Environmental, social and governance (ESG) ratings of companies was never as popular as many in the media made it out to be. And the more the public and investors come to learn about ESG, the less they like it. CEOs and CFOs are taking note.
Perhaps the No. 1 proponent of ESG is Larry Fink, CEO of Black Rock. In his most recent letter to shareholders, Fink mentioned ESG, “sustainability” and “purpose” just four times. Quite a change from 2020 when those words appeared 32 times in his shareholder letter. Fink’s strategy going forward is to stop using the term ESG altogether because the term’s now “weaponized.”
Execs from 125 companies recently shared their views on ESG with the Conference Board. Nearly half of the companies generate annual revenues of $10 billion or more. About half of the execs surveyed say they’ve gotten backlash from shareholders on ESG.
Even more (61%) expect the opposition to remain as intense or get worse. They expect the opposition to ESG to be “driven by emotionally-charged topics, such as hot-button social issues and the transition to more sustainable forms of energy that raises fear of job losses.” (No wonder there: ESG funds underperform the broader market.)
Financial pros are bearing the brunt of the outrage: 37% of execs who are dealing with shareholders’ ESG fatigue are in the financial and insurance sector. Business and professional services (8%) came in a distant second.
Most companies determined to soldier on
Despite the backlash, most companies are sticking to their guns, according to a different ESG survey by the Conference Board in January. Just 17% of CEOs said they’d be scaling back or suspending their companies’ sustainability initiatives.
The big dogs will be able to weather the storm a lot longer than their smaller competitors. For example, Black Rock has lost tens of billions of dollars as several states moved retirement pension funds to other fiduciaries. But fund giants like Black Rock and Vanguard are handling trillions of dollars in assets so they can afford to be patient.
Smaller fund managers are the ones caught in the crosshairs and may be forced to tap the brakes to avoid losing customers. Selling the benefits of ESG to average investors is tough and getting tougher.
For example, try explaining to the average investor how credit rating agencies gave ExxonMobil a higher ESG score than Tesla. Good luck.
