Ex-Tabloid Reporter Who Coined ESG Label Says Backlash Is Good

It may be hard to imagine that ESG, now a hotly debated topic in American politics, traces its roots back to a former UK tabloid reporter and a 45-minute meeting in a fifth-floor office in Geneva.

There, he and a small team of United Nations staffers coined in 2004 what’s now become one of the most controversial acronyms in finance. Their aim was to get investors and bankers to weigh key risks such as the earth’s rising temperatures, labor disputes and corporate malfeasance, and determine their impact on profits. Using the language of the capital markets — risks and opportunities — ESG was meant to pivot away from socially responsible investing and appeal to Wall Street.

But then ESG morphed into a label that was everywhere, and it came to mean different things to different people. The three letters were added to stock funds, bond issues, corporate ratings and Wall Street derivatives worth trillions of dollars, creating confusion and disagreement that left the acronym vulnerable to attack.

First, industry insiders criticized environmental, social and governance investing claims for being little more than a marketing gimmick. Regulators were next to crack down on money managers making hollow claims. And then the Republican onslaught began, with US presidential hopefuls saying ESG is something peddled by “left-wing radicals,” while states including Florida pulled money from BlackRock Inc., Wall Street’s biggest ESG proponent. With the backlash reaching fever pitch, sustainable investors called for a course correction. Others sounded the death knell for the acronym.

Bemused by the assault is Paul Clements-Hunt, who led the UN team that created the ESG label more than 18 years ago. He said the attacks on their invention are in fact a “good thing.” Rather than being upset, he said he’s decided to “relax and enjoy the warring parties attack and defend ESG in equal measure.”

“It was giving the concept huge amounts of free airtime,” Clements-Hunt, 57, said in an interview.