Environmental governance audit
Introduction
ESG criteria[1] (for its acronym in English “environmental, social and corporate governance”, which translates to Environmental, social and governance, ESG) are an approach to evaluate the extent to which a corporation works on behalf of social objectives that go beyond its role of maximizing profits on behalf of its shareholders. In general, the social objectives defended from the ESG perspective include working towards a certain repertoire of environmental objectives, as well as those in support of certain social movements and a third group of support for movements that, with respect to diversity, propose equity and inclusion.[2].
A variety of government organizations and financial institutions have devised ways to measure the extent to which a specific corporation is aligned with ESG goals. The most prominent global movement in this regard is the adoption of 17 Sustainable Development Goals (SDGs) by the United Nations in 2015.[3] The term ESG was first popularly used in a 2004 report titled "Who Cares, Wins", which was a joint initiative of financial institutions at the invitation of the UN.[4]The report has been endorsed by 20 leading institutions.
In less than 20 years, the ESG movement has grown from a corporate social responsibility initiative launched by the United Nations to a global phenomenon representing more than $30 trillion in assets under management. In 2019 alone, capital totaling $17.67 billion flowed into ESG-linked products, an increase of nearly 525% from 2015, according to Morningstar. Critics say that ESG-linked products have not had - and are unlikely to have - the desired impact on increasing the cost of capital for polluting companies,[7]and have accused the so-called "Greenwashing" movement.[7].
History
Historical decisions about where financial assets would be placed were based on several criteria, with financial performance being predominant.[8] However, there have always been many other criteria for deciding where to put money, from political considerations to heavenly rewards. It was in the 1950s and 1960s that the vast pension funds, managed by unions, recognized the opportunity to affect the broader social environment using their capital assets[9]. In the United States, the International Brotherhood of Electrical Workers (IBEW) invested its considerable capital in the development of affordable housing projects, while the United Mine Workers invested in healthcare facilities.[10].