In 2004, the United Nations Global Compact formally proposed Environmental (E), Social (S) and Governance (G) for the first time in its report Who Cares Wins, aiming to use the ESG to appraise the sustainability of business operations and their impact on social values, and guide enterprises to use non-financial factors to shape their influence on environmental protection, social responsibility and corporate governance.
Sustainable development provides a set of universal standards and objectives for the government, society, organizations, enterprises and citizens, with different specific requirements for different subjects; while the ESG mainly targets enterprises in the capital market, and is regarded as a new and clear investment strategy and a set of framework standards to measure the level of sustainable development. The introduction of ESG has enabled the goal of sustainable development to be further implemented in the capital market, which provides quantitative indicators for the banking industry to optimize the investment and financing structure, lead green finance, and promote high-quality development.
The traditional social responsibility theory mainly emphasizes the corporate contribution to the society and shows the obligation of corporate social responsibility. But, on the basis of absorbing the traditional corporate responsibility, the ESG theory further integrates environmental and social issues into the whole process of corporate governance, emphasizing the returns of ESG practice in the long-term corporate operation. At the same time, the ESG theory provides measurable, analyzable, and comparable framework standards for the capital market, which further opens up the communication path between enterprises and the capital market by facilitating enterprises to implement the ESG theory and markets and to evaluate the ESG, attracting all parties to actively participate in the ESG governance and reform.
There are dozens of international NGOs who have developed ESG reference frameworks, among which the following are the main and highly adopted ones:
1) GRI Sustainability Reporting Standards of the Global Sustainability Standards Board (GSSB)
2) International Organization for Standardization (ISO) No. 26000: Social Responsibility Guide Standards (ISO260000)
3) Task Force on Climate-related Financial Disclosures (TCFD)
4) Carbon Information Disclosure Project (CDP) Standards
5) Sustainability Accounting Standards Board (SASB) Standards
6) International Integrated Reporting Council (IIRC)
7) Global Environmental Information Reporting Standards of Climate Disclosure Standard Board (CDSB)
At present, the mainstream ESG rating agencies in the world mainly include the MSCI, Standard & Poor’s Global, Carbon Disclosure Project (CDP), FTSE Russell, Bloomberg ESG and Refinitiv (TR).
On the basis of corporate ESG rating, the first international ESG index, Domini 400 Social Index (now MSCI KLD 400 Social Index), was first launched by a research institute KLD in 1990. After 30 years of development, there are currently more than 2000 ESG related indexes for investors to choose from, covering stock index, fixed income index, both regional index and global composite index, and a series of derivative financial products have been generated from them, among which the influential ones are the MSCI ESG Index, Dow Jones Sustainability Index and FTSE ESG Index.
MSCI ESG rating: A (for three consecutive years, being the highest level among domestic banks)