The ESG Minefield

As the 2024 presidential campaign approaches, a growing crowd of ESG detractors are making their voice heard and causing some business leaders to think twice about acting and communicating on the issue. Here are some trends we’re watching:

  • ESG gets political. GOP officials are increasingly embracing the battle against “woke capitalism.” Already in 2023, at least 49 anti-ESG bills have been introduced across the country, up from 22 last year, even as those index and pension funds labeled “woke” retain positions in fossil fuel companies. Many of the party’s presidential hopefuls, including former President Trump, former Vice President Mike Pence and Florida Gov. Ron DeSantis have publicly blasted the ESG movement. Vivek Ramaswamy, the founder of anti-ESG fund manager and proxy advisor Strive, even announced a long-shot bid for the 2024 Republican nomination.
  • Shifting allegiances. Republican state officials have taken on investment giants like BlackRock, State Street and Vanguard, threatening to pull billions in state money from those firms for considering climate and social equity concerns in their investing. With the help of conservative Democratic senators Jon Tester (MT) and Joe Manchin (WV), Republicans in the House and Senate passed a measure to repeal a Labor Department rule that allows retirement plan managers to include ESG considerations in their investments and shareholder rights decisions. While President Biden is expected to veto the bill, the move highlights Republicans’ willingness to oppose their traditional allies on Wall Street—and moderate Democrats’ willingness to capitulate on the issue when faced with competitive elections in conservative states.
  • Business leaders are taking notice. U.S. corporations and Wall Street’s largest institutions added language to their annual reports this year citing ESG as a material risk to their financial performance. And the three biggest index funds that regularly sway proxy votes have begun tempering their support for more prescriptive ESG shareholder proposals. Vanguard even went as far as to pull out of the Net Zero Asset Managers initiative, an industry-wide alliance to reduce greenhouse gas emissions.
  • Beyond the noise. Despite the anti-ESG efforts of a few high-profile Republicans on the national scene, some red states are ignoring the criticism. In Kentucky, pension plan executives said they would defy the state treasurer’s call for them to pull funds from financial services firms deemed hostile to energy companies because doing so would violate their fiduciary duty. The North Dakota House of Representatives struck down a similar bill that would have created a list of restricted financial institutions determined to “boycott Big Oil”.

Across industries, geographies and companies of all sizes, ESG – and the countermovement against it – will only grow in importance as we approach an election year. Companies should develop communications strategies and programs that are authentic and sustainable, and that protect perceptions of their brand across stakeholder groups.