The usage of the term ESG among investment practitioners – both owners and the mangers of capital – has risen spectacularly over the past decade, with a significant acceleration in recent years. Yet it can be argued that the increase in awareness has not, as one would expect, improved the clarity of the issue but has led to ambiguity. In large part this is due to an expansion of the topic itself. When it was first discussed under the label Socially Responsible Investment or SRI, the key elements centred around investing with ethics or morals in mind. SRI was appropriate for those investors – particularly charities – whose key objectives were aligned to the SRI issues. Without those key objectives and for investors like pension schemes, trustees struggled to justify the balance of a potential deterioration in return against the primacy of their financial objective. Indeed, this stance supported by legal analogy in the famous court case of Cowan v Scargill in 1985 where the Court denied the pension scheme’s objective of seeking to protect the industry in which its members worked by influencing its investment strategy.
