Anti-ESG shows no signs of slowing down. Between the ongoing antitrust litigation in Texas and emerging threats from Florida’s AG, financial institutions are feeling the pressure from anti-ESG. Adding to the trouble is another “warning” letter from 21 state AGs and financial officers urging financial firms to back off on ESG. The letter was sent to major investment firms, including BlackRock, JP Morgan, and Goldman Sachs. The core complaints center around what anti-ESG views as an unlawful wavering in the firms’ commitment to financial materiality:
“Over the past several years, many large financial institutions have used their positions as stewards of trillions in passive investments, such as index and target-date funds, to advance social and political agendas that fall outside the scope of materiality and positive financial return. The January federal court ruling in Spence v. American Airlines, which found that American Airlines breached its duty of loyalty under the Employee Retirement Security Act (ERISA) by allowing BlackRock to use proxy voting policies to advance environmental, social, and governance (ESG) goals, underscores the importance of adhering to traditional fiduciary standards. The very occurrence of this case illustrates just how far fiduciary standards have splintered.”
The letter argues that financial firms should ignore ESG factors and alleges that risks of climate change are overstated in order to push progressive agendas. It also urges a more passive stance with investments and restraint from overly intrusive proxy and engagement policies. These allegations may not be grounded in reality, but as ESG professionals, we must take them seriously. Anti-ESG can no longer be brushed off. Companies may find themselves having to choose between risk management and capitulation. While anti-ESG currently has a strong presence, the political advantage anti-ESG enjoys will be temporary, while the effects of climate change will be permanent.
One meaningful way to balance these pressures: demonstrate and communicate the business value/benefits of sustainability.
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