The recent actions to block the use of “green” filters by asset managers in a growing number of US states reflects a political backlash against mission-driven investment. This has great relevance for students of business and is likely to have long-term consequences for the US investment industry and its global competitiveness. While many investors and fund managers use ESG frameworks to identify promising investments that also advance social goals, some Republican lawmakers argue that they impose unnecessary constraints on corporations and undermine financial returns. At least 49 anti-ESG bills have been introduced in the US this year, with politicians accusing asset managers of failing to honour their fiduciary duty. Despite such attacks, there is resistance to ESG systems and suggestions that such “anti-woke” moves may serve no other purpose than political posturing.
As the CEO of an asset manager employing ESG methodologies, it is important to be proactive and engage in the US debates on ESG. It is crucial to balance societal goals with financial returns and to make clear that ESG factors can have a material impact on risk and returns.
If you were a board member of a US corporation, it would be important to respond positively to ESG reporting requirements. Companies that do not prioritize ESG factors risk reputational damage and legal action. Moreover, companies that embrace ESG frameworks can benefit from increased customer demand, access to capital, and enhanced employee retention.
For European institutional investors or corporations interested in developing business in the US, suggestions include actively engaging with US policymakers to promote ESG and emphasizing the business case for ESG. Furthermore, it is important to identify and partner with US counterparts who share the same ESG values.
Despite the acrimony in the US, the EU has pushed ahead with support for ESG. The Corporate Sustainability Reporting Directive, which requires companies that operate in the EU or have listed securities in the bloc to disclose their ESG activities, has been adopted. It mandates reporting not only by 50,000 companies based in the EU, but also their suppliers, including US-based companies.
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