“On Wall St., ‘Socially Responsible’ Is Common Sense. In Congress, It’s Political”.
Columnist Jeff Sommer, analyzing the current political backlash on ESG:
“In the financial world, trillions of dollars have been placed in investments that take E.S.G.[ESG] issues into account… Yet as this approach has grown in popularity, it has set off a political backlash. ‘ESG investing is now totally mainstream’ said Jon Hale, head of sustainable investing research for Morningstar. ‘It’s part of the thinking of every major investment company because at its core it’s just common sense.’ ”
Sommer cites recent political attacks on ESG in Congress and by state attorneys general as well as Republican state treasurers. Red state legislators have also joined the attack. And he offers a sign of relief:
“This is just one skirmish in a partisan war… The stakes are enormous … The [proposed] Department of Labor [pro-ESG rules] … have the potential to advance shareholder democracy in publicly traded companies.”
Many individual companies have communicated the intrinsic necessity of integrating social responsibility into their strategic planning and operations. This is particularly the case in the insurance industry where emphasis on risk management, especially related to environment (“E” in ESG) and climate change, is material in the financial sense.
FTI Consulting, a leading global management consultancy, recently issued a client advisory worthy of special attention. Excerpts:
“Stakeholder activism , combined with regulator and investor pressures, are quickly transforming the ESG landscape … More than ever, ESG strategy can play a central role in a company’s efforts to reduce risk and create sustainable value.”
The FTI advisory lists its services that illustrate the needed breadth and depth of ESG development and outreach:
“Stakeholder Engagement and Communications
“Successful ESG communications integrate key rating agencies, reporting frameworks, policies, controls and compliance procedures while fitting seamlessly into a company’s larger strategy and messaging [to] key audiences including customers, employees, investors, regulators and the media.”
Such messaging would have special interest among long term investors.
As effective as such an individual company outreach may be, what is missing in the confrontation with ESG deniers is a full-throated, continuing defense of ESG by national and international business associations and societies – as well as many other socio/economic/political “influentials”. They could document the carefully-reasoned corporate social responsibility commitments by many thousands of CEOS and corporate boards around the world.
To be sure, “ESG” and “socially responsible investing” are terms subject to confusion and abuse. This, and delisting “greenwashing”, are possible explanations for recently lowered estimates of the trillions of dollars of ESG investments. However, Sommer points out that, “The Securities and Exchange Commission has proposed rules that provide more clarity, requiring a fund that labels itself E.S.G to meet basic thresholds…”
Sommer also offers some context: “I first knew E.S.G. investing by another name in the 1970s: socially responsible investing … E.S.G. relies on the notion that a thinking and aware person, who understands that public companies affect and are affected by the world, must take into account factors beyond quarterly earnings numbers….”
[Full disclosure: In the 1970s, we attempted similar analyses in two books, “Organizing for Corporate Social Responsibility” and “Will the Corporation Survive”?]
Sommer’s conclusion: “It’s sometimes said that everything is political. I wouldn’t go that far, but it’s increasingly obvious that investing is.”