ESG, the practice of rating companies based on environmental, social and corporate governance, has become a hot-button issue in recent years. With political pressure building, the movement is losing steam. Here are five of the latest blows to ESG in this week’s Five For Friday.
5: Don’t say ESG
The term ESG alone is enough to draw the ire of a whole section of the political spectrum and companies are paying attention. Forty-eight percent of firms that have faced backlash say they have adjusted their terminology, according to research from the Conference Board.
The term has most often been replaced by sustainable, which appears to be more palatable. The term has become such a problem ESG pioneer BlackRock’s CEO Larry Fink said he won’t use it because it’s been “weaponized” and “misused” by the far left and far right.
4: BlackRock’s board
BlackRock has become somewhat of the poster child for ESG-minded investment firms, which makes naming Saudi Aramco CEO Amin Nasser to its board even more shocking.
Critics question how the firm can remain committed to environmental causes with the head of the world’s largest oil company at the table. But Aramco does have a goal to hit net-zero emissions by 2050. That doesn’t address the human rights concerns that surround Saudi Arabia, which has led to allegations of “sportswashing” to clean up its image.
3: ESG month
Generally July is a time for family vacation and celebrating Independence Day. But this July, Republicans in Congress dubbed it “ESG month.” Their agenda to protect investors from progressive activists included proxy voting reform, rating oversight and protecting U.S. companies from regulations in the EU. That said, nothing was accomplished before lawmakers took off for the August recess.
For those less concerned about ESG, July is also hot dog month, ice cream month and picnic month.
2: Activism decline
One of the big criticisms of ESG activism is companies bowing to a few loud shareholders. In fact, one of the biggest ESG wins was when tiny hedge fund Engine No. 1 won a 2021 battle with Exxon over board members and carbon footprint.
This year, things are different.
Proposals to cut Exxon and Chevron emissions failed to make an impact at shareholder meetings. It wasn’t even close, either; activists failed to get even 20% of Chevron shareholders to back their proposals in May.
1: So long, scores
ESG scores can be particularly controversial, and S&P Global just dropped them from credit assessments of companies in favor of written analysis. This comes after Elon Musk called ESG “the devil” due to S&P giving Tesla a lower ESG score than cigarette-maker Philip Morris. If you really want to see a numbered ESG score, you can still check out Moody’s.
