The ESG Battles: Off-Again, On-Again
The raucous debate over incorporating environmental, social, and governance (ESG) considerations into investment decisions by asset managers lost steam in 2024 but is poised for a reset this year. The heyday for arguments between pro- and anti-ESG positions was 2023, when the Republican-led House Financial Services Committee conducted seven hearings on ESG-related topics in just one month—leading the committee to dub July 2023 “ESG Month.” This glut of ESG discussions was followed by a drought in 2024, when only one such hearing took place: “The Fall of ESG: Scrutinizing the Failed Use of Environmental, Social, & Governance Standards and the Influence of Proxy Advisers.” That year, in keeping with the adage “the U.S. innovates, and the EU regulates,” the epicenter of ESG-related discussion moved from the United States to Europe and the United Kingdom. A review of 2024 ESG-related laws shows only one relevant piece of legislation in the States; however, with the Senate’s new Republican majority and the Republican-controlled House leaning anti-ESG, it is more likely that legislation can reach the president’s desk to be signed into law.
In 2023, the Financial Services Committee formed an “Environmental, Social, and Governance (ESG) Working Group” tasked with developing a policy agenda to “protect the financial interest of everyday investors from progressive activists who are using our institutions to force far-left ideology on Americans.” Issued in August 2024, the group’s final report focused on coordinating “a response to the troubling increase in efforts to force progressive policies on the private sector.”
In addition to the anti-ESG reports issued by Republicans on the Financial Services Committee, the House Judiciary Committee’s Republican majority issued a report on June 11, 2024, titled “Climate Control: Exposing the Decarbonization Collusion in Environmental, Social, and Governance (ESG) Investing.” As if to steal their thunder, Democratic members of the Judiciary Committee issued a pro-ESG “counter-report” that same day: “Unsustainable and Unoriginal: How the Republicans Borrowed a Bogus Antitrust Theory to Protect Big Oil.”
The collective heft of the dueling reports tips the scales at hundreds of pages. Boiling down the ocean of words, the anti-ESG side maintains that “woke” liberal actors are attempting to impose a radical leftist agenda by requiring asset and pension managers to consider ESG factors at the expense of investment financial performance—putting them in violation of their fiduciary duty. Pro-ESG forces maintain that ESG factors do and should figure into investment decisions and that prohibiting managers from analyzing ESG factors is anti-free market. These arguments reached ludicrous proportions, with some anti-ESG advocates embracing bizarre conspiracy theories such as “The Great Reset,” which condemns ESG investing as a ploy by a global elite planning to limit personal freedoms including hamburger consumption and driving gas-powered cars. At the other end of the spectrum, ESG supporters accuse the anti-ESG community of shilling for the oil and gas industry, bankrolled by dark money-funded think tanks and donor-advised groups.
What lies ahead?
The installation of a second Trump administration may furnish a renewed boost to the cacophonous ESG debate, given expectations for an anti-regulatory business environment. Beyond Congress and state capitols, another battlefield for governance (the “G” in ESG) involves shareholder proposals, a vehicle for activists to introduce programs for consideration at public company shareholder meetings. An analysis by the Harvard Law School Forum on Corporate Governance found that support for anti-ESG proposals sputtered in 2024. Although 82 anti-ESG proposals were voted on that year (representing a 13-fold rise from 2015), only 1.9 percent garnered support—well below the 5 percent threshold required. Support has fallen by almost a third over the past decade, with only four of 81 votes in the first half of 2024 meeting the 5 percent resubmission threshold.
Meanwhile, the volume of shareholder proposals targeting insurance companies has increased. Both Chubb Limited and The Travelers Companies have been targeted by As You Sow, a nonprofit shareholder advocacy organization promoting environmental and social responsibility. As You Sow proposed that Chubb produce a report on greenhouse gas emissions produced by its operations. The proposal garnered support from 28.3 percent of Chubb’s shareholders. A similar campaign directed against Travelers reached 15.5 percent. Such proposals will likely repeat in 2025.
So which forces will prevail—pro-ESG or anti-ESG? And which side is right? Here, the truism applies: “There are three sides to every story: your side, my side, and the truth. And no one is lying.”