Why business leaders must resist the “Anti-ESG Movement”
Here’s an excerpt from this Harvard Business Review piece by Andrew Winston:
Don’t let loud voices keep you from doing what your business is meant to do.
Even as critics of ESG investing get louder, some investors in conservative regions are pushing back. Pension fund executives in Kentucky and North Dakota say they won’t pull money from ESG-friendly financial services firms. And in Indiana and Nebraska, banking associations are lobbying against GOP-written legislation that would force them to pull money from any financial institutions using ESG criteria.
The banks pushing back on anti-ESG laws are not seeking medals for philanthropy; they’re doing it because it’s good business. Environmental and social issues do have sizeable material impacts on companies, which means investors are legally required to consider them. The pension managers in Kentucky said that not investing with BlackRock would “violate [their] fiduciary duty.” The numbers are compelling to support this: A Wharton School of Business study estimated that a Texas anti-ESG law had cost the state $532 million in higher interest payments on municipal bonds. If states embrace these laws, and potentially cost taxpayers hundreds of millions of dollars, it won’t sit well with pensioners.
Investors also have to keep offering ESG products and services because their customers demand it. For example, a few years ago, I spoke at a conference a big bank held for their private wealth clients. I remember the meeting’s host, the bank’s global head of wealth management, telling his uber-wealthy clients, “We surveyed our global customers, and the number one thing you’ve asked for is impact investing and ESG.” That’s an amazing shift in recent years from a normal focus on maximizing returns, philanthropy, and family endowment planning.
It’s not just finance that needs to ignore anti-ESG pressure in favor of customer needs. Consumer products and food companies benefit from marketing to and creating products for diverse customers segments that want sustainable options. And going back to those pharmacy giants again — giving in to state legislatures on reproductive health care means giving up a large market for people wanting access to these products.
The bottom line is that politicians angling for more air time and a presidential nomination will not have the best interests of the economy or your business at heart. You have no responsibility to humor them if they are threatening your profits, business model, or customers.
You may hate to wade into policy issues, but you can’t avoid it.
Companies can’t sit on the sidelines anymore because, well, there are no sidelines. In a transparent world, your silence will speak volumes. Roughly 70 to 90% of respondents in the 2023 Edelman Trust Barometer said they “expect CEOs to take a public stand on issues” such as climate change, discrimination, and the wealth gap.
Of course, these are choppy waters to navigate. But for your stakeholders, your consistency becomes very valuable. You can’t say you stand for equity and then stay silent when the government moves to curtail the rights of many of your employees or customers. Likewise, you shouldn’t have aggressive carbon-reduction goals, but then lobby against any government action to reduce emissions (or let your trade association do it). You’ll need to develop more of a strategy around what some call corporate political responsibility.
So, there’s an important corollary lesson on politics: Business needs to reevaluate who its allies are. Your connection to a party and its philosophies is no longer just about tax rates or special industry incentives or laws. As the culture wars have heated up, it’s been good for politicians with populist leanings to attack business — from all sides. So, assess what will really help your company and sector move down a more just and net positive path, to meet your big carbon-reduction goals, and to protect your vulnerable employees and customers. Work with those in government who will, in good faith, help make that happen.