Short answer: maybe. In February, Congressional Republicans announced the creation of an ESG Working Group that would coordinate efforts to challenge ESG, including a focus on the U.S. Securities and Exchange Commission’s (SEC) upcoming final guidance on climate change related disclosures (expected in April).
How did we get here? Over the past several months, there has been a push by Republican leaders at the state and national levels to raise questions about ESG, which has investment and policy implications. This includes state plans to divest from asset managers that consider ESG in investment decisions, including BlackRock, a letter to proxy advisor firms ISS and Glass Lewis questioning whether net zero emissions and boardroom diversity policies violate fiduciary duties and a resolution to strike down a Department of Labor law allowing consideration of ESG factors in retirement plans.
What can we expect next? State leaders are likely to continue to push for policy and decisions that limit engagement with ESG investments, including those related to retirement funds they have control over. Nationally, the power split across the Senate and the House of Representatives won’t allow for much policy. The creation of this new Working Group indicates the Republican-led Oversight Committee intends to use its power over the SEC to explore ESG-related topics (e.g., if evaluating ESG at the institutional level impacts and/or harms retail investors). We can also expect Senators and Representatives to continue to issue letters and/or request information related to ESG.
What will this mean for ESG? Stakeholders from investors to employees continue to emphasize the importance of ESG for business sustainability and future profitability. Companies are still announcing new ESG commitments, hiring ESG leadership, issuing bonds tied to ESG criteria and enhancing ESG reporting and disclosures. Efforts in the EU (and US) to increase reporting on ESG topics and move toward universal reporting standards are still moving forward. And ESG factors continue to drive investment decisions. In fact, BlackRock’s Larry Fink publicly shared ESG backlash has not had a negative business impact.
How do we help companies navigate this dynamic environment?
- Monitor the conversation. The situation is likely to continue to evolve. It is important to understand new developments and their influence on public perceptions, particularly as companies advance ESG actions and related reporting and communications.
- Know when (and how) to talk about ESG without calling it ESG. Referring to ESG will still work for certain audiences, such as investors. For others, including employees, share actions, like environmental efforts, access to medicine programs or diversity and inclusion initiatives, without branding them “ESG.” In addition to being more likely to reach and engage, this has the side benefit of circumventing this challenging dialogue.
- Prepare for tough questions. When talking about ESG in public settings (e.g., earnings, panels/conferences), companies should be prepared for questions about this growing pushback and the changing landscape and be able to confidently reinforce their company’s commitments.
- Educate about ESG. For companies with advanced ESG efforts and stories demonstrating societal and business impact, this may offer an opportunity to explain and educate about ESG to select audiences, including how performing well on “ESG topics” is good for business.