Finding a Way Forward So ESG Advocates and Critics Can Get On the Same Page

March 3, 2023

By Hank Boerner – Chair & Chief Strategist, G&A Institute

Woke! Woke!  And Anti-Woke!  The word is now an important part of the political and cultural conversation in such states as Florida, where it is becoming a vigorous political campaign cry.  Woke comes to Florida to die, the present governor eagerly proclaims. 

Where did the expression “woke” come from? Wikipedia offers us this explanation: “Woke is an adjective from African-American Vernacular English meaning [being] alert to racial prejudice and discrimination.”

Think about the impact of the tragedies of the George Floyd, Breonna Taylor, and Trye Nichols deaths and the founding of Black Lives Matter as importance pieces of the “alerts” to the Black communities across America. But woke moved to the mainstream as well. 

As the use of the term spread to a broader range of topic areas, we could say that more of the population is being “woke” — what this really is about is being “awakened” and “alert” to changes in certain areas of interest and importance in our business and personal lives.

Such as (one example) as the importance of ESG issues to asset managers and corporate leadership.  

Now, unbelievably, embrace of ESG in Corporate America and the financial markets is a “woke” thing  – something to be feared, says the governor of the Sunshine State.

The increasing awareness of the importance of ESG material issues accounts for the shift in focus beyond just the reported financial results by fiduciaries to consider an ever-widening range of corporate governance, environmental and societal issues. (Of course now including diversity, inclusion, equitable treatment for all stakeholders.)

Consideration of ESG is now a fundamental part of asset management and fiduciary duties in the U.S. and in Europe.  But — there is growing opposition to the success of sustainable investors (like asset managers embracing ESG.)  Really. 

We’ve been sharing news and perspectives about ESG and woke and the attacks by certain Red states attacks on both ESG and woke; these are strawmen for public sector leaders who now target and punish those asset managers adopting ESG analysis and methodologies in their management of clients’ assets.  

The issue now is front and center in the halls of Congress as well. 

The encouraging news there is that state pension fund managers are pushing back, recognizing that in their states ignoring ESG issues will cost their fund (with lower returns on investment). 

In the Harvard Business Review, Two authors put many of the issues in perspective for us as they offer possible solutions to rescue ESG from the Culture Wars. They are well versed in the many aspects of ESG, sustainable investing, and corporate sustainability.

One is former Harvard B-school professor Robert Eccles (now visiting professor of management practice at Said Business School, and a lifelong Democrat) and, Daniel Crowley, a long-time GOP leader who served as general counsel to House Speaker Newt Gingrich and who now leads the global financial services practice as K&L Gates LLP.

Bob Eccles is a founder of the Sustainable Accounting Standards Board (SASB); Daniel Crowley lead government relations efforts at the Nasdaq Stock Exchange and National Association of Securities Dealers (NASD). They speak about ESG from a deep and varied background in financial, business, research, and public policy.

A few highlights of their shared perspectives in the HBR piece:

• The planned congressional hearings on ESG presents opportunity to put facts on the record and begin the process of working toward a bipartisan consensus to take the “political passion” out of ESG discussions. (The 2024 president and congressional contests are just getting underway.)

• The key will be to bring ESG definitions back to an original intention, “as a means for helping companies identify and communicate to investors the material, long-term risks they face from ESG-related issues”.

• Climate change is such a risk; fossil fuel companies for whom future revenues would be greatly reduced if governments start to tax carbon.

• For capital markets to properly allocate capital, investors need companies to disclose material investment risks. ESG, they write, is simply about identifying material risk factors that matter.

• The coming House hearings on ESG could be political theater — or a learning opportunity to clarify what ESG is/isn’t.

This HBR feature article is compelling reading for those on both sides of the ESG equation, for both ESG advocates and critics. Framing the hearings as explorations of not about being “woke” but on the importance of materiality is the way forward, the authors posit.

We urge your reading and sharing of Bob Eccles’ and Daniel Crowley’s enlightening perspectives.

It is unfortunate that the U.S. Culture Wars now drag anti-ESG views into the vital conversations and political theater about addressing the climate change crisis.

The team at G&A Institute will continue to monitor and share top-line results with you as these vital conversations (and shouting matches) focus on the importance of ESG. 


The Harvard Business Review article for your reading – tune in to the “hopes” and solutions of the authors:

Rescuing ESG from the Culture Wars (Harvard Business Review)

https://hbr.org/2023/02/rescuing-esg-from-the-culture-wars


Beware, The Culture Warriors Have New Strawmen: Dangers of “ESG” and “Woke Capitalism”

End of February 2023

by Hank Boerner – Chair & Chief Strategist – G&A Institute

New threats to ESG detected in America’s Red-controlled states:  The internal culture wars now include an unlikely frontal assault on the alleged “dangers” posed to institutional investors (state and city pension funds and the states; public financing) by professional asset managers who embrace sustainable investing approaches and who factor ESG analysis for their portfolio decision-making (in the management of client assets).  

Corporate sustainability leaders and savvy investment managers are asking, “huh?  “why”?

The threat of “ESG” joins such current strawmen as Critical Race Theory, “Woke” Capitalism, Don’t Say Gay (in the State of Florida), the allegations of certain “grooming” books being found in school libraries, and other specious arguments set up by political conservatives and Red state public sector leaders to gain points with the Republican base.  And with right-wing media outlets. 

The assault on ESG is mainly focused on the prominent asset management firms that serve state and city public employee pension plans and healthcare plans. These asset management firms are told to abandon ESG principles (and their focus on the risks brought by the climate change crisis to investments) and related portfolio management approaches — or lose the state and/or city investment and capital raising client.

Political leaders in such states as Florida, Texas, West Virginia, Louisiana, and Missouri are openly opposed to “woke capitalism” as they see it and have targeted BlackRock, State Street, Vanguard, and other large asset management firms embracing sustainable investment.  (Consider that these three organizations have significant levels of investments in many publicly-traded companies.)

The leading ESG ratings firms are also in the cross hairs; 20-plus Republican state attorneys general also challenged ISS and Glass Lewis as both advisory firms expanded their traditional governance work to including “S” and “E” issues through a more comprehensive ESG lens. (These firms advise and provide services to public sector pension plans.)

Some Red state leaders are cutting ties with BlackRock and other firms and moving to prohibit the Wall Street organizations from management of state monies (such as their public employee pension systems).

BlackRock CEO Larry Fink fired back at the annual Davos gathering to say that his firm, while losing about $4 billion in the public sector pullback of funds to be managed, has seen the flow of new money into BlackRock to manage dwarfing that – new funds to be managed by BlackRock topped $200 billion in year 2022, he told the Davos crowd.

In his annual letter to corporate CEOs, Larry Fink wrote in 2022 that “stakeholder capitalism is not about politics, it is not ‘woke’, it is capitalism….” Helping clients transition their investments toward a lower-carbon economy is helping BlackRock (with $9 trillion-plus AUM) to attract new assets to manage, CEO Fink explained.

The underlying concern of the Red state officials is really about protecting fossil fuels interests  – like their home states” oil, natural gas, and coal assets. Texas and Louisiana economics are heavily dependent on production of fossil fuels and that no doubt leads to  the political opposition to ESG and minimizing recognition of the dangers posed by the climate crisis.

While BlackRock and other asset managers may not yet eliminating fossil fuels from the assets managed, or in products offered to investors, there is trimming going on (at other major asset management firms and in a number of state investment funds).  There is also pressure being applied to traditional oil & gas firms to innovate and invest in renewable energy production. 

Consider:  in 2022, renewable sources accounted for 22 percent of energy production while coal accounted for 20%. 

Responding to the misguided opposition to ESG in nine states, Democrats in the House of Representatives formed a sustainable investment caucus to advocate for ESG policies and actions.

Said caucus chair Sean Casten of Illinois to The Hill editors: “Given the significant growth of AUM in funds that prioritize ESG factors, Congress has a duty to craft policies that provide investor protection and transparency ofd information to market participants.”

In an opposition move, House Republicans at month’s end moved to block the Biden Administration action on “allowing” pension plan administrator’s to consider ESG factors in their management of fiduciary funds.  The Republicans passed a resolution that would reverse the U.S. Labor Department rule that allows such consideration.  

This is a see-saw event; depending on which party is in the White House, under ERISA rules, fund managers have been allowed to consider ESG/and prevented from using ESG considerations in fund management.  

The House Republicans claim that using ESG would results in higher fees for “less-diversified” investments in “lower-performing” fund portfolios. (Read:  less fossil fuel investments in sustainable funds.)  

The Securities & Exchange Commission has a rule under consideration to mandate disclosure of GHG emissions by publicly-traded companies. It is expected that the Final Rule could be issued sometime in Q1 2023.

This move no doubt will set off a firestorm in Red state territory, and among the congressional delegations from those states. For public companies operating in those states that have, with sizeable operations in the European Union, new ESG disclosure rules are also being put in place in the EU.  

This year we will see significant conflict in the culture wars over climate change measures at the national, state and even city levels. 

The Federal government leads now in addressing the climate crisis, and Red state congressional leaders could challenge to the SEC’s legislative authority (to enact corporate ESG disclosure rules) when the Final Rule is issued (bringing legislative and judicial action).

The G&A team selected the Top Stories (below) on these conflicts.  We’ll keep you updated throughout 2023 on the culture war battles focused on climate change.

We are at an important inflection point in the effort to seriously address the climate crisis, and in ultra-partisan power circles now, the question posed is: which side are you on?

Top Story/Stories

• This group is sharpening the GOP attack on ‘woke’ Wall Street (The Washington Post) https://www.washingtonpost.com/climate-environment/2023/01/30/climate-change-sustainable-investing/
• House Democrats launch sustainable investing caucus (The Hill)  https://thehill.com/policy/equilibrium-sustainability/3830314-house-democrats-launch-sustainable-investing-caucus/
• Disclosure Rules On Track for Issuance by June (Thomson Reuters) https://tax.thomsonreuters.com/news/new-climate-and-sustainability-disclosure-rules-on-track-for-issuance-by-june/
• Politicians Want to Keep Money Out of E.S.G. Funds. Could It Backfire? (The New York Times – subscription required)  https://www.nytimes.com/2023/01/30/your-money/red-states-esg-funds-blackrock.html
• What’s Behind The ESG Investment Backlash (Forbes)  https://www.forbes.com/sites/christinero/2023/01/29/whats-behind-the-esg-investment-backlash/?sh=5929816c3158
• Davos 2023: BlackRock U.S. inflows dwarf $4 bln lost in ESG backlash -CEO (Reuters)  https://www.reuters.com/business/finance/davos-2023-blackrock-us-inflows-dwarf-4-bln-lost-esg-backlash-ceo-2023-01-17/