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The ESG Review: US tensions polarise ESG as a political football

Anti-ESG sentiment on the right of US politics has been on the rise over the past year. This week it began to bubble over.

With the financial results season in full swing, the past few weeks have seen numerous large US companies urge caution in their annual reports around the increasing polarisation of stakeholders - and for that, largely read shareholders - in attitudes towards the value of virtues of ESG.

And the backdrop to that is increasing political crossfire.

The notion of ‘woke capitalism’ has again reared its head in comments from US conservative politicians. And the cautionary notes have in many cases pointed not just to stark objections to construct of ESG investment, but to the potential financial impact of the political backlash.

The Financial Times wrote: ”Blackstone, the world’s largest private equity firm, disclosed that states’ scrutiny over potential “boycotts” of the fossil fuel industry could affect fundraising and revenues, according to the 2022 annual report it filed with the US Securities and Exchange Commission last week”.

As the New York Times summed it up in a long read piece, “It’s been a widely accepted trend in financial circles for nearly two decades. But suddenly, Republicans have launched an assault on a philosophy that says that companies should be concerned with not just profits but also how their businesses affect the environment and society.”

Differing opinions over the wisdom and application of ESG always risked it getting dragged into politics, and a war of words getting ugly. That seems to now be heating up rapidly, and shifting gears to the Senate, where a piece of pensions-related legislation is now destined to be determined, and where Republicans may wish to block it.

The backlash is taking root beyond right-sided Republicans though. Potential Presidential candidate, Governor Ron deSantis, this week decried the ESG ‘movement’ and called for it to be crippled in a new book. Sensational headlines intended to drive book sales are nothing new, but deSantis, in his role as Florida Governor, also moved to regain control of Disney’s special land ownership privileges in Orlando this week in what has been widely reported by media as a revenge move after the entertainment company’s stance over the ‘don’t say gay’ controversy.

Then there’s the issue of co-ordinated campaigning effort to argue the anti-ESG case. As the Wall Street Journal reported, “A conservative nonprofit called Marble Freedom Trust and its consulting firm, CRC Advisors, are leading the anti-ESG push and have spent more than $10 million on the effort so far, mostly through the group Consumers’ Research.”

It continued: “A digital ad by the Heritage Foundation’s political-action committee portrays an oil-and-gas driller being denied a small-business loan in part because he has never “identified as a woman or even nonbinary.”

The rhetoric may be very much ‘anti woke’ and aimed at stirring conservative sensibilities in the US. But it is also continuing to poke holes in the fabric of ESG investment as it continues to be woven, questioning the lack of a singular reporting framework, the scrutiny around investment ratings and the extent to which companies seeking to giant favour with stakeholders through ESG-led action are greenwashing.

There is surely a limit to how far that objectivity argument can be taken though. With continual progress towards tackling the historic weaknesses in ESG reporting and investing, standards emerging and increasing rigour to counter greenwashing concerns, there is doubtless a point at which the current anti-ESG wave becomes purely political, and about ideology first and foremost.

In the meantime, expect ESG to continue to be a persistent political football, even if of the America variety.

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

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