Midway through another earnings season, the free-fall in C-suite mentions of the movement for environment, social, and governance (ESG) strategies is on pace to plumb new depths. What is going on? Is the term ESG really that controversial? And are the underlying practises alive and well?
There have been just nine direct mentions among S&P 500 companies of the politically controversial term amid the sea of hundreds of earnings calls in recent weeks, according to data from financial data company FactSet. That is a far cry from the 156 mentions during the fourth quarter of 2021, when according to FactSet, a financial data company, usage of the term peaked according to the company.
Citations this year are either very brief or reflect a more charged political landscape, according to a Yahoo Finance analysis. “Clients are taking a more measured approach to how they integrate ESG,” noted Andy Wiechmann, the chief financial officer of finance company MSCI, in just one example.
Woke capitalism
But is the term ESG really that controversial? Anti-ESG advocates are quick to claim that the declining prominence of the term ESG is a win for their side as they work to stop what they call “woke capitalism,” which they say prioritises a political agenda over maximising returns for investors.
The push against ESG has also scored some high-profile victories in recent years, such as when money management giant Vanguard withdrew from a climate-focused consortium called the Net Zero Asset Managers initiative. Some ESG funds are also closing as investor interest moves elsewhere.
Blackrock’s CEO Larry Fink has been among the faces of the ESG movement in recent years thanks to his annual letters urging companies and long-term investors to do more to prepare for climate change. But he recently grew disenchanted with the term and announced last June that he would stop saying it at all.
New buzzwords
Recent earnings from some of the top companies on Wall Street are perhaps the best example of the divergent trends. While no major bank brought up ESG directly, according to FactSet, climate and other issues remained a topic of much interest.
JPMorgan Chase CEO Jamie Dimon made sure his investors were aware of “an ongoing need for increased spending due to the green economy,” adding that climate change was one of a few “significant and somewhat unprecedented forces that cause us to remain cautious.”
The same trend held in the past week as Big Tech companies took center stage. There was little mention of ESG, but plenty of discussion of things like the climate. “In recent months, we’ve also taken significant strides in our environmental work,” Apple CEO Tim Cook noted on his call.
In addition, terms like “sustainable investing,” “responsible business,” and “transition investing” have also been floated by business leaders and corporate advisers in recent months as other ways to talk about the issues raised by ESG without using the term itself, which has become too controversial for many.
Alive and well
The term ESG may have become too controversial, it doesn’t mean that a conversation around the issues underlying ESG has been absent. Through the use of different buzzwords — or simply a straight-ahead discussion of how companies factor climate change into business decisions — the topic appears to be alive and well.
ESG advocates say there could be a silver lining for their side if the controversial term is largely taken off the table. “Obviously the word ESG has been polarized,” said Randell Leach, the CEO of a community bank called Beneficial State Bank largely devoted to social responsibility, in a recent interview.
But he’s OK with that, saying he sees the change as a way to stop companies from pushing ESG as a cover for “greenwashing” and instead forcing a more direct case for the underlying principles. “The market has evolved,” he added. Dimon’s recent comments, Leach says, show the most powerful banker in the world can more directly make an affirmative case that taking climate into account “is just smart business.”
