With the US House Committee on Financial Services kicking off its so-called “ESG month”, it’s easy to feel overwhelmed by all the news headlines painting the ESG debate as either a nonsensical waste of time or a battle for the future of capitalism.
Alongside these headlines has been a growing chorus of think pieces attempting to predict the future of ESG and whether the anti-ESG attacks will have any lasting effects, particularly in the US.
Some pieces have looked for silver linings and explored how ESG leaders can learn from the opposition to build a stronger and more durable movement. Others have concentrated on the motivations of the anti-ESG crowd and contemplated what could come next at either the federal or state level.
But this rush to come up with a hot (or cold) take overlooks much of the nuance inherent in the ESG discussion and underplays the very real consequences of the continued attacks. It’s true that there is little evidence of businesses or investors substantially changing their approach to ESG as a result of the attacks. However, there is little doubt that cracks are appearing in the foundation of our capital markets system, cracks that will directly affect private fund managers and others who share an interest in maintaining free and efficient markets.
The real consequences of the attacks on ESG
It’s important to recognise that the point of recent attacks is not to engage in good-faith debates about the merits of ESG. A report published by the Republican Members of the House Committee on Financial Services even says the goal of the ESG hearings is to “protect the financial interest of everyday investors from progressive activists who are using our institutions to force far-left ideology on Americans”. Never mind that an overwhelming majority of investors oppose government interference in investment decision-making and support improved corporate disclosures on ESG issues.
The blunt truth is that we are witnessing a co-ordinated campaign of misinformation and obfuscation that is designed to cut off the legs of the ESG movement and halt any additional progress on other sustainability issues.
If companies are resistant to disclose information on climate-related risks, how can we expect them to disclose information on nature-related risks or inequality-related risks?
If investors are reluctant to speak up about the climate crisis, how can we expect them to be vocal about the water crisis or the refugee crisis?
If policymakers are hesitant to refer to climate change in their public remarks or proposals, how can we raise public awareness about less-talked about ESG issues like human capital management and executive compensation?
These aren’t just hypotheticals. These scenarios are playing out in real time as more organisations are forced to pick a side – or sit out the fight altogether – in what has become yet another culture war battle. Naturally, this leads to radicalisation in both directions rather than an attempt to find common ground. Without dialogue and bipartisanship, how can we work together to address our shared challenges?
How to push back against the attacks
We have all heard the warning that “silence is complicity”, and yet silence is exactly the stance taken by many investors and businesses. The first step to reclaiming the narrative around ESG is being willing to engage in the public debate.
I have spent nearly a decade working with clients across the financial services industry to help develop messaging about ESG, impact investing and sustainable finance more broadly. As anti-ESG attacks have ramped up, I have noticed market actors splitting into several different – yet often complementary – messaging lanes.
Materiality mob. This group emphasises how ESG is a risk management framework that allows investors to better understand and assess material risks, including but not limited to climate change. Every argument is couched in terms of materiality, which itself can be a fuzzy concept at times, but at least one with a long history and a broad base of understanding.
Data divas. This group likes to lead with facts and hard evidence. You can thank the data mavens for the countless research reports showcasing the value of ESG and, likewise, the costs of implementing anti-ESG policies. These pieces of research are frequently cited in news articles, comment letters and Congressional testimony.
Dark money diggers. This group has done the field a public service by mapping the connections between dark money groups and the right-wing organisations most responsible for the anti-ESG attacks. They are vocal in calling out anti-ESG as another form of climate denial, with the same spiderweb of right-wing donors, politicians and ideologues.
Free market evangelists. This group leads with messaging on the importance of maintaining the freedom to invest, of which ESG is considered an integral part. Therefore, any attempt to restrict the collection and analysis of ESG-related information is considered an attack on the free market system and a betrayal to the foundational tenets of capitalism.
Sustainability stewards. This group sees the focus on ESG as a distraction from the need to move to true impact and sustainability in which the focus is on addressing systemic risks and generating positive outcomes for people and planet. ESG is not the destination, but rather a stepping stone on the path to sustainability and the adoption of a double materiality mindset.
It remains to be seen which, if any, of these messaging tracks prove to be the most effective in the face of anti-ESG attacks. But we should all be concerned that the most popular messaging track right now is the ‘quiet quitters’ – those businesses and investors that support ESG in theory, but are too risk-averse to speak up and in some cases have even taken a step backwards on their prior commitments. This includes the financial institutions who have backed out of net-zero initiatives and the public figures who shy away from using the term ESG.
The extreme weather of the past few months should offer a stark reminder that addressing sustainability challenges will require widespread coordination and co-operation. The more organisations that abdicate this fight, the harder the challenge will be for the rest of us.
Dmitriy Ioselevich is CEO and founder of 17 Communications, a mission-driven marketing and communications firm specialising in the ESG, impact investment and sustainable finance space.