The Roots and Rise of ESG

As the challenges of climate change and social inequality become more pressing, companies and brands are being held accountable for their role in building a fairer, greener future. Today, aligning with meaningful causes is more than a reputational strategy - it's a responsibility that reflects the expectations of consumers, investors, and society at large. This is where ESG - Environmental, Social, and Governance comes in.

ESG is a framework used to evaluate how a company performs on environmental impact, social responsibility, and governance practices. While it has recently gained widespread popularity, its origins stretch back several decades, shaped by social movements, investor concerns, and policy shifts.

A Look Back: The Early History of ESG

The roots of ESG lie in faith-based and ethical investing practices that date back centuries, but the modern ESG movement began taking shape in the 1950s. Economist Howard Bowen proposed that businesses should look beyond profit and consider their responsibilities to society. In the 1960s and 70s, civil rights activism, anti-war protests, and the first Earth Day in 1970 brought attention to the environmental and social impact of businesses.

In 1971, the launch of Pax World Funds introduced the first ethical investment fund in the U.S., which avoided investing in companies involved in the Vietnam War. Around the same time, global awareness of environmental issues began rising. The 1972 Stockholm Conference marked the first major international step toward recognizing environmental protection. This was followed by the 1987 Brundtland Report, which introduced the idea of “sustainable development,” and the 1992 Rio Earth Summit, where nations agreed on global action plans for sustainability and climate change. During this period, the financial world also began taking note. Pension funds started to invest more responsibly, recognizing that long-term sustainability affects long-term returns. ESG data providers like KLD and Innovest helped formalize how companies could be rated on ESG performance.

The ESG Shift in the 2000s

The early 2000s saw ESG evolve from an ethical concept into a practical business strategy. Corporate scandals such as Enron's collapse highlighted the importance of transparency and strong governance. In 2004, the United Nations, under Kofi Annan, pushed for integrating ESG into financial markets through the “Who Cares Wins” report, which linked ESG factors with long-term financial performance. This led to the formation of the Principles for Responsible Investment (PRI) in 2006, encouraging investors to incorporate ESG into their decisions.

Several ESG reporting frameworks also emerged during this time. The Sustainability Accounting Standards Board (SASB) and the Task Force on Climate-related Financial Disclosures (TCFD) were introduced to help companies disclose ESG-related risks and performance in a structured and comparable way. By the 2010s, ESG had gone mainstream, with many business leaders aligning their companies with the UN Sustainable Development Goals (SDGs) and publicly committing to stakeholder capitalism.

ESG in India: From Voluntary to Mandatory

India’s ESG journey officially began in 2009 with the Ministry of Corporate Affairs (MCA) introducing voluntary guidelines on corporate social responsibility (CSR). These emphasized ethical business practices, stakeholder care, environmental responsibility, and inclusive development.

This evolved into the National Voluntary Guidelines (NVG) in 2011, broadening the scope of responsible business conduct. In 2012, SEBI (Securities and Exchange Board of India) mandated the top 100 listed companies to submit Annual Business Responsibility Reports (ABRR).

The Companies Act, 2013 made CSR spending mandatory for certain large companies, setting a global precedent. Over time, SEBI extended ESG reporting to the top 500 listed firms. However, limited adoption prompted the government to introduce the National Guidelines on Responsible Business Conduct (NGRBC) in 2018. In 2021, India aligned its reporting framework with international standards like the Global Reporting Initiative (GRI) and the UN Global Compact (UNGC) by launching the Business Responsibility and Sustainability Report (BRSR), made mandatory for the top 1000 companies from 2022–23.

Recent years have seen further progress. In 2023, SEBI introduced the Core BRSR format, which simplified ESG reporting by focusing on 49 key indicators instead of hundreds. The move aims to make ESG disclosures more streamlined and comparable, linking financial outcomes to sustainability efforts. SEBI also began regulating ESG rating agencies, requiring them to be certified and thus ensuring greater transparency and reliability in ESG ratings.

India has shown alignment with global commitments too ratifying International Labour Organization (ILO) conventions on child labour, pledging climate action under the Paris Agreement, and participating actively in COP26 and COP28. Initiatives like the Framework for Voluntary Carbon Market in Agriculture encourage companies to invest in green projects by buying carbon credits, though guidance is still awaited on whether CSR funds can be used for such investments.

India also passed key legislation such as the Energy Conservation (Amendment) Act, 2022, and introduced the Green Credit Programme, signalling its intent to embed ESG deeply into policy and corporate conduct.

ESG Today and What Lies Ahead

Globally, ESG is no longer seen as optional. Companies and investors alike rely on ESG data to evaluate business performance beyond profits. For example, a company's carbon emissions per unit of revenue reflect its environmental footprint, while high employee turnover may signal poor labour practices.

Investment strategies now include ESG screening some exclude businesses that don’t meet ESG standards, while others actively invest in top ESG performers. Regulations are becoming stricter. The European Union has introduced the Corporate Sustainability Reporting Directive (CSRD), which mandates companies to disclose both their ESG impact and how ESG risks affect their business. Similar steps are underway in the U.S., Canada, Brazil, Australia, and Japan.

India is moving in parallel. SEBI’s 2023 initiatives like Core BRSR and the regulation of ESG rating agencies reflect a firm commitment to transparency and impact. Efforts to align ESG with national climate goals, carbon trading systems, and sustainability-linked finance tools point toward ESG becoming a central part of business governance in India.

While some policy clarifications like whether CSR funds can be used for environmental goals are still awaited, the broader trend is clear. ESG is evolving from a compliance checkbox to a strategic business imperative, offering not just reputational benefits, but long-term resilience and value creation for companies, investors, and society at large.

References

Macesar, A. F. (2025, April 26). A brief history of ESG. The Sustainable Agency. https://thesustainableagency.com/blog/the-history-of-esg/#Present

Vigolo, M., Baldasso, C., Silvestre, W. P., Bortolin, T. A., & Schneider, V. (2025). Evolution of the environmental, social, and governance (ESG) model: A review of its ascending trajectory. Caderno Pedagógico.

Liu, M., Lu, J., Zhao, C., Luo, J., Liu, Q., Wang, H., Fang, S., & Yang, Y. (2024). Antecedents and consequences of environmental, social, and governance: A bibliometric analysis based on the Web of Science database. Corporate Social Responsibility and Environmental Management.

Eccles, R. G., Lee, L.-E., & Stroehle, J. C. (2019). The social origins of ESG? An analysis of Innovest and KLD (SSRN Working Paper No. 3321503). Social Science Research Network

Hammond, P., & O'Brien, A. (2021). Pensions and ESG: An institutional and historical perspective. Social Science Research Network.

Dr. Reddy's Foundation. (n.d.). The evolution of ESG goals in India. https://drreddysfoundation.org/the-evolution-of-esg-goals-in-india/

IBM.(n.d.). History of ESG (Environmental, Social and Governance). IBMThink. https://www.ibm.com/think/topics/environmental-social-and-governance-history

TechTarget.(n.d.). What is ESG (Environmental, Social and Governance)? https://www.techtarget.com/whatis/definition/environmental-social-and-governance-ESG

‍

‍

‍