ESG developments this week
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.
In Washington, D.C., and around the world
House Republicans argue against ESG in financial services report
The House Republican Environmental, Social, and Governance Working Group last week released a report on ESG. The report argued the Biden administration promoted ESG initiatives to advance environmental and social policies without congressional support. It also proposed anti-ESG policies related to proxy voting, shareholder proposals, ESG ratings, and other topics:
The House Financial Services Committee formed the ESG Working Group in February 2023 to “coordinate a response to the troubling increase in efforts to force progressive policies on the private sector,” according to the group’s Aug. 1 staff report.
“Politically motivated ESG mandates put Americans’ financial security at risk and have no place in corporate boardrooms,” said Rep. Patrick McHenry, R-N.C., chair of the House Financial Services Committee, in an Aug. 1 news release. “The committee’s ESG Working Group report supports this fact as well as provides recommendations to address the failures of progressive environmental and social policy goals.”…
Rep. Bill Huizenga, R-Mich., who chairs the ESG Working Group, said in the news release that the report also “delivers tangible solutions to increase transparency and accountability surrounding the shareholder and proxy process.”
House Judiciary Committee continues investigation into ESG practices
House Judiciary Committee Chairman Jim Jordan (R-Ohio) sent letters to more than 130 investment organizations last week, asking about their involvement with ESG and international climate-related investing alliances like Climate Action 100+:
Republican ire has landed forcefully upon alliances that formed around corporate commitments to help combat climate change, partly driven by fears of job losses in the fossil fuel industry. One of those groups is Climate Action 100+, which boasts around 700 signatories.
The committee’s letters pertain to Climate Action 100+’s push for companies to implement plans to deal with the energy transition.
Each recipient was asked what requests they will make of companies in their portfolio, and was told to preserve “all documents and communications referring or relating to the company’s efforts to advance ESG-related goals”.
On Wall Street and in the private sector
Survey finds ESG losing popularity among financial services companies
A recent HSBC survey of financial services companies found that interest in ESG is waning, and investors have other priorities:
Investor interest in ESG is showing signs of stalling as fund managers instead focus more on tackling an increasingly challenging political and economic climate, according to a survey published by HSBC Holdings Plc. …
The survey, which looked at responses from 150 firms with a combined $6.7 trillion in assets, revealed “weakened” reasons for monitoring environmental, social and governance risks “across the board.” At the same time, there was also evidence that ‘sustainability remains partly as an objective across many funds.”
The findings coincide with broader signs of a cooling toward ESG, amid continued backlash fanned by the Republican Party in the US and lackluster returns in key corners of the investment strategy. Against a backdrop of war, energy-supply risks and volatile markets, investors have shown a reluctance to allocate funds to underperforming solar and wind stocks.
Research shows ESG funds lack deforestation guidelines
According to research by Global Witness, large asset management companies—including BlackRock, Vanguard, and State Street—invest in companies that contribute to deforestation. The research found that while most ESG funds have guidelines related to carbon emissions, most do not have specific investment criteria related to forest protection:
Research by Global Witness found that US asset managers BlackRock and Vanguard are among six firms holding over $11 million in active bonds issued by JBS and its subsidiaries via funds with “environmental, social and governance” (ESG) in their name.
While most of the funds’ documentation analysed explicitly cite exclusions relating to fossil fuels and controversial weapons, none outright exclude companies linked to deforestation in their screening process. This is despite forest loss contributing to up to 20% of global greenhouse gas emissions, with agricultural clearance driving more than 90% of global tropical forest loss.
More than half of financial institutions with the largest exposure to deforestation, including BlackRock, Vanguard and State Street, are yet to publish a single policy on deforestation, according to Forest 500’s 2024 annual report. This suggests overall levels of engagement from the financial sector with forest-risk companies are minimal.
In the spotlight
HBO drama incorporates ESG investing
Public awareness of the term ESG has grown outside of the financial services industry in recent years. The trend has been illustrated in the latest season of the HBO drama “Industry,” which features characters involved in ESG investing:
HBO’s finance workplace drama “Industry” is back with a third season, this time around grappling with the merits of ESG investing.
Why it matters: It’s perfectly timed with the current real-world discourse on the topic, as skeptics and opponents ratchet up attacks to discredit the investment approach, which prioritizes environmental, social and governance concerns. …Zoom in: This season brings a slew of new characters from the controversial — but very buzzy — world of green energy and ESG-based investing.