Supporters of environmentally and socially responsible models of capitalism have gained momentum in recent years. However, they have faced opposition from red-state politicians in the US, who have blacklisted banks and asset managers that they believe are boycotting fossil fuels. Additionally, brands like Bud Light and Target have come under fire for their marketing efforts towards LGBTQ consumers. Certain Republicans have even made a “war on woke” a central theme in their 2024 presidential campaigns.
This backlash has placed many companies and investors in an unwanted and sometimes costly spotlight. However, it is not achieving the desired results. Anti-ESG measures have been scrapped or weakened in Republican-led states, and newly formed anti-ESG funds have raised insignificant amounts of money. Furthermore, proposals from conservative shareholders at annual meetings this year have largely failed, with anti-ESG resolutions receiving only 2.6% support on average, according to the Sustainable Investments Institute.
Outside of the US, this backlash has even less impact. Despite this, there are indications that asset managers are starting to doubt their belief that social and environmental stewardship should be part of their mandates due to pressure from the right. Analysis by the Sustainable Investments Institute shows that less than a quarter of shareholders supported resolutions calling for more action on climate change or human rights this year, a significant decrease from 2022. The weak support for environmental resolutions at meetings held by ExxonMobil and Chevron may also be attributed to the rise in fossil fuel stocks following Russia’s invasion of Ukraine.
Some argue that the hesitance of asset managers to support these resolutions stems from their belief that many activist proposals are too narrow in focus. However, their reluctance to back such resolutions risks fueling public skepticism about their commitment to environmental and social issues.
There are legitimate debates to be had about the commercial, practical, and moral roles that business and finance should play in addressing environmental and societal challenges. However, with setbacks being experienced by both advocates and opponents of ESG, it is time to shift these debates away from left-right politics.
Business leaders who are tempted to shy away from controversy by engaging in “green hushing” must instead make a strong case if they genuinely believe that the principles of stakeholder capitalism and ESG investing are good for business. The costs associated with climate-related disruptions, dissatisfied employees, or supply chain scandals are tangible. Working to mitigate these risks while also responding to the increasing demands for businesses to take action is not solely a left-wing agenda.
ESG investing itself is a flawed concept, attempting to encompass too many issues under one marketable acronym. It may be worth considering the separation and evaluation of its individual components. The success achieved by opponents in highlighting contradictions and hypocrisies in ESG should serve as a motivation for supporters to reflect on why it has been so susceptible to attack. This calls for a renewed focus on the fundamental responsibilities that companies have towards their employees, the planet, and their shareholders.
By doing so, and by acknowledging the flaws of ESG while seeking common ground between its critics on both the left and right, it may be possible to rescue a crucial debate about the role of business in the world from the extremes of partisan battles in the United States. However, those who believe in a cleaner, fairer, and more sustainable form of capitalism still have work to do in order to demonstrate that their motives are driven by the long-term interests of their companies rather than ideology.
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