2022 has been a stark reality check for ESG.
Geopolitics, war and a sharp economic nosedive have both reset some priorities, and amplified criticism over swollen funds and lack of standards that had already begun swirling.
Next year hardly holds the promise of much light relief.
And looking at the way the questions over the future shape of ESG are becoming increasingly polarised in the US, political tangles risk holding back further progress.
As the Financial Times put it this week, “While European governments have set formal targets for diverse boards and legislated standards for funds that seek to fight climate change, US politicians and regulators are busy engaging in political combat over the basic principles involved in abiding by ESG criteria.”
Legal action is buzzing. While in Democratic states there are claims underway over the impact of climate change, on the Republican side businesses and investors are feeling the heat over a sense that their efforts to fight climate change and improve diversity have gone too far - a so-called ‘war on woke’ with attacks being made in so many directions that politics has effectively paralysed the progress of ESG in the short-term.
The Daily Mail, not noted for its political impartiality, chimed in that “woke ESG funds” which the US Government wants to invest in for maintaining 401K schemes underperformed - contrary, it claimed, to the superior performance of a “MAGA fund”.
The State of Florida has also pulled $2 billion out of investment fund BlackRock over its pro-ESG stance.
Meanwhile, on the UK front a Daily Telegraph piece set out that “businesses face a reckoning over their green credentials”.
While the CEO of the Norwegian Sovereign Wealth Fund, the world’s largest institutional investors, told an audience of people from Norwegian and British firms in London this week that ESG remained critical to corporate success in the long-term, his remarks about the part politicians would play were less positive - Nikolai Tangen swerving the issue of Brexit’s benefits altogether.
Large businesses had to continue to work to improve their ESG standards, and regulators and standards-setters would better define - and scrutinise - how they did that, he told the event. The fund was looking to exert its voting weight in more transparent ways too, such as publicly announcing its intentions five days ahead of a company meeting with a business it owns a stake in. Executive pay was particularly in the sights, he said, as “We think some annual pay rises are terrible and it’s completely obscene to increase CEO pay by 20 per cent at the moment”.
Amidst a broad-based reality check for ESG heading into next year, he advocated a reality check in the boardroom too, as well as resilience and strong cultural attributes to help the corporate world to steer through the choppiest of waters. Political tussles will only complicate the picture.
The ESG News Review is written by Steve Earl, a Partner at BOLDT.
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