reliance on fossil fuels. In response to these challenges, a growing number of individuals and organizations began to explore sustainable and impact investing as a way to invest in environmentally friendly technologies and practices. This allowed investors to support the transition to a more sustainable energy future, while also generating financial returns.
The oil crisis also led to the creation of several other initiatives aimed at promoting sustainable and impact investing. For example, the United Nations established the Global Environment Facility (GEF) to support sustainable development projects in developing countries, and the World Bank created the International Finance Corporation (IFC) to promote private sector investment in these countries.
While the oil crisis focused more on environmental concerns, the apartheid regime in South Africa sparked a global movement to address human rights and social justice issues through investment practices. Investors and activists called for divestment from companies that were seen as supporting apartheid and investing in companies that were dedicated to promoting equality and social justice. This movement helped to bring attention to the role that investments can play in shaping the world and led to the creation of the modern field of sustainable and impact investing.
Related to the movements pushed during these events, the term “sustainable investing” was first used in the 1980s. In the 1980s and 1990s, sustainable investing was primarily focused on avoiding investments in companies that were harmful to the environment or involved in unethical practices, such as tobacco and firearms. SRI focused more on this “negative screening” as opposed to being invested in companies that were committed to positive social and environmental outcomes.
In the early 2000s, sustainable investing evolved to include a positive screening approach, where investors sought out companies that were making a positive impact on the environment and society. One of the key drivers of this shift was the increasing recognition of the business case for ESG considerations. Studies and reports from organizations such as the UN-supported Principles for Responsible Investment (PRI) and the Global Reporting Initiative (GRI) demonstrated that companies with strong ESG practices tended to have better financial performance, lower risk, and higher long-term value. This evidence challenged the traditional notion that ESG considerations were in conflict with financial returns, and instead showed that they could be aligned.
As a result of these developments, positive screening began to gain traction among investors, who sought to capture the benefits of ESG-focused investing while also achieving their financial goals. As the concept of SRI evolved, the term “sustainable investing” or “ESG investing” began to be used to describe a broader range of investment strategies that aim to achieve both financial returns and positive social and environmental impact. This includes impact investing (first used in 2007), which is focused on investing in companies and projects that have the potential to generate measurable, positive impact in specific areas, such as affordable housing or microfinance.
Over the past decade, impact investing has gained significant momentum, with more and more investors seeking investment opportunities that have the potential to create positive social and environmental impact, while also providing financial returns. For example, the Global Impact Investing Network (GIIN) has estimated that the global impact investing market has reached USD 1.164 trillion, making this the first time the organization's widely referenced estimate has exceeded the USD 1 trillion milestone. The growth of impact investing has been driven by several factors, including increased awareness of environmental and social issues, the availability of impact investment products, and the development of impact investing standards and metrics.
Today, sustainable and impact investing has become a mainstream investment strategy, with investors of all sizes and backgrounds seeking opportunities to create positive impact through their investments. The industry is continuing to evolve, with new investment products and strategies being developed, and the impact investing market is expected to continue to grow in the years to come. Whether you are interested in investing in specific sustainability challenges, such as clean energy or sustainable agriculture, or you are looking to support societal challenges, there are sustainable and impact investment options available to meet your needs.