ESG - Ever So Gone

ESG - Ever So Gone

Environmental, Social, and Governance (ESG) investing has seen a sharp decline in the US, impacted by its entanglement with political and cultural conflicts. The initial promise of ESG to foster a clean, sustainable shift in capitalism has largely been abandoned. The term "ESG" itself has been politicized, particularly by right-wing politicians, with Larry Fink of BlackRock stating it has been "weaponized" and should no longer be used. BlackRock has become a target for conservative critics, even labeled in a recent book alongside the Boy Scouts and the Chinese Communist Party as a "decadent" institution. Many supporters of ESG are also disillusioned, seeing it as more of a marketing tactic than a meaningful investment strategy. Several firms, including WisdomTree and Invesco, have faced fines for “greenwashing” their products. Additionally, BlackRock faces allegations in France that some of its "sustainable" funds are still investing in fossil fuels.

Across the Atlantic, regulations around ESG differ starkly. European regulators have set clear environmental impact standards for ESG labeling, challenging fund managers to make significant changes if they wish to market funds as “ESG-friendly.” This makes it challenging for European fund managers to keep investing in US markets, where the best returns are often found. Conversely, the US Securities and Exchange Commission (SEC) has scaled back its ESG disclosure requirements, undermining a core principle of ESG, which relies on standardized, transparent data. The SEC even disbanded its ESG task force, and the Trump administration is expected to further dismantle any remaining ESG-related rules if elected.

Market data underscores ESG’s decline. BlackRock’s flagship clean energy fund has lost substantial value since a boom in 2021, primarily due to falling stock prices in the clean energy sector and declining investor interest. US interest in ESG has sharply declined across Google searches, media coverage, and earnings call mentions, which have now returned to pre-pandemic levels. Although interest has dropped in the US, other regions maintain relatively steady interest in ESG.

BlackRock’s latest shareholder reports highlight waning support for environmental and social proposals, with backing for these initiatives dropping from 20% to just 4% in the past two years. BlackRock itself has reduced its support for these proposals, criticizing some for being redundant or poorly constructed. With dwindling support and political resistance, the vision of ESG as a driver for meaningful corporate change in the US appears to be over. As the US shifts toward a more nationalist and mercantilist approach, ESG’s ideal of transforming capitalism seems to have been comprehensively defeated. Now, the focus may shift to how this new economic nationalism will shape American business practices.

Source: Bloomberg 11.11.2024, John Authers