Year in review 2023, part one

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.

This week and next, Economy & Society will review the most important ESG developments from 2023. 

This week’s edition will focus on stories related to the pushback against ESG. 

Stay tuned next week for our breakdown of the biggest developments supporting ESG efforts.

Top five stories of the ESG pushback in 2023

1. Congressional Republicans opposed ESG

Congressional Republicans in 2023 identified ESG as a policy priority, started arguing against the practice, and began opposing it through hearings, investigations, and legislation. Congressional actions opposing ESG in 2023 included the following:

  • The House GOP in February formed an ESG working group to study the effects of ESG and recommend further policy actions. 
  • Both the House and the Senate voted in March to undo the Department of Labor’s rule allowing for the use of ESG in ERISA-governed retirement plans. (President Joe Biden later vetoed the bill).  
  • The House Financial Services Committee began holding hearings on ESG in May.  
  • The House GOP focused on ESG policy in July. The month featured several hearings and the passage of four bills opposing ESG out of the Financial Services Committee.  
  • In August, the House Judiciary Committee began subpoenaing documents from large financial firms related to possible antitrust law violations concerning ESG practices. The committee continued issuing subpoenas through the end of the year.

Although the House Republicans were not successful in enacting legislation, they did draw attention to ESG and push back against Democratic colleagues and financial services firms who supported the practice.

2. States continued ESG pushback

Although the pushback in the states against ESG started in 2022, state officials remained engaged in opposing ESG in 2023 as well. In addition to 2022’s pushback from state financial officers, 2023 saw more involvement from governors, legislatures, and attorneys general (who focused on investigating and litigating financial service companies’ net zero pledges and group memberships as possible antitrust violations). For example, we covered this story in Economy and Society’s September 19 edition:

Twenty-two state attorneys general, led by Tennessee’s Jonathan Skrmetti, are warning financial services companies that they may be violating antitrust and consumer protection laws by engaging in a climate activist alliance aimed at achieving net zero carbon emissions.

The letter to financial services providers that are signatories to the Net Zero Financial Service Providers Alliance (NZFSPA), which is identified as “a global group of Service Providers committed to supporting the goal of global net zero greenhouse gas emissions by 2050 or sooner.”

“We are writing to express our concern that your NZFSPA commitments may violate state and federal law, including antitrust laws and consumer protection laws,” the letter states. “Although many NZFSPA signatories are direct competitors with each other, they nevertheless commit to using their market influence to enforce their collective climate agenda in the broader economy.”

3. ESG entered presidential political conversations

ESG also entered the 2024 presidential political discussion in 2023. We discussed in the February 7 edition of this newsletter the coverage of Vivek Ramaswamy, his opposition to ESG, and his anticipated candidacy:

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.

We also noted on the same day the anti-ESG efforts of eventual presidential candidate and Florida Governor Ron DeSantis (R):

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.

Two weeks later, we covered a campaign video from former president Donald Trump (R) making ESG a campaign issue:

Donald Trump is seizing on growing objections among Republicans to investments based on environmental, social and governance principles, with a campaign video posted Friday opposing so-called ESG strategies.

The former president, who’s making his third White House run, complained in the video about Wall Street and employers using “radical-left garbage” when investing retirement accounts. He vowed to sign an executive order, if he returns to office, “to support a law to keep politics away from Americans’ retirement accounts forever.”

During the final months of his presidency, Trump pushed to ban private-sector workplace retirement plans from considering ESG principles when selecting or monitoring investments.

4. ESG investments lost popularity in the U.S. and U.K.

ESG investment funds lost support and funding in 2023 following relatively poor performances compared to other sectors and the broader market in 2022. For example, Bloomberg released the results of a survey in August 2023 showing that a majority of financial services professionals had pessimistic projections for ESG funds:

The outlook for ESG is getting bleaker based on the results of Bloomberg’s latest industry survey.

Most Bloomberg terminal clients taking the survey expect ESG funds to underperform general market benchmarks in the next year, while a growing number say ESG is nothing more than a passing fad. …

[A]lmost 90% of 116 Bloomberg terminal clients who aren’t directly engaged with ESG expect the sector’s investment funds to lag behind market benchmarks in the next year, and 55% of 181 terminal clients who are engaged in ESG — and have more skin in the game — also are pessimistic.

We covered reports in October that ESG funds were closing at a historically high pace:

BlackRock Inc. and other money managers spent years rolling out sustainable funds, seeking to capitalize on surging interest in ESG investing. Now they’re abandoning an increasing number of those products in the US amid political backlash and investor scrutiny.

State Street Corp., Columbia Threadneedle Investments, Janus Henderson Group Plc and Hartford Funds Management Group Inc., among others, unwound more than two dozen ESG funds this year, according to data from Morningstar Inc. …

While the US had 656 sustainable funds as of June 30, according to Morningstar data, the number of liquidations is increasing from prior years. More US sustainable funds have closed in 2023 than the prior three years combined, the data show. Investors pulled more money from the funds in the first half of the year than they put into them.

We also noted the same month that investors in the United Kingdom became net sellers of ESG investment funds:

Investors in Britain dumped both stocks and bonds in August as they continued to opt for the safety of cash and money-market funds, according to data from fund network Calastone published on Tuesday.

Funds focused on environmental, social and governance issues (ESG) also saw a fourth consecutive month of net selling, down 953 million pounds – taking the total pulled from such funds to nearly 2 billion pounds since May. …

“The move out of ESG funds has gathered pace in a remarkable reversal after the boom in recent years. Four months of outflows signals a new trend emerging that fund houses will have to work hard to counteract.”

5. ESG supporters stopped talking about the investing strategy

Eleven major financial services firms deprioritized ESG in their Q1 earnings reports or stopped using the term completely, as Bloomberg noted in March:

Banks and financial firms are quietly recalibrating how they talk about ESG investing in the US, navigating around potential political fights in order to avoid losing lucrative business.

Eleven major banks and money managers told Bloomberg News that they’re adjusting the language they use in pitch books, marketing materials and investor reports when seeking to sell funds and take part in financial deals. In some cases this means avoiding using the ESG acronym and related terms in Republican-led states, while for blue states, they’re playing up their ESG credentials, according to representatives of the financial firms who asked not to be named discussing private information.

The different language doesn’t reflect a change in underlying services, just an acknowledgment that words need to be adjusted depending on who the client is, the people said. In general, they spoke of a desire to tweak language to refer to the long-term cost of things like flood risk, land erosion and extreme weather, rather than using potentially divisive terms like climate change.

BlackRock CEO Larry Fink said in June that he also preferred to avoid using the term ESG:

BlackRock CEO Larry Fink said he’s no longer using the term “ESG” (environment, social and governance) because it is being politically “weaponized” and he’s “ashamed” to be part of the debate on the issue. …

What he’s saying: “I’m ashamed of being part of this conversation,” Fink said.

 “When I write these [investment] letters, it was never meant to be a political statement. … They were written to identify longterm issues to our longterm investors,” he told the crowd.

Yahoo Finance reported two weeks later that 74 S&P 500 companies—down from a high of 156— mentioned ESG in their Q1 earnings calls:

BlackRock’s Larry Fink isn’t the only CEO no longer using the now-controversial acronym ESG.

ESG — which stands for a focus on environmental, social, and corporate governance principles — was mentioned by just 74 S&P 500 companies on corporate conference calls held during the first-quarter earnings season, according to data gathered by FactSet.

That was the lowest count in nearly three years and down from a peak of 156 in the fourth quarter of 2021. Executives are now more likely to mention artificial intelligence (AI), which garnered 110 mentions in calls held from March 15 through June 9.

Coming up

Join us next week for our breakdown of the biggest developments supporting ESG and its usage.