What does it mean to be an ESG skeptic?


Here’s an excerpt from this Substack note from Matthew Sekol:

One of the proxy advisory firms under scrutiny is Institutional Shareholder Services (ISS). ISS offers many types of ESG services and proxy advice options, but like many proxy advisors, it hasn’t provided anything to the anti-ESG crowd. There are two ways to look at this. First, considering non-ESG factors would seem to be just ‘business as usual’ along the lines of traditional investing. Second, ESG issues are material and in pursuit of long-term growth, and material risks are fiduciary already.

Despite these perspectives, this past March, ISS announced that it was partnering with Bowyer Research on a new offering for “ESG skeptics.” According to Reuters, the reason appears to be to quell the anti-ESG scrutiny:

A strong reception for the guidelines could dampen criticism of ISS from U.S. Republican politicians, who have said the Maryland-based firm backs too many shareholder resolutions on environmental, social or governance (ESG) topics.

This led me to wonder how ISS or Bowyer Research defines ESG. After all, if you’re going to be skeptical about something, surely you would define that thing. To reiterate my perspective on the mountain of work, I’ve written about the anti-ESG pushback: You can’t be against ESG because that would break fiduciary duty.

Still, I couldn’t find a definition of ESG on the ISS or Bowyer Research pages.

If you’ve been a subscriber for a while, you know I build on ESG’s original meaning from 2004:

ESG: The material Environmental, Social, and Governance risks that affect a company and opportunities that drive toward long-term value and sustainable growth.

That’s how I define it, but many anti-ESG pundits define it within the issues Bowyer Research lists in its Overview of Our Principles Regarding Proxy Voting and Engagement, which favors shareholder over stakeholder capitalism. Here’s the list as of April 2024 (Bowyer Research):

  • Oppose attempts to pressure companies to diminish the use of fossil fuels.
  • Oppose proposals which pressure financial companies to divest from fossil fuels.
  • Oppose attempts to use congruency proposals to defund professional associations and advocacy groups along ideological lines.
  • Oppose proposals which pressure companies to disinvest from pro-life states.
  • Oppose proposals which seek to embarrass companies for seeking lower-tax jurisdictions.
  • Oppose proposals which seek to focus management toward broad social goals (such as racial justice or general market or economic performance) as opposed to matters under company control.
  • Oppose proposals which discourage financial services offered to businesses engaged in transactions protected by the 2nd Amendment, or impose surveillance obligation towards the same.
  • Support proposals rescinding past decarbonization efforts.
  • Support proposals that call into question debanking and deplatforming practices along religious or political lines, and
  • Support proposals which discourage companies from speaking out on divisive non-core political issues regarding abortion, social justice, and sexual identity issues.
  • Support proposals which examine the risk that DEI programs create legal risk in light of the Harvard SCOTUS ruling regarding race and gender quotas.

It is quite the list of issues without much consideration for materiality. For example, surely a healthcare company would talk about issues of abortion and sexual identity, no? Why would you support a motion to rescind a past decarbonization effort indiscriminately?

Look, not every sustainability or social justice resolution is actually ESG-related, as they are not all material either. And I’m also all for investor choice, so I won’t complain that this is an option. Still, is Bowyer Research really an ‘ESG skeptic’ or simply ‘anti-ESG?’