Why the Anti-ESG Movement Is Forming in the US

While ESG criteria are increasingly being considered in Europe, they are being questioned across the Atlantic. Despite the growing real impact of climate change, sustainable finance has never been under such severe attack as it is today.

The center of this movement is in the American South, where a heated debate about progressive ideas has erupted in the wake of the early election campaign. It is about both minority rights and the challenges of energy transition. What are the reasons for this “anti-ESG crusade” that will be talked about even more in the future?

When sustainable finance becomes politics

This primal political debate highlights how difficult it is for the private sector, especially the financial sector, to make progress on sustainability issues faster than society is ready for. Reality on site meets aspirations towards the future – two perspectives that may conflict with each other.

“Our job is to give citizens (…) a voice back in the American economy by encouraging companies to focus on merit rather than politics,” even Florida’s Republican governor’s camp complained of “big corporations.” Politicians use their economic power to impose unworkable policies at the ballot box.

This situation shows how difficult it is for the financial sector to play its part in financing change without relying on clear public policy.

From word to action

The conflict is now being pursued legally. Eighteen states are now taking action against ESG, with Florida leading the way. A law was recently passed there that aims to ban the use of ESG criteria in public investments, bond issues and national and local procurement policies.

The financial sector has come under particular scrutiny: important firms such as BlackRock and JP Morgan have been neglected. Accusation: You care more about the climate or the fight against guns. Some can’t handle the pressure: Vanguard, the world’s second-largest asset manager, has pulled out of the Climate Protection Alliance’s Net Zero Asset Managers Initiative.

Ideological conflict has also found its way into the general meetings of companies. In 2023, the number of stakeholder proposals for resolutions against companies’ social or environmental aspirations has increased significantly.

A clash of two worldviews

The debate is based on two different perspectives on economics and the role of corporations.

• On the one hand there are proponents of the Friedmanian view, according to which corporate social responsibility involves only profit maximization.
• On the other hand, Richard B. Proponents of Freeman’s view must consider all stakeholders.

In the current situation, the financial object and the dual object confront each other, encountering this well-known debate. How, then, is fiduciary duty to be understood? According to ESG critics, investors “shouldn’t have to pay to save the world”. For others, to paraphrase ESG advocate Paul Polman, “companies cannot thrive in failed societies.”

Abandoned by interim policy

But could the roots of the problem be deeper? Progressive ideas are fueled by a greater focus on ESG criteria, challenging the fossil fuel-based, productivity-focused model.

It is no coincidence that mobilization is particularly strong in the American South. Prosperity and jobs there depend on fossil fuels. Fossil fuel deniers are literally hanging the sword of Damocles over these states and their people, who seem to have been forgotten by the policy of fair change.

However, the success of a transitional policy depends on the adoption of measures adopted by states. The consequential effect of serious decisions, especially in relation to employment, should be considered in advance – which is obviously not the case here.

From a European perspective, and the fact that the United States recently passed very generous federal measures to support investment in low-carbon technologies, the Inflationary Reduction Act (IRA), this movement is worrisome due to its extreme nature. It should remind us of the impact of intransigent policies that ignore local challenges and people’s concerns.

As responsible investors, we remain vigilant and strive to create awareness about the companies we invest in through our involvement.

About the Author:

Coline Pavot, Head of Responsible Investment Research at French asset manager LFDE.