On a balmy day in Tampa this summer, Florida Governor Ron DeSantis took the stage and unleashed an attack on what he believed to be one of the most significant threats to the livelihoods and freedoms of sincere American citizens.
“In many ways, this is something that crushes the little guy,” he said. “So we want to make sure we’re on the side of the average people.”
DeSantis wasn’t talking about foreign aggression, high gas prices, inflation, pandemic lockdowns or even the Democratic Party.
Instead, he talked about the rise of ESG, a collective term in the corporate world used to indicate a company’s focus on things like climate change and diversity.
Standing in front of a banner that read, “Government of laws, not CEOs awake,” DeSantis scolded companies he said were trying to use their power to advance a liberal agenda.
“From Wall Street banks to huge asset managers and big tech companies, we’ve seen the corporate elite use their economic power to impose policies on the country that they couldn’t reach through the ballot box,” he said.
DeSantis then announced measures designed to reduce the role of ESG — or “environmental, social and governance” policies — in investing in Florida’s pension system. By doing so, he said, “he affirmed the authority of our constitutional system over the ideological power of business.” Besides fueling fears of globalism, it was a message that likely resonated with its base.
For nearly two decades, developed economies around the world have adopted ESG investment policies — setting ambitious goals to reduce carbon emissions, use more renewable energy, or add more diversity to the workforce — virtually without controversy.
But in recent months, what has become a simple piece of sustainability reporting in other parts of the world, along with the related term “stakeholder capitalism,” has emerged as the latest front in the culture wars in American politics.
Conservatives in the United States, who are closely tied to the oil and gas industry, are starting to get angry as companies and investment firms embrace efforts to reduce greenhouse gas emissions and address international and local inequalities. And in recent months, they’ve gone beyond rhetoric to punish companies that they say are overly focused on things they claim have nothing to do with bottom line.
“There’s a lot of politics around the term ESG right now,” said Reid Thomas, managing director at JTC, a fund manager. “You have different sides that push each other back.”
But even as the rhetoric heats up and executives brace for more attacks from Republican politicians, most companies and investment firms are holding out. Many business leaders say that as a long-term strategy, it’s in their best interest to invest in climate solutions and their workforce — and worth the short-term awkward public relations moments.
Larry Fink, the CEO of BlackRock, the world’s largest asset manager, is a frequent champion of ESG. He defended the company’s policies in his annual letter to CEOs this year.
“Stakeholder capitalism is not about politics,” he wrote. “It is not a social or ideological agenda. It is not ‘awake’. It’s capitalismdriven by mutually beneficial relationships between you and the employees, customers, suppliers and communities your company relies on Bloom.”
‘The ongoing culture war’
Tensions between conservative and corporate America have been mounting for years. After President Donald Trump’s election, many CEOs were at odds with the White House over issues such as immigration, race relations and efforts to mitigate climate change by limiting the production and use of oil and gas.
Now, in addition to taking on policy positions that are unpopular with many Republicans, large corporations and investment firms are working to more deeply integrate ESG into their operations.
Rarely does the setting of such goals lead to rapid and dramatic changes in the way companies operate. Indeed, many companies are accused of greenwashing – touting their ESG commitments without implementing real reforms.
Nevertheless, conservative leaders are now taking on the largest corporations in the country, attacking ESG and working to portray environmental and social priorities as bad for business and politically motivated—evidence, they argue, that corporate America is commitment to globalism and in cahoots with the left.
A record number of shareholder proposals against ESG were submitted in the past year.
Texas became the first state to pass a law barring major financial institutions from state business if they were supposed to “boycott” the oil and gas industry. In reality, the financial companies targeted by the law still do a lot of business with the fossil fuel industry, but have withdrawn credit for some parts of the oil and gas industry that they view as bad investments.
Several other states, including West Virginia and Oklahoma, passed similar laws this year.
At the same time, Republican Attorney Generals have targeted BlackRock, accusing the company of putting its “climate agenda” above its clients and partnering with climate activists for supporting the goals set at the 2015 Paris climate conference and working efforts to phase out fossil fuels, which are dangerously warming the planet.
Former Vice President Mike Pence, a potential presidential candidate in 2024, said this summer he wanted to “keep ESG in check.”
A financial company that claims to be guided by biblical principles, Inspire Investing, has lashed out at companies pursuing ESG efforts, saying the term has “become armed by liberal activists to advance their damaging, social-Marxist agenda” .
Elon Musk, the world’s richest man, is also sour about the term. “ESG is a scam,” he wrote on Twitter this year. “It’s armed by fake social justice fighters.”
And with each passing week, more states are taking steps to punish companies they say are too focused on climate issues, with DeSantis fulfilling his threat to ban ESG considerations from his pension fund managers, and Texas expanding its list of banned financial institutions. including many of the world’s largest banks.
“I see this anti-ESG push as the next extension of the ongoing culture war,” Kristoffer Inton, an analyst with research firm Morningstar, said in a recent report. “Many of these thoughts, and even some accounts, were written without a great understanding of sustainable investing. Any investor who ignores ESG risk, like any other risk, does so at their own risk.”
But as the right ramps up its attacks on companies, most executives are staying on track, at least for now.
“We see ESG, or resilience, or more specifically our decarbonization and diversity programs, as ways to increase long-term value for our companies,” said Jean Rogers, head of ESG at Blackstone, the world’s largest private equity firm. “So we’re really not looking at the political struggle.”
Companies say their efforts to reduce emissions are good long-term investments as the risks of climate change become increasingly material, and efforts to promote more diversity among their workforces improve corporate culture.
“Fund managers and investors aren’t really put off by all the noise,” says Thomas. And, he said, “the money is flowing” toward investment in things like climate and equities.
BlackRock has defended its position as a solid investment strategy. “We believe that investors and companies that take a forward-looking stance on climate risk and its implications for the energy transition will generate better long-term financial results,” the company wrote.
Many other large companies have taken similar positions.
“The market recognizes this and is doing it because it’s good for business, not because it’s part of a political agenda,” said Steven M. Rothstein, director of the Ceres Accelerator for Sustainable Capital Markets, a group that supports sustainable businesses.
According to the Morningstar report, most anti-ESG proposals from shareholders have not received support from investors. More than 90% of companies in the S&P 500 index now publish an ESG report. And the Securities and Exchange Commission is considering passing new rules that would require public companies to file a more detailed analysis of climate-related risks and greenhouse gas emissions.
“The private market is talking,” Rothstein said. “And they say the climate is a risk.”