What’s in a name? Apparently, a lot!
A viral WSJ article this week, “The Latest Dirty Word in Corporate America: ESG,” showed how Corporate America is turning away from ESG as the term becomes politicized and legal threats for greenwashing loom.
It seems like only yesterday when Corporate Social Responsibility (CSR) was replaced by Environmental, Social, and Governance (ESG) as the abbreviation du jour for companies to describe their sustainability efforts. The Wall Street Journal forecasts that it has come full circle, and “responsible business,” or some other version that includes the word “responsibility,” will take ESG’s place.
As former Kraft Foods CEO Daryl Brewster says, “You can be anti-ESG. It’s hard to be anti-responsibility.”
Although companies are distancing themselves from ESG, they are not stepping away from their programs. Whatever we call it, companies continue to make progress on their sustainability pledges - at least for now.
NYU Stern Professor Alison Taylor wants to get past the labels and into the content - she said: “What it takes to be a responsible business is still controversial, political and contested. These debates aren't going away, whether we use the term ESG, sustainability, or corporate responsibility. But, let's have the damn debate!”
A small editorial comment: Beyond returning profits to shareholders, a battle has raged for more than 50 years over the responsibility of companies for people and the planet. Nobel Prize-winning economist Milton Friedman penned an NYT OpEd titled The Social Responsibility of Business Is to Increase Its Profits in 1970, disparaging corporate responsibility as a threat to a free society. Despite his views, there has been a massive expansion of “corporate responsibility” over the last half century - including the 2019 statement from the Business Roundtable that the purpose of a company is to promote ‘An Economy That Serves All Americans’. For those who have been around this issue for a while, suffice it to say that this latest kerfuffle is but a blip and will not put the issue to bed.
ESG Investments Plummeting
The “anti-woke” backlash in the US, coupled with new regulations, like the SEC’s Names Rule, which requires investment funds to have 80% of their assets match the name of the fund, led to only six new ESG-named funds in the past six months (down from 55 in the first half of 2023), and other funds have removed their ESG labels.
This is evidence of a long-overdue shake-out of unsubstantiated ESG claims in the financial markets. But there continues to be evidence that ESG (can we still use that abbreviation?) adds value. New research from UBS found that hedge fund managers are increasingly considering ESG in their investments and found green assets may recover from their losses in 2024.
Moreover, new groups are being set up to combat the ESG backlash. One such group of over 100 business leaders, Freedom to Invest, aims to remind policymakers that companies should be able to invest as they see fit based on their material risks.
Another Year of ESG Litigation Ahead
The lawsuit, filed by Minnesota in 2020, asserts that the energy industry employed deceptive marketing practices over several decades to downplay the risks of burning fossil fuels and undermine public understanding of climate change. The state contends that these entities failed to disclose these risks to the public and actively worked to undermine climate science, resulting in significant economic damages for Minnesota.
Climate and ESG litigation is becoming so commonplace it’s becoming a money maker for “litigation financing.” This is a practice where lawsuits that target supposed corporate misdeeds, such as broken environmental pledges, exploited workers, or corporate governance failings, are bankrolled by a hedge fund in exchange for a slice of the settlement. A successful case can leave a litigation funder with returns well in excess of 25%, and hedge fund managers plan to increase their investments in ESG litigation.
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Hottest Year Ever Confirmed
To the surprise of no one, 2023 was officially confirmed as the hottest year since records began. Clocking in at 1.48°C above pre-industrial temperatures, 2023 was dangerously close to the global goal of limiting global warming below 1.5°C.
Alarmingly, the NASA scientist first responsible for alerting the globe about climate change, James Hansen, has suggested that 2024 will be above 1.5°C. And, forecasters predict that even when the warming effects of El Niño subside, subsequent years will be at least as warm. Hansen claims, “We are now in the process of moving into the 1.5°C world.”
Some climate scientists think Hansen is off on his predictions and that we still have some time. But one thing is clear: We don’t have long.
US Emissions Fall, But Not By Enough
In positive climate news: US carbon emissions fell by 1.9% in 2023. The decline was largely due to the use of coal plummeting to a 50-year low. US emissions are now 17.5% lower than in 2005. In the EU, the story was similar, with wind power exceeding coal power for the first time.
While the US emissions decline is commendable, it will have to be reduced by triple the 2023 rate every year until 2030 to meet President Biden’s goal of halving US emissions. And with US fossil fuel production hitting record highs in 2023 and the emissions reductions due to the Inflation Reduction Act not expected to kick in till the late 2020s, Biden's emissions goals still could be at risk.
Extreme Weather Tops Risk Report
Ahead of Davos 2024, later this month, the World Economic Forum released its 2024 Global Risks Report. The report cites extreme weather, ecosystem collapse, and critical changes to Earth systems as the top three long-term global risks. Extreme weather events were considered the second most significant risk in the short term and the biggest risk in the long term.
Gill Einhorn of the Centre for Nature and Climate, World Economic Forum, said, “What is needed is a mindset that recognizes the full scale of the risk while maintaining the optimism that we can and will respond in a way to avoid and mitigate the worst risks from occurring.”
The views expressed on this website/weblog are mine alone and do not necessarily reflect the views of my employer.
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It's a tough issue that we're all wrestling with. If you look at Europe, they are mandating provable ESG behavior, not just lip service; while in the US, it's become a political football. At the same time, the constituents for retirement plans and investments (regular humans, young people) are more and more concerned about climate change and how to combat it. What our work is seeing is a desire for a commitment to action, with a struggle on labeling ESG efforts that is not such a hot button. It's a tough nut to crack.
Professor of Practice ☑️ Director, Strategic Communications Program ☑️ Corporate Sustainability & Communications advisor, mentor ☑️
8mo
Rebranding ESG is such a tail wags the dog story.
One of the reasons for backlash against acronyms is the ivory towers of language that the costs of having to keep up with it perpetuate. One of the interesting yet barely mentioned things about ESG has been the change in meaning of 'sustainability' from 'live within local means' to 'ensure your corporation has enough relevant assets across portfolio to account as sustainable'. These are two very different things. One vests climate opportunities and risks as local attributes. The other allows climate opportunities to be owned by anyone anywhere while climate risks remain vested with locals. It's very strange that so few people seem to notice this ... great for non-human entities; not necessarily great for those who live in a physical location.
Harvard Lecturer Emeritus | Uncertainty Risk Management | Pollution Prevention | Process Improvement | ESG | Organizational Sustainability | Author
8mo
It is difficult to have more ways to work with ESG since all of the ESG programs that I have reviewed are different in every way. ESG needs to be standardized in order to be fit for comparing results. Yet, ISO - International Organization for Standardization has six existing standards that will help bring some uniformity to the organizational ESG programs. At COP28, ISO and IFRS addressed the need for these two organizations to work together to have organizational sustainability and climate change actions be standardized in a way that will enable some high level of comparisons between programs. I wrote two editions of a book, "Organizaitonal Sustainbility and Risk Management, A Practical Step-by-Step Guide." https://a.co/d/2ZZJmKj This view of organizational sustainability and risk managemnt in in line with ESG and effectiveness of the approaches to review and improve the program so that it is providing the informaiton that many stakeholders are seeking. All the ingredients are in place. Now we await the organizations that can put it all together, while seeing that all organizations are fit for using a standard method that acknowledges what we want to happen as we move forward.
ESG (risk) | Sustainability (impact) solutions | 📉Strategy & performance improvement ✅ Energy & carbon ✅ Climate risk & resilience ⚓️Ports & maritime expertise ✅ Net-zero👷🏻♂️H&S ♻️ Circular econ. 🌎 [views own]
8mo
Well, in the weeds of the article, it states 8% of corporates in the sample are starting to downplay (or perhaps realise they've been overclaiming). So quite a dramatic conclusion in WSJ.
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