How Effective is the “Backlash” Against ESG?

A recent Agenda piece (log-in required) warned companies not to rely on the “ESG backlash” when it comes to investor relations and disclosure, particularly with regard to shareholder proposals. ESG proposals that hit the ballot skyrocketed 77% this year, in part due to new SEC rules that make it harder for companies to exclude shareholder proposals. Although many proposals will fail to garner significant support, the ones that do must be prioritized, so careful consideration of the merits and likely popularity of each proposal is needed. The article notes that companies need to first determine whether the proponent is even interested in negotiating, since sometimes the goal is simply to get the proposal in as many proxies as possible. This means that lower overall support rates are misleading, since the sheer number of proposals that made it to ballot jumped so significantly.

Meanwhile, Bloomberg reports that “ESG is too entrenched to simply switch off,” with more than $40 trillion worth of assets and $2.5 trillion allocated to sustainable investment funds. Interestingly, some say it may simply be the name “ESG” that is drawing fire, with Harvard’s Robert Eccles suggesting a new name is needed: “I’m happy to not use the term ESG…People are so invested now in hating ESG for reasons that don’t really have much to do with ESG.”

The “war against ESG,” largely fought by Republican lawmakers at both the state and federal level, includes prominent politicians such as former Vice President Mike Pence as well as Florida Governor Ron DeSantis. The states are particularly active; West Virginia has barred BlackRock, Goldman Sachs, JP Morgan, Morgan Stanley and Wells Fargo from state banking contracts due to perceived activity against fossil fuels, while several states have initiated efforts to ban ESG investing. On the social side, the backlash has been more muted, with a federal judge blocking the provision of Florida’s “Stop WOKE” Act that sought to regulate the types of discussions and verbiage used in corporate diversity trainings. Governor DeSantis, however, has stated he will continue the fight, announcing on a campaign tour that “We must fight the woke in our schools. We must fight the woke in our businesses. We must fight the woke in government agencies. We can never ever surrender to woke ideology. And I’ll tell you this, the state of Florida is where woke goes to die.”