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During the late 1960s, several individuals began asking whether institutional shareholders, particularly universities and churches, might apply pressure to corporations to behave better. These individuals were initially concerned about corporate complicity in the Vietnam War and in racist policies in South Africa. While a graduate student at the Yale Divinity School in 1968-69, I participated in the pioneering seminar led by John Simon, Jon Gunneman and Charles Powers, who first laid out the full case for social activism by shareholders. Their ideas on why and how universities should use their stock ownership to influence companies were eventually published in 1972 as The Ethical Investor: Universities and Corporate Responsibility, but their work had already had an impact on Yale and other leading universities. Also in the late 1960s, an investment manager at Burnham & Co. was thinking similar thoughts, offering perhaps the first social investment product, but later ranged even broader, to suggest both investors and consumers might use their purchasing power to pressure companies to address human rights, the environment and other issues. Alice Tepper Marlin had gathered around her economists and investment professionals with similar interests, and in 1969 founded the Council on Economic Priorities (CEP). CEP (later known as Social Accountability International) is perhaps best known for its appeal to consumers to buy only from ethical companies. Their guide Shopping for a Better World was first published in the 1980s and new editions are still offered. The use of shareholder resolutions for social purposes was pioneered in 1970 by a group of activists who launched a campaign to put many of the Yale team’s ideas to work, submitting two shareholder resolutions to General Motors asking the company to appoint three new public board members and to create a Shareholder Committee on Corporate Responsibility. Calling themselves The Campaign to Make General Motors Responsible, or Campaign GM, they solicited shareholder support from universities and churches, asking them to vote their shares for these “social proxy resolutions.” Campaign GM provoked an intense decade of shareholder proxy resolutions and led universities and churches to both submit resolutions and create committees or other mechanisms to decide how to vote resolutions submitted by others. At Stanford, where I was then in graduate school, I represented the student government in 1970 to urge Stanford’s Trustees to back Campaign GM. Stanford abstained but eventually created a Presidential Commission on Investment Responsibility to recommend action to the Trustees. I headed the Commission twice in the late 1970s and early 1980s as a young faculty member. The moral argument that one should use their shareholder power for good social ends was most strongly embraced by religious institutions. Several major denominations, led by the U.S. Episcopal Church and an increasing number of Catholic religious orders, organized as the Interfaith Center on Corporate Responsibility (ICCR) in 1970 to coordinate church activity. They selected Tim Smith, a clergyman, to become executive director, a position he held for 24 years. Smith worked with the ICCR members to file hundreds of social resolutions in large companies over the next 20 years. Any assessment of social resolutions must acknowledge that rarely did they win more than a small percentage of shareholder support. Nonetheless, they highlighted particular issues and corporate behavior. Many companies engaged in direct dialogue with the activists, making marginal or even significant changes in their practices. The next milestone in social investment history was the creation of mutual funds which sought social objectives, initially by creating “negative screens” to avoid investment in companies producing war material, or what some called “sin stocks.” The Pax World Fund, the first publicly available mutual fund using social and environmental, as well as financial criteria, was created in 1971 by two Methodist ministers active in the anti-war effort. Clean funds proliferated rapidly, serving institutions like churches and universities, but also a growing number of individuals who wished to pursue social and environmental ends in their ownership. Social investment funds have grown steadily in the past 50 years, with estimates of $30 billion directly in such funds in 2024, and several trillion dollars in standard investment pools which use one or more social criteria. The Social Investment movement spun off ways for companies to work together to bring social change, particularly in “principles organizations.” The Sullivan Principles, launched in 1977 by the Rev. Leon Sullivan, an African-American member of the General Motors board, was created to enable cooperative corporate efforts to apply pressure to the Apartheid regime in South Africa, a demand made by an increasing number of institutional investors. In subsequent years, other “principles organizations” promoted joint corporate efforts in human rights, environmental management and other fields. The creation of such principles organizations also provided the basis for many social proxy resolutions as companies were urged to become signatories to specific principles initiatives. An increasingly sophisticated and effective cadre of leaders in social investment advanced the practice of social investment during the 1980s and 1990s. One of the most prominent was Joan Bavaria, who founded Trillium Asset Management in 1982. In 1989, she formed an alliance of leading environmentalists with the goal to change corporate environmental practices, called the Coalition for Environmentally Responsible Economies, or CERES. In the wake of a major oil spill by the Exxon Valdez tanker in Alaska that same year, CERES announced the Valdez Principles, and pressed companies to sign onto its ten principles. As social investing grew, there was an increasing demand for data on which to base investment choices of “responsible companies.” This led to the founding of multiple “rating organizations.” The first prominent ratings agency in the U.S. was KLD, founded by Peter Kinder in 1988, but it was followed by dozens of others, in the U.S., U.K. and elsewhere. I served on the advisory board of the first French ratings agency. It was created to meet the demand for ratings following passage of a French law requiring all money managers to assess the social performance of firms in their portfolio. There were several efforts to consolidate the multiple social ratings criteria. The most successful was the Global Reporting Initiative (GRI), championed by Bavaria’s successor at CERES, Bob Massie, and Alan White of the consulting agency Tellus Institute. The GRI was launched in 1997 and rapidly became the most widely used measure of social or ESG performance. A 2022 survey by KPMG indicated that more than 10,000 firms followed GRI reporting standards, including 78% of the world’s 250 largest companies. In 2003, leadership at CERES passed from Bavaria and her successor Bob Massie to Mindy Lubbers, a former Regional Administrator of the US Environmental Protection Agency and founder of Green Century Capital Management, a social investment firm. Lubbers used her extensive experience and network to move social investment to become “standard practice” in investing, and thereby became one of the most influential figures in social investing since 2000. Lubbers focused her efforts on mainstream Wall Street investment managers, arguing that climate and other social considerations were legitimate areas of financial risk. UN General Secretary Kofi Annan embraced the responsible business and social investing movement with two initiatives in the 2000s. In 2000, he launched the UN Global Compact which asked companies to sign onto 10 principles addressing labor standards, environmental practices and human rights. In 2006, he invited a group of the world’s largest institutional investors to develop what became known as the Principles for Responsible Investing (PRI). The legitimation of social investing was widely apparent in the 2010s. Most money managers came to offer one or more funds that followed social criteria. In addition, it became standard practice at many money managers to query new clients for their social criteria to inform the investments selected for them. In the 2010s, two new terms emerged to describe social investment—impact funds and ESG. What had been called social funds were increasingly called social impact funds or just “impact funds.” Needing a term to describe the growing list of criteria and concerns embraced by social investing, a shorthand developed to describe those concerns. ESG (environment, social and governance) was increasingly adopted. The entire social investment movement was increasingly called the ESG movement. Companies too embraced the term, describing their social and environmental efforts as ESG programs. After a 30-year period of steadily increasing acceptance of social investment, the 2020s have seen a pushback against ESG from conservative politicians and free-market economists. With mainstream investment managers using social criteria and touting their ESG credentials, conservative politicians such as Governor Ron DeSantis of Florida demanded that investment managers of state investment funds NOT use ESG criteria. Other conservative politicians followed and banned firms that included ESG criteria from participating in state bond offerings. Particular criticism focused on BlackRock, the world’s largest asset management firm, with thousands of clients worldwide. BlackRock’s CEO, Larry Fink, had become the most prominent spokesperson for ESG criteria, arguing that good ESG performance would lead to the best investment performance. Fink wrote highly publicized public letters annually from 2012 on (see here) to the CEOs of all firms in BlackRock’s portfolio, urging their adoption of social and environmental concerns. As of late 2024, BlackRock managed $11.8 trillion. In the wake of this barrage of criticism, BlackRock and some other firms have downplayed their use of ESG criteria, though many were assumed to be continuing their existing practices. And with the growing threat of climate change, many observers believe social investing, perhaps without the ESG label, will make a comeback after the second presidential term of Donald Trump.
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