Concept of sustainability
The so-called Brundtland Commission (UN World Commission on Environment and Development) formalized – in the report “Our Common Future”, 1987 – the concept of Sustainable Development. It defined it as a “development that meets the needs of the present without compromising the ability of future generations to meet their own needs”.
The concept of sustainable development calls for an integrated approach of the economic, social and environmental dimensions and recognizes that economic development cannot be achieved when the environment is degraded, nor can the environment be restored in the absence of economic development.
Since then, the idea of sustainable development and of sustainability have gained wide acceptance among:
- the international community (through various UN Summits leading to several binding treaties and other principle commitments),
- the business community (World Council on Sustainable Development, created in 1992, the UN Global Compact, launched in 2000),
- and the investment community (UN Principles for Responsible Investment, launched in 2006).
The UN PRI defines responsible investment as “an approach to investment that explicitly acknowledges the relevance to the investor of environmental, social and governance (ESG) factors, and the long-term health and stability of the market as a whole. It recognizes that the generation of long-term sustainable returns is dependent on stable, well-functioning and well governed social, environmental and economic systems”.
The idea of integrating environmental or social considerations in the investment process is almost as old as investment itself. However, it is common to say that the modern history of sustainable investment (at that time usually called ‘ethical investment’) started in 1928 with the launch of the first screened mutual fund, the Pioneer Mutual Fund which excludes investment in tobacco and alcohol companies (see Pioneer Fund).
Until the 70’s, the practice was mainly to avoid investing in so-called ‘sin stocks’. Then the environmental movement, and also the anti-apartheid movement led to the consideration of new criteria in the investment decision-making process.
In 1999, Dow Jones, in association with SAM (a swiss-based asset management boutique specialized in sustainable investing, now part of Robecco) launched a family of sustainability indexes. The entry into a play of a major financial indexes and news provider accelerated the awareness and acceptance of sustainable investment among the mainstream financial community.
As of end of October 2015, more than 900 investment managers from all over the world have signed the UN PRI and developed an expertise and an offering in sustainability investing. The market has rapidly grown from a niche market of a few billions USD at the beginning of the century to a mainstream market of more than 20 trillions USD in 2014.