Have you ever considered that every investment decision you make has the potential to add to the haze, or bring blue skies? Responsible investing allows you to make investments that bring positive value to the environment and society in which we live. Responsible investing is the process of incorporating environmental, social and governance (ESG) factors into the evaluation of investment decisions, in addition to financial return considerations. In recent years, international capital markets have shown increasing interest in the concept of responsible investment, and more and more investors and asset management companies are introducing ESG factors into the framework of company research and investment decisions.
ESG investment philosophy is a term that has become more popular in the last decade. Prior to that, the terms ethical investing, responsible investing, green finance, and sustainable finance were mostly used to refer to ESG investment concepts. These terms are not exactly equivalent, but they are broadly similar.
In the West, the birth and development of green finance has gone through a relatively long process. The core roots can be traced back to the golden economic growth experienced by developed countries after World War II, when problems such as environmental pollution and resource shortages began to emerge. As a result, in the 1960s and 1970s, public environmental movements began to emerge in Europe and the United States to protest against the uncontrolled use of resources and environmentally damaging business practices. These movements made green a value 0rientation, and this value 0rientation gradually influenced public consumption choices, with some consumers preferring green products and even willing to pay a premium for green. In this way, environmental factors permeate from the public movement to the consumer sphere, giving rise to green consumption. Demand will stimulate supply, so companies will provide green products for their own benefit, including more attention to environmental issues in the production process. In this way, green consumption gradually stimulates the progress of green production. Concepts such as circular economy, green manufacturing, and total life cycle assessment (LCA) were created in the European and American markets during this period (1980s).
Since then, as more and more manufacturing companies began to focus on green production and green manufacturing, coupled with the improvement of environmental laws and regulations, investors have realized that corporate environmental performance may affect corporate financial performance. Thus, green finance began to enter the scope of investors' attention. In European and American societies, the more significant changes appeared in the mid to late 1990s and flourished in the new century. Against this backdrop, in 2006 the then UN Secretary-General Kofi Annan initiated the establishment of the Principles for Responsible Investment (PRI), one of the earliest and most important international organizations in the field of responsible investment. PRI is dedicated to promoting the inclusion of ESG indicators in investment decisions and helping PRI signatories to improve their capacity for responsible investment.
The general rule of "public movement-green consumption-green production-green finance" is the general rule of green finance development in western countries, which can also be called the general rule of ESG responsible investment development. With the development of ESG investment concept, major international index companies have launched ESG indices and derivative investment products. 1990, the world's earliest ESG index, Domini 400 Social Index (later renamed as MSCI KLD 400 Social Index), was released in the United States. Currently, there are MSCI ESG indices (Global/US/Emerging Markets), FTSE4Good indices and S&P Dow Jones Sustainability indices. Mainstream mutual funds have also issued ESG-themed funds, including BlackRock's MSCI US ESG ETF fund and Vanguard's FTSE Social fund. Most ESG responsible investment funds have maintained low volatility and provided more consistent value returns over a longer period of time than traditional investment funds.