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Over the past 18 months, the Environmental, Social, and Governance (ESG) agenda has been hampered by corporate DEI initiatives, declining investment dollars, and the collapse of the Net-Zero Insurance Alliance.
Just last month, major banks withdrew from net-zero partnerships and Meta dismantled many of its Diversity, Equity, and Inclusion (DEI) programs. ESG seems to be getting overlooked. But don't be fooled.
A closer look at what the banks are saying reveals that they are still full of unrepentant ESG investors. Many of the proposed changes are superficial or aesthetic rather than reflecting a fundamental change in philosophy.
Diversity, equity and inclusion programs have been the subject of heated debates of praise and blame. (Adobe Stock)
A number of Fortune 500 companies (including McDonald's and Walmart) representing billions of dollars in market cap and millions of employees have pushed back or changed their DEI plans by 2024. Investment funds with the ESG label have been bleeding money over the past two years. And the incoming administration has promised to remove DEI from government agencies.
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The Net-Zero Insurance Alliance fell apart amid a wave of insurance companies moving in the past year, with several state attorneys general expressing concern that participating in such an alliance could violate antitrust and antitrust laws. US states bailed out billions of dollars from Blackrock over ESG concerns.
These changes are welcome corrections to the flawed and deeply held intentions of ESG advocates. The last dominoes to fall are America's major financial institutions. Goldman Sachs, Wells Fargo, Citigroup, Bank of America, and JP Morgan have all withdrawn from the global Net-Zero Banking Alliance.
Even Blackrock, once an advocate of ESG, withdrew from the Net Zero Asset Managers Initiative. While this may appear to be part of the ESG backlash, the criticism is justified.
If you look at the press releases from these big financial institutions, you will find that they are unrepentant and still intend to pursue net zero goals. For example, Goldman said: “Our priority remains helping our customers achieve their sustainability goals and measuring and reporting on our progress.” Citigroup was even more blunt: “we remain committed to reaching net zero.”
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Blackrock was clearly unrepentant. “[O]your membership in some of these organizations has caused confusion… and made us question the law… [But this] it doesn't change the way we develop products and solutions for clients or the way we manage their portfolio.” Translation: “We just want to distance ourselves from problematic PR, but we're not changing a single thing about how we do business.”
The moves by these big banks seem to mimic Blackrock CEO Larry Fink's strategy of not using the term “ESG” because it was a political hot potato, but remaining committed to “the bottom line.” Blackrock continues to invest heavily in green infrastructure and renewable energy projects.
It is good if their customers openly ask for such investments. But as American Airlines learned last week, pension fund managers have a fiduciary duty to pursue the best financial returns for their clients and can be held liable for using the funds they manage to obtain other benefits.
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While superficial progress has been made by US financial institutions withdrawing from destructive global alliances, they appear to be reluctant when it comes to actually changing their ways. This should not be surprising because bank employees have not changed much. And we see no evidence of a change of heart when it comes to ESG.
Instead, they seem to be concerned about public pressure and criticism from revenue agency executives and state government officials. Withdrawing from these alliances also gives them a free hand to show full intentions without having to deliver on a set date.
But if ESG policy was disruptive and damaging before, it is still so now. Ideological ESG priorities hinder companies' ability to operate efficiently and benefit their contractual stakeholders. Companies have a hard enough time making a profit without pursuing important social issues.
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Banks would do better to clarify their commitment to increasing shareholder value and doing business with everyone. The pursuit of long-term profitability effectively benefits shareholders, employees, suppliers and customers.
Most companies, especially financiers, need to clean house in their human resources departments to focus on value creation instead of ethnic identity politics or expensive beauty labels on environmental and social issues. And as the American Airlines case shows, companies that fail to do so may breach their fiduciary duty to customers and shareholders.
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