Rally around the “ESG flag” folks. It’s about to be fired upon in the U.S. Congress.
“ESG”, the well-established acronym for Environment/Social/Governance, the contemporary evolution of business addressing social as well as economic issues, is now becoming the latest target for right-wing politicians.
In the U.S Senate session starting January 3rd, five senators will be championing their challenge to ESG: “5 GOP senators warn 51 law firms that ESG policies pose antitrust risks” https://bit.ly/3WcpDhs . S&P Global reported that the senators’ correspondence “escalates an anti-ESG movement in which officials in some red states have removed prominent banks from their treasury and pension funds.”
Excerpt from the senators’ letter: “Over the coming months and years, Congress will increasingly use its oversight powers to scrutinize the institutionalized antitrust violations being committed in the name of ESG and refer those violations to the [Federal Trade Commission] and the Department of Justice.”
(Of course, much of this depends on which political party controls the Senate.)
However, anti-ESG action may be more imminent in the U.S. House of Representatives.
Reuters: “Republicans are set to assume control of the U.S. House of Representatives in January. This will allow them to hold hearings on ESG and grill company executives about their policies, and also pressure regulators to scrutinize them.”
Also in the Reuters report: “Florida’s chief financial officer said on Thursday his department would pull $2 billion worth of assets managed by BlackRock Inc (BKL.N), the biggest divestment by a state opposed to the asset manager’s environmental, social and corporate governance (ESG) policies…it underscores how a backlash is gathering steam among Republican leaders in Florida, and elsewhere, who criticize corporations for focusing on matters such as climate change and workforce diversity.”
The current (December 19th) issue of The New Yorker judged the now roiling debate on ESG to be worthy of a seven-page mini bio of a leading ESG opponent, “The CEO of ANTI-WOKE, Inc.” https://bit.ly/3jcjxzK
Subhead: “By mocking corporate virtue-signaling on climate change and racial justice, the biotech founder, Vivek Ramaswamy is becoming a right-wing star.”
The political assault on ESG is the spearpoint of an even broader attack on fundamental corporate social responsibility. Opponents in the U.S. Congress, as well as state attorney generals – and some investors — are accusing companies of failure of fiduciary responsibility and “dousing themselves in morality.” In effect, they denounce the seminal concept of an evolving business social contract. The attack is consistent with the far right “anti-elites” social/political philosophy.
Chief Executive columnist David Astorino recently provided a telling response in his analysis, “Are CEOs Responsible for Repairing the Social Contract?” https://bit.ly/3BEuIYk
“The social contract between individuals, communities and governments is a complex and fundamental societal structure … In a world where a multinational tech platform can be larger than a nation, there must be a new social contract between individuals, corporations and the state. The playing field is far from level when it comes to the big questions about our contract with the planet and what we owe to future generations. Until then, leaders must work through these intellectual, moral and ethical conversations one by one to do the right thing by the community of stakeholders.”
He identifies five attributes of business leaders who are successfully navigating this area, those who have “bought into the reality that companies with a long-term view outperform their peers on key economic and financial metrics.” https://bit.ly/3VQdKhHt
The ESG deniers implicitly insult the many successful business leaders around the world (see below) who, with their boards, have carefully applied contemporary socio-economic logic to develop, articulate and implement strategic, long-term management integrating attention to relevant social issues with legacy good business standards; this being the case whether the policy is called “ESG” or a synonym such as corporate social responsibility (CSR), sustainable development (SD), stakeholder capitalism, or corporate citizenship.
The ESG commitment isn’t always easy.
Andrew Ross Sorkin, describing his relevant research in a trenchant New York Times analysis of leadership and the future, “Untangling the Now – And the Future” https://nyti.ms/3YF81x0 :
“In challenging times, choosing the direction of a company can be a lot like shifting pieces of a puzzle, with sometimes staggering consequences….”
“One common theme came up in just about every conversation.
“It was that every decision – big or small – is ultimately a trade-off: Sometimes it is a moral trade-off, sometimes it is an economic trade-off. Sometimes it is an economic trade-off versus a moral trade-off… In every case, a leader has to rationalize the trade-off.”
Many thousands of company leaders around the world – as well as academics, sociologists, and even political leaders – have “rationalized” in favor of recognizing the corporation’s inarguable presence, heft, and role in society. After decades of development, there now exists a veritable mountain of research and literature supporting the mutual benefits of corporate social action, much of it documenting business benefits such as risk management and reputational value (brand, identity, soft assets on the balance sheet).
The United Nations Global Compact, with its approximately 15,000 company participants (and 3,000 NGO, academic and government signatories) in 160 countries, is the world’s largest corporate sustainability initiative. UNGC ‘s current Sustainable Development Goals present opportunities for businesses large or small: “Global challenges – ranging from climate change, water and food crises, poverty, conflict and inequality – are in need of solutions that the private sector can deliver, representing a large and growing market for business innovation.” https://www.unglobalcompact.org/
Finally, there is this:
In a recent Bloomberg report, “Most in Finance Support ESG, Despite Republican Attacks”:
Here is the money quote: “Still, love it or hate it, most in finance have decided that ESG is here to stay. A survey of 550 Bloomberg Terminal users found that more than 60% expect ESG to be a part of, or increasingly critical to, running a business…the goal was always to help investors avoid losses and find ways to profit by drawing their attention to the evolving group of risks linked to environment, society and corporate governance issues. No matter how you package it, these risks aren’t going away…”
Apparently, many investors seem to agree. Reuters 12/1/22 bulletin :
“Investors with $30 Trln to push companies on human rights, social issues
( Yes, Trln, as is in Trillions)