March 22, 2023
The term ESG (environmental, social and governance) has taken on a new identity in a politically polarized America. Some conservatives have associated the ESG label with woke and as such something to be targeted as representative of government overreach into what’s in the best interests of investors.
ESG-related investment funds are not a new concept, nor is the practice of evaluating the impact of organizations on our environment, the community and how ethically organizations govern their operations.
What is new are challenges from the Right on the perception that leftist government and large investment organizations such as BlackRock are advocating for attention to ESG risks and opportunities, potentially to the detriment to a public company’s financial performance.
BlackRock’s position seems to have moderated in its most recent CEO letter, perhaps in response to the political pressure. The key quote from his letter is “As I have said consistently over many years now, it is for governments to make policy and enact legislation, and not for companies, including asset managers, to be the environmental police.” A different tone than from years past, to be sure.
As the political season arrives in earnest later this year, here are three things to remember as the debate over ESG potentially grows louder and remains polarized:
1. Employees are aware of your commitment to sustainability and will watch how your decision-making evolves as political pressure mounts on both sides. Many companies are focused on promoting and maintaining sustainability as a corporate value and to change course now could have unforeseen impacts on employee perceptions and goodwill.
2. Sustainability reporting isn’t going away anytime soon. Organizations of all sizes have made long-term commitments to their ESG or sustainability strategies and to reporting regularly on their progress.
3. The Securities and Exchange Commission (SEC) is working to finalize new rules to govern climate disclosures for public companies (and perhaps diversity, equity and inclusion and cybersecurity disclosures to come later). More political theater and litigation are likely to follow if the rules are enacted. The outcome of the next general election in November 2024 will likely determine whether the rules become fully implemented or fade away.
As many organizations continue to invest in and refine their ESG strategies, commitments and reporting, the political backdrop will be an important trend to watch as this year and next year progress. If you’d like to talk about how to keep your ESG strategy out of the political fray and away from social media trolls, please contact me.