ESG - from hype to gripe

Did you know that the number of S&P 500 companies mentioning the abbreviation ESG on earnings calls topped 150 in late 2021 but then dropped to a little over 50 by late 2023?

That’s according to FactSet data cited by the Wall Street Journal recently. The reason it was cited was an observation that companies which a couple of years ago liked nothing better than to talk about ESG and how they’re big fans, are now reluctant to even mention the thing — because that could cause them problems. And cost them money.

Yet while they are talking less about ESG, companies are not, apparently, doing less ESG. As if it’s shameful somehow and must be done on the quiet. Only it’s not shame that’s driving the growing silence on transition and diversity. It’s fear.

In the United States, this fear is from litigation and state fund asset pullouts, after conservative states went on the offensive against so-called responsible investing by asset managers, calling it — rightly — discriminatory.

In the EU, the fear was the result of a tightening in greenwashing regulations to avoid said greenwashing. Basically, the less you talk about your green endeavours, the less likely they are to be found lacking in substance.

It is an awkward situation not without humorous potential as executives are at a loss how to call their low-carbon efforts — and how much to speak about them at all. So much for ESG as the magic word that would bring investors rushing in. Bring investors it might, but it will also attract unwanted attention from regulators — in the EU — and bad old conservatives in the States.

But rest assured they are forging ahead with the transition because there is no other way. Apparently. The problem facing the business leaders right now seems to be that they can do the transition but they don’t know how to boast that they are doing the transition. In case you thought this whole thing couldn’t get any more ridiculous.

“I used the abbreviation ESG, and people taught me not to use that word,” the CEO of AXA, the French insurer, Thomas Buberl told the Wall Street Journal earlier this month, commenting on exchanges he had with asset management executives in the U.S. “I said, ‘What do you want me to call it?’”

The very next sentence in the report is: “Few people had a ready answer.” It’s hysterical, really. If you talk about ESG in the U.S., some conservative governor might come at you for discriminating against oil and gas.

Yet even if you decide to use “responsible investing”, a popular synonym of ESG, the attack won’t stop because you are, indeed, discriminating against certain industries in favour of others.

It’s tough to avoid accusations of discrimination, whatever words you use to try and mask said discrimination when that same discrimination is a fact. And it goes against existing antitrust regulations.

But it’s even tougher in the EU. Claim “responsible investing” in the EU, and you’ll be challenged to provide specific proof of just how responsible you are and is it as responsible as you claim to be.

Producing that proof would be no picnic with the EU’s new anti-greenwashing rules. I mean, companies can no longer even claim they’re good transitioners because they planted a few thousand trees to offset their use of plastic bottles. And it feels like they’re all just warming up.