The ESG Review: Probes, crackdown and scrutiny as ESG comes under the microscope

The past week has seen multiple headlines about the screw being turned on ESG-related disclosures and claims.

Regulatory scrutiny has been ramping up in Europe and, principally, in the US.

Goldman Sachs has been the subject of several stories in recent days after it became the subject of a SEC investigation into its ESG investment funds. It’s a civil probe but surely only turns up the heat on companies that may face similar regulatory scrutiny.

The Financial Times outlined why the recent raid on fund manager DWS’s offices may not be a one-off as authorities - in that case the police - pay much closer attention to the ‘evidence’ companies have amassed and communicated, and the financial decisions that have resulted.

A prediction from a top lawyer, writing for Bloomberg, was that not just the investment industry but companies in all sectors should brace themselves for coming under the microscope of regulators and enforcement agencies, as well as investors, in what amounts to “a reckoning” for ESG. A cynic might say that lawyers have a tendency to fan the flames of fear in the face of such crackdowns, but most indicators point to an increasingly get-tough stance.

The growing swell of discontent with the current world of ESG investing, and the information that feeds it, is not just about the accuracy and purity of disclosures and claims though. It’s becoming more political, as an opinion piece on ‘who benefits from the fight against ESG?’ outlined in Forbes. It might seem an easy move to point fingers at the political right and companies that have historically had poor ESG rankings at a time when the premise of ESG is taking blows. But as energy supplies, food supply chains and inflation-linked living costs come under huge pressure, we can only expect those noises to increase too.

In a different kind of probe, a couple of Democrats in the US are beginning to ask incisive questions of the public relations sector about its work for oil and gas companies over the past decades, and what the nature of that work has been. The Washington Post covered it comprehensively, pointing to concerns over some climate change denial misinformation.

It’s a development that has sparked much discussion on communications industry forums and discussion groups, with issues ranging from the potential for communications and public affairs to become licensed in its provision of advice, to the sector’s own reputation and the possible impact on attracting future talent. The way that information is ‘framed’ has of course been pretty central to the communications profession for a long time, but the prospect of authorities digging for proof of intentions and methods stands to sharpen the focus on ESG-related information even further.

None of this is really unexpected, given the growing pressure on ESG to reform and become more robust. But for those who may come under the microscope, that’s likely to be cold comfort.

The ESG News Review is written by Steve Earl, a Partner at BOLDT

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