Who Coined the Term ESG and What Did They Mean by It?

The acronym ESG — Environmental, Social, Governance — first appeared in a 2004 report titled "Who Cares Wins: Connecting Financial Markets to a Changing World." The report was produced by a coalition of major financial institutions under an initiative led by UN Secretary-General Kofi Annan. It was addressed not to corporate managers or regulators but to financial analysts, asset managers, and institutional investors — the people who allocate capital. Its core argument was simple, empirical, and consequential: companies that manage environmental, social, and governance factors well are better businesses, and analysts who ignore these factors produce incomplete and ultimately inferior investment analysis.

Quick definition: The term ESG — Environmental, Social, Governance — was formally coined in the 2004 "Who Cares Wins" report as a framework for integrating non-financial factors into investment analysis. The report argued that ESG integration would improve risk assessment, long-term returns, and sustainable capital markets outcomes.

Key takeaways

• "Who Cares Wins" was published in June 2004 by 18 financial institutions including Deutsche Bank, HSBC, Goldman Sachs, and Morgan Stanley, under UN auspices.
• The report argued that ESG integration was in investors' own long-term financial interest — making a financial case, not just a moral one.
• Prior to 2004, "SRI" (socially responsible investing) was the dominant framework; the ESG term shifted the framing from ethics to analysis.
• The report led directly to the launch of the UN Principles for Responsible Investment (PRI) in 2006.
• The shift from SRI to ESG framing had strategic significance: it made sustainable finance accessible to mainstream institutional investors who rejected explicitly "ethical" investment mandates.

The Context: Why 2004?

By 2003, three developments had created fertile ground for a new framework. First, the dot-com collapse and the Enron/WorldCom accounting scandals had demonstrated catastrophically that non-financial governance failures could destroy enormous shareholder value. The governance dimension of ESG was not an abstraction — it was a post-mortem on trillions of dollars in lost shareholder wealth.

Second, the scientific consensus on climate change was consolidating rapidly. The IPCC's Third Assessment Report (2001) had established with high confidence that human activities were the dominant cause of observed warming since the mid-20th century. Some institutional investors were beginning to question whether fossil-fuel-intensive business models were financially resilient in the face of likely policy responses to climate change.

Third, the anti-globalization movement and supply-chain labor scandals in the late 1990s had put social responsibility on the corporate agenda in a new way. Nike's sweatshop controversies, Shell's Brent Spar crisis, and Monsanto's GMO controversies had demonstrated that reputational risk from social and environmental failures was real, financial, and hard to manage after the fact.

Kofi Annan saw an opportunity to harness these converging pressures into a framework that financial markets could adopt. In 2003, he sent letters to the CEOs of the world's largest financial institutions inviting them to participate in a joint initiative to develop guidelines for integrating ESG factors into investment analysis. The response was positive — 18 major institutions committed to the process.

The "Who Cares Wins" Report

The report was released at the UN Global Compact Leaders Summit in Geneva on June 24, 2004. Its central argument was articulated in its subtitle: connecting financial markets to a changing world was a matter of financial self-interest, not corporate philanthropy.

The report made three specific arguments that distinguished it from prior SRI frameworks:

First, a financial materiality argument: Environmental, social, and governance factors affect a company's long-term financial performance. Climate risk affects asset values. Social license issues interrupt operations. Governance failures destroy value. These are financial risks, and analysts who ignore them produce inferior financial analysis.

Second, an analyst engagement argument: The report was explicitly addressed to financial analysts and portfolio managers. It asked them to incorporate ESG factors into research methodologies, equity valuations, and investment recommendations — integrating ESG into mainstream investment analysis rather than segregating it into a specialized "SRI" product category.

Third, a market ecosystem argument: Better ESG analysis by mainstream investors would create better price signals for companies, rewarding good ESG management with lower costs of capital and punishing poor management with capital penalties. This would create systemic incentives for corporate improvement — making markets more efficient and long-term oriented.

The lineage of ESG framing

The Framing Shift: From SRI to ESG

The terminological shift from SRI to ESG was strategically significant. "Socially responsible investing" carried connotations of values-based exclusion, religious foundations, and performance sacrifice — all of which created resistance among mainstream institutional investors. Many pension fund trustees and endowment investment committees operated under a fiduciary framework that made them deeply reluctant to adopt investment approaches that could be characterized as prioritizing ethical preferences over beneficiary financial interests.

"ESG integration" offered a different framing. Rather than excluding industries or companies on ethical grounds, ESG integration analyzed environmental, social, and governance factors as risk and return drivers — as inputs to a complete financial analysis rather than as constraints imposed for non-financial reasons. A mainstream institutional investor could adopt ESG integration without appearing to compromise their fiduciary mandate; they were simply doing better fundamental analysis.

This reframing was crucial to ESG's subsequent growth. By presenting sustainability considerations as a financial analysis issue rather than an ethics issue, "Who Cares Wins" opened the door for pension funds, sovereign wealth funds, and mainstream asset managers who would never have adopted a products labeled "socially responsible."

The Path to the PRI

"Who Cares Wins" was explicitly designed as a foundation for something larger. Its authors intended it to stimulate the development of investment principles — commitments by institutional investors to integrate ESG into their analysis. That process accelerated when the report's release was followed by a second Kofi Annan initiative: an expert group of institutional investors convened in 2005 to develop voluntary principles for responsible investment.

The UN Principles for Responsible Investment launched in April 2006 at the New York Stock Exchange, with 63 founding signatories managing approximately $6.5 trillion in assets. The PRI's six principles — committing signatories to incorporate ESG into analysis, be active owners, seek ESG disclosure, promote the principles, collaborate, and report — translated the "Who Cares Wins" framework into institutional commitments with annual reporting requirements.

The trajectory from that 63-signatory launch to the 5,000+ signatories managing $120+ trillion by the mid-2020s is the story of ESG's mainstreaming — a two-decade expansion that the 2004 report set in motion.

Real-world examples

Deutsche Bank ESG research (2005): Following its participation in "Who Cares Wins," Deutsche Bank's equity research division began developing ESG-integrated sector research reports — among the first systematic ESG research products from a major investment bank. The work established the template for equity analyst incorporation of ESG factors that eventually became standard practice.

Goldman Sachs 360° research, 2007: Goldman Sachs published "Introducing GS Sustain," a framework for identifying companies with structural long-term competitive advantages by integrating ESG management quality with fundamental analysis. The publication by a top-tier bulge-bracket firm signaled that ESG integration had moved from the SRI fringe to mainstream institutional investment practice.

HSBC Climate Change Centre (2007): HSBC, a "Who Cares Wins" signatory, established a dedicated climate change research team within its equity research division, publishing sector analyses of climate risk across utilities, energy, real estate, and insurance. The work was the prototype for the climate-integrated equity research now standard at most major investment banks.

Common mistakes

Conflating ESG integration with ethical exclusion: The "Who Cares Wins" report explicitly rejected the exclusion model as its primary framework. ESG integration, as originally conceived, is about incorporating ESG factors into financial analysis — not about excluding sectors or companies. The two approaches share intellectual roots but operate through different mechanisms.

Treating "Who Cares Wins" as the starting point of ethical investing: The report coined a term and reframed a concept. The underlying practices — analyzing non-financial business factors, engaging with companies on environmental and social issues, screening for governance quality — had been developed by faith-based investors, CERES, and the ICCR over decades. The 2004 report made them analytically respectable and institutionally accessible, but did not invent them.

Assuming the ESG financial case is settled: "Who Cares Wins" made the argument that ESG integration would improve investment outcomes. Whether the empirical evidence has borne that out is a live, contested, and genuinely uncertain question — as Chapter 11 of this book addresses in detail.

FAQ

Who were the 18 financial institutions in "Who Cares Wins"?

The 18 founding institutions included ABN AMRO, Aviva, AXA, Calvert, Credit Suisse, Deutsche Bank, Goldman Sachs, Henderson Global Investors, HSBC, IFC (International Finance Corporation), Insight Investment, Morgan Stanley, Rabobank, Royal Bank of Canada, UBS, and Westpac Banking Corporation.

Did any major firms refuse to participate?

Several major US asset managers declined participation, some citing concerns that ESG integration could conflict with fiduciary duty or that the UN imprimatur was politically uncomfortable for their clients. The relative underrepresentation of large US passive managers — Vanguard, Fidelity — in early ESG frameworks is notable.

Was the term "ESG" used before 2004?

The three categories of Environmental, Social, and Governance factors were recognized in prior SRI frameworks, but the specific acronym ESG and its framing as a financial analysis tool appear to have originated in the "Who Cares Wins" report. Earlier SRI literature used "non-financial factors," "extra-financial factors," and specific terms like "corporate governance" rather than the ESG shorthand.

How did the report define ESG materiality?

The report argued that ESG factors were financially material when they had a plausible pathway to affect financial performance — revenues, costs, asset values, or liabilities. It did not specify which factors were material for which industries, leaving that to subsequent analytical development. The SASB standards, developed in the 2010s, provided the industry-specific materiality map that "Who Cares Wins" implicitly called for.

Is the "Who Cares Wins" report available publicly?

Yes. The original report and subsequent related documents are available through the UN Global Compact and the PRI. The report's arguments remain foundational reading for anyone entering the ESG investment field.

Related concepts

• The UN PRI Launch
• ESG as a Risk Framework
• The Performance Debate
• Origins of SRI
• Mainstreaming ESG in the 2010s
• ESG Glossary

Summary

The 2004 "Who Cares Wins" report gave sustainable finance its name and its mainstream institutional framing. By arguing that ESG factors were financial analysis inputs rather than ethical constraints, it opened the door for mainstream institutional adoption. Its direct legacy — the UN PRI, with 5,000+ institutional signatories managing $120+ trillion — is one of the most consequential intellectual contributions to finance in the early 21st century. Whether the financial case ESG integration has proved out empirically remains contested, but the framework it created is now embedded in the architecture of global capital markets.

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