A look ahead at ESG in 2023

Economy and Society is Ballotpedia’s weekly review of the developments in corporate activism; corporate political engagement; and the Environmental, Social, and Corporate Governance (ESG) trends and events that characterize the growing intersection between business and politics.

A look ahead at ESG in 2023

This week, we’re taking a look at what some analysts are predicting for the ESG landscape in 2023.

ESG regulatory developments in 2023

LexisNexis is hosting a seminar today (February 14) titled “ESG in ’23: Key Capital Markets Trends & Developments.” According to the seminar’s summary notes, the discussion will focus on the following:

The rise of ESG has impacted almost every area of business and economic life, and the capital markets are no different. Recent months have seen an increased pace in regulatory developments in this area, both in the US and further afield.

In this webinar, speakers from Debevoise & Plimpton will discuss ESG related capital markets regulatory developments in the US (such as the SEC’s Climate Change Rule proposals) and in Europe (such as the Corporate Sustainability Reporting Directive). The team will focus on key questions being asked by their clients right now, and draw some conclusions on what to watch out for in 2023.

Based on the description provided—and the speaker bios—analysts are expecting the seminar to be a relatively clinical and politically neutral discussion about anticipated regulatory events in the months ahead. “The SEC will do this in March. The EU will do that in May. And the Federal Reserve will do the other in August,” etc.   

Competitive Enterprise Institute senior fellow predicts larger government role in shaping ESG policies  

Other 2023 forecast pieces have made predictions based not just on calendar events but on the expectation that ESG will continue to capture the imaginations of the nation’s politicians, academics, and others on both sides of the ESG debate.

For example, National Review Online last week published the following forecast piece by Richard Morrison, a senior fellow at the Competitive Enterprise Institute:

Politicized finance — and the government’s role in it — is going to be a bigger issue than ever in 2023, and both institutional and individual retail investors could be in for some major surprises. Legislative proposals at the federal level will be taking aim at environmental, social, and governance (ESG) investing policies, in a backlash that has only accelerated since a year ago. …

[S]everal Republicans in Congress have recently made ESG a top issue, including members of the House Financial Services Committee, now chaired by Representative Patrick McHenry (R., N.C.).

Even in a divided Congress in which House Republicans can expect little cooperation from the Democrat-controlled Senate, having the Financial Services gavel switch hands from Maxine Waters (D., Calif.) to McHenry is a dramatic change. McHenry has already made clear that he will be calling Securities and Exchange Commission chairman Gary Gensler to testify on the agency’s ESG initiatives, in particular the jaw-droppingly expensive and invasive climate-disclosure rule that it is currently finalizing. Less discussed, but no less likely to be a source of interest to the committee, is the SEC’s planned “human-capital management” rule, which could mandate every public company in America to collect and disclose the demographic information (race, sex, ethnicity, sexual orientation, and gender identity) of every employee. A “self-regulatory” rule adopted by NASDAQ and approved by the SEC in 2021 already requires such disclosures in the context of boards of directors.

Besides seeing Chairman Gensler grilled before the full Financial Services Committee, or at least Bill Huizenga’s (R., Mich.) Subcommittee on Oversight and Investigations, we should expect several ESG-related bills to be filed in this session of Congress. Some will be reintroduced versions that dropped in the 117th Congress but understandably didn’t go very far under Speaker Pelosi. Huizenga, for example, will likely reintroduce both the Index Act and Mandatory Materiality Requirement Act. Originally co-sponsored by fellow Financial Services Committee member Blaine Luetkemeyer (R., Mo.), the Index Act would require asset managers to vote on shareholder resolutions in accordance with the instructions of fund investors rather than at their own discretion. Meanwhile, the Mandatory Materiality Requirement Act, co-sponsored in 2022 by Andy Barr (R., Ky.), would amend the Securities Act of 1933 and the Securities Exchange Act of 1934 to establish a statutory definition of “materiality” to guide SEC rulemaking, thus limiting the creative reimagining of what constitutes a material disclosure that ESG advocates have been promoting.

Other efforts from last year that we might see return to prominence in 2023 include the ESG Rule Prevention Act from Byron Donalds (R., Fla.), a noted ESG skeptic, as well as more narrowly tailored efforts to block the SEC’s policy agenda such as the Stopping Excessive Climate Reporting Act from Beth Van Duyne (R., Texas). Donalds’s effort would stop the federal government from using greenhouse-gas reporting as a requirement for procuring federal contracts — a common gambit when the federal government wants to achieve a given outcome in the economy but stops short of creating a hard mandate. Representative Van Duyne’s bill would simply stop the SEC from following through on its pending climate-disclosure rule, walling off the agency from using its authority under the 1934 Securities Exchange Act to require greenhouse-gas-emissions disclosure. The top players on the issue in the Republican caucus are now also poised to collaborate via the recently announced ESG Working Group, which is chaired by Huizenga and will include Donalds and others.

ESG author and critic predicts “pushback against the pushback against ESG”

Stephen Soukup, a market analyst, a critic of ESG, and the author of The Dictatorship of Woke Capital, has argued that 2023 will be the year that “The Empire Strikes Back,” meaning that it will be marked in part by the “pushback against the pushback against ESG.”

The intellectual collapse of ESG, coupled with the market collapse – in which ESG funds trailed the broader markets badly this year – should, by all rights, mean that 2023 is the year that ESG dies and we are freed from its ideologically animated clutches.  By our timeline, 2019 was the year that Big Business let the mask slip and showed its political face to the masses; 2020 was the year that the lonely fight against ESG and shareholder activism was joined by many longtime market observers (ourselves included); 2021 was the year that the details of the fight were brought to the masses by assorted observers (ourselves included); 2022 was the year that the widespread pushback began in earnest and ESG “fell to earth;” and 2023 should be the year it all ends.

But it won’t be.

As we begin the year and plot our forecasts for the next several months, we’ve concluded that 2023 will be the year of ESG institutionalization, that is to say that this is the year that institutions mostly external to the capital markets will keep the ESG dream/nightmare alive.

The first and most obvious institutional culprit will, of course, be “government,” specifically the federal government….[T] the Labor Department recently released its final rule on what it calls removing “Barriers to Environmental, Social, Governance Factors in Plan Investments.”  What this means is that ERISA plan fiduciaries can now consider ESG factors/investments in their management of retirement accounts.  The final rule is, fortunately, considerably less radical than was the initial proposed rule – in that it dropped wording that made it appear that ESG consideration was, more or less, mandatory – but it will still likely be a boon to ESG providers….

[T]he world still awaits the Securities and Exchange Commission’s final rule on mandatory climate risk disclosures.  Many analysts have assumed that the Supreme Court ruling in West Virginia v EPA would dissuade the SEC from being too aggressive in its final rule, but we remain guarded.  For one thing, SEC Chairman Gary Gensler wants desperately to be the next Treasury Secretary and may be tempted to do whatever it takes to burnish his liberal/environmental bona fides.

And speaking of the Treasury Secretary, in addition to Gensler, a name that is frequently mentioned as wanting the position post-Yellen is that of Larry Fink, who, as you know, is the king of ESG.

Additionally, the Federal Reserve poses risks to free markets with its own brand of ESG enforcement.  Opponents of ESG scored a HUGE victory when they helped defeat the nomination of Sarah Bloom Raskin to be Vice Chairman of Supervision, but that doesn’t mean that the environmental risks emanating from the Fed have been eliminated.  Quite the opposite, in fact…

A second source of institutional support for the otherwise obsolete ESG rubric will be the nation’s institutions of higher education and especially its business schools.  This should come as a surprise to no one, of course, as higher education has long been the incubator of many of society’s pathogens.  Even so, the fervor with which some of the best-known and most important business schools have committed themselves to perpetuating the failure of ESG is discomfiting.

For example, over at RealClear Investigations today, Ben Weingarten has an excellent account of the ESG/woke-ification of the Wharton School and the impact it may have on business education broadly.  Both Wharton’s denial of reality and Weingarten’s takedown of its plans and schemes are brutal.

Other ESG Developments This Week

In the states

Florida governor shares ESG concerns

Florida Gov. Ron DeSantis (R) spoke at a college on February 13 where he expressed concerns about ESG and discussed government efforts to oppose ESG investing:

Florida Gov. Ron DeSantis spoke at Florida SouthWestern State college’s Collier Campus in Naples. Signage at the event read “Gove spoke at a college on February 13 and again attacked ESG and, again, discussed government efforts to address the matterrnment of Laws, Not Woke Politics.” The governor proposed new legislation to end ESG “woke” banking.

He called it a push against “these elites” attempting to “inject political ideology into investment decisions, corporate governance, and really just the every day economy,” saying it would not work out well in Florida or in the United States, and that there wasn’t much support among everyday Americans….

DeSantis said the purpose of ESG was to limit oil and gas, and that companies using ESG “did not want us to be energy independent.” He did not cite specific examples of either specific companies or statements made to that effect by any.

“It affects our national security. When you have to go to foreign countries that are hostile to us to try to get energy, that is not a good place to be in,” DeSantis said. “What ESG wants to do is put a premium against that type of business. It’s also bad for our national security, when you’re doing this stuff with ESG, you are increasing the costs that businesses have to comply with in the United States.”

DeSantis said it hurt national interests by forcing the U.S. to use foreign supply chains, saying that America had to recapture the supply chain rather than rely on countries like China for production. He referred to circumstances during the COVID-19 pandemic as an example, and that China didn’t deal fairly.

Switching to investment policies, DeSantis said “it also violates the fiduciary duty that executives have to the shareholders have to publicly traded companies,” pointing to how funds used to produce returns on pensions and retirement funds were affected….

DeSantis said ESG instead “does an end run around” elections for deciding governing policies. He said companies who say having an enforced border policy was wrong and “could never win favor” during an election. To that point, DeSantis called ESG a “distortion of a government of by and for the people,” which lacked accountability to Americans.

Possible 2024 presidential candidate discusses ESG in Iowa

Politico reported February 13 that Vivek Ramaswamy—author of the bestselling book “Woke, Inc. and co-founder of the Columbus, Ohio-based Strive Asset Management—may be considering a run for president:

DES MOINES, Iowa — At 37 years old, Vivek Ramaswamy has made hundreds of millions of dollars, written a New York Times bestseller and become a fixture on Tucker Carlson’s show. Recently, he was dubbed by the New Yorker as the “CEO of Anti-Woke Inc.”

But on a chilly Monday evening last month, Ramaswamy found himself in a place far from the Fox News green rooms and high-powered corporate board rooms he’s used to. He was at a dinner event in Iowa, addressing a crowd of dozens of the state’s agricultural royalty tucked inside a huge upscale barn with exposed wood beams and the heads of elk and bison mounted on the walls….

Ramaswamy was there to do what people with ambition, a thirst for the spotlight and an overflowing sense of self-confidence occasionally go to Iowa to do. He is exploring a run for president, testing, among other things, whether his warnings about the dangers of “wokeism” and socially-responsible investing — in business vernacular what’s called environmental, social and governance (ESG) investing — has political currency with Republican politicians, business leaders and, yes, farmers.

Ramaswamy has a theory for how this will all go. He wants to pull off what Donald Trump did in 2016: enter the race with an entrepreneurial spirit, unorthodox ideas, and few expectations, and end up developing a major following that will carry him to the presidency — even if it seems like a long shot at the moment.

Ramaswamy, who bills his firm as a post-ESG asset manager (rather than anti-ESG), confirmed Politico’s speculation to Fox News Digital:

Ramaswamy has been making the rounds in Iowa, delivering a message against the invasion of woke liberal ideology in the business world, according to a new Politico report. He has also appeared in New Hampshire – with plans to return to the home of the nation’s first primary later this month – and has been assembling a team of GOP operatives and former campaign advisers.

“Yes, I am strongly considering it,” Ramaswamy confirmed to Fox News Digital. 

So far, he seems confident in his chances of success.