What is the anti-ESG movement?
The “anti-ESG” movement is an umbrella term for the backlash towards ESG investing, from both market players and politicians. “Anti-ESG” sentiments vary across a spectrum - They range from measured criticism about the feasibility of implementing standardised ESG regulation; to controversial statements like HSBC’s head of responsible investing, Stuart Kirk, bluntly dismissing ESG investing as “irrelevant” and that ESG investors were trying to “out hyperbole the next guy”. However, an even more extreme end of “anti-ESG” has emerged - a movement that is actively seeking to undo progress in ESG. This begs the question of whether this criticism is just a passing reactionary response, or a genuine movement that could spell the end of ESG.
Excellence over politics?
Most recently, the fury of the anti-ESG movement has reached the shores of the world’s largest asset manager, BlackRock. In August 2022, 19 Republican politicians wrote an open letter to Blackrock’s CEO, Larry Fink. The letter makes several claims that BlackRock’s investment in the energy transition and ESG funds violates its “claimed neutrality” and its fiduciary duties of loyalty and care. This criticism has manifested as tangible hurt - US Republicans have since withdrawn more than $1 billion from BlackRock.
However, this intense backlash seems to be misdirected. BlackRock is far from a leader in ESG investing. Some things that would raise eyebrows over the asset manager’s green credibility: it withdrew support for shareholder ESG-centered proposals this year; leaked email threads showed continued support for O&G behind close doors, in a shocking back pedal from its public comments disavowing the industry; and a scathing critique of ESG investing as a “dangerous placebo” by Tariq Fancy, its former head of sustainable investing. With BlackRock’s troubled history, the anti-ESG movement’s narrowly targeted fury seems to be misplaced, suggesting a lack of thorough research and substance. Additionally, in response to the recent wave of criticism, BlackRock has since denied that such accusations of climate activism are mere “misconceptions”, and reiterated that its main goal remains as “achieving the best long-term value for shareholders”. This incoherency suggests that the anti-ESG movement falls short of genuine substance or sincerity, and is likely targeting such large actors for the publicity.
Companies like BlackRock have long drawn flak from social justice and climate activists
Such attempts to dictate the actions of companies is a typical strategy, straight out of the anti-ESG movement’s historical playbook. Conservative shareholder activism is also on the rise - in 2022, the number of conservative shareholder proposals doubled. Beyond environmental grievances, these proposals have targeted social and corporate governance initiatives, such as racial equity and diversity programmes. Most relevantly to retail investors, the discontent with ESG investing has also bubbled over into the form of a slew of “anti-ESG” ETFs. Of particular success is Strive Asset Management’s US Energy ETF (DRLL); which invests in O&G companies, such as Exxon Mobil and Chevron, and garnered $300 million in its first month. This choice of industry is no accident - it is a deliberate, calculated strike of protest against the energy transition, with co-founder Vivek Ramaswamy announcing that shareholders can encourage O&G companies to “drill more and frak more’. Strive’s slogan, “excellence over politics” aptly sums up its core belief that the main fiduciary duty of investors lies with maximizing financial returns, instead of to “advance social objectives”. When making investment decisions, for them only the traditional bottom line and financial data of a company should be considered.
Yet, despite Strive’s lofty ambitions, its main arguments lack substance.
O&G: Sunset or sunrise?
Firstly, its focus on typically “unsustainable” industries is not uncommon - Ironically, even ESG funds themselves are pivoting back to investing in O&G. 6% of European ESG funds now invest in Shell - in just 2021, 0% of such funds owned shares. ESG funds have also increased their investments in other traditional energy firms. This is largely due to the current energy crisis and concerns over pursuing energy security. Additionally, just last month, the European Parliament shockingly voted to pass a law designating natural gas and nuclear energy as sustainable investments in the EU taxonomy. As tensions mount between the opposing ends of ensuring basic needs and pursuing higher goals, this suggests that Strive’s calls for returning to stripped back, pragmatic concerns are not without merit.
Yet, mounting evidence also suggests that it is misguided at best, and deliberately ignorant at worse, to ramp up investing in fossil fuel industries. 50% of the world’s fossil fuel assets are set to become worthless by 2036, totalling an estimated loss of $11tn-$14tn in stranded assets. This is due to efforts of the energy transition movement, which have increased access to renewable energy. For example, the worry that Europe’s energy crisis would cause overwhelming demand and skyrocketing prices for fossil fuels has not materialised. In a surprising twist, the spot price of European natural gas has fallen, and even dipped into negatives in October 2022. This partly stems from the increased use of renewable energy as a substitute for natural gas - Research shows that between March and October 2022, wind and solar energy constituted a record 25% of the EU’s electricity generation, which saved the EU €99 billion in avoided gas imports. As demand slows, doubling down on fossil fuel industries is both socially and fiscally irresponsible. Instead, the need for divestment is more pertinent than ever, highlighting a key economic flaw in anti-ESG investing.
The legal grounds for ESG investing
Secondly, Strive’s claims that investors are exceeding their fiduciary duties in making ESG investments alludes to a broader global debate concerning the relevance of ESG factors to investment decisions. On one hand, there have been supporters of Strive’s line of reasoning. For example, Texas introduced Senate Bill 13 in 2021, targeted at businesses which are divesting from fossil fuels. The “anti-boycott” format bill bars state investors from investing in such companies. This has sparked a wave of American anti-ESG legislation. Florida approved a resolution this week that would bar the state’s $186 billion pension fund from considering ESG factors in state investments. Instead, the Florida governor emphasized the importance of “maximizing financial return over and above other considerations”.
However, doubts have been raised about the bite of these regulations. State-specific regulations contradict overarching federal legislation - in 2021, the Sustainable Investment Policies Act and Retirees Sustainable Investment Opportunities Act provided landmark statutory guidance “by establishing sustainable investment as part of fiduciary duties” in the UK Stewardship Code for asset managers and owners, Principle 7 explicitly dictates that to fulfill their stewardship responsibilities, investors are required to consider material ESG issues. Additionally, Regulation 4 of the Occupational Pension Schemes Regulations 2018 establishes that ESG concerns fall under the scope of “financially material considerations” for trustees to consider. These regulations provide strong legal grounding for the reasoning that ESG factors are materially relevant to investment decisions. Therefore, the anti-ESG movement’s argument that ESG factors exceed fiduciary duties falls flat. Rather than any substantial legislative or regulatory authority, it relies on stirring up strong emotions of perceived injustice, anti-wokeism and even nationalistic rhetoric - Strive’s website cautions against “everyday Americans” being sucked into the “political agendas of companies”.
Who is the true mastermind behind the anti-ESG movement?
Due to its recent surge in publicity and apparent focus on sustainable finance and investing, many may make the false assumption that the anti-ESG crusade is a new commercial invention. However, the movement is fundamentally political, with sinisterly deep ties to longstanding opponents of climate progress and social change. For example, the earlier case of Strive Asset Management may seem like a sensationalistic cashgrab, but it is backed by prominent billionaires Peter Thiel and Bill Ackman. Other key anti-ESG players include right-wing politicians and policy drivers. Many right-wing beliefs, such as economic conservatism, are aligned with anti-ESG goals. For example, The Heartland Institute, a symbol of the tobacco industry and climate denial, is now edging into anti-ESG political lobbying. It has been active in pushing for anti-ESG policy, through anti-ESG testimonies to US State Committees and spreading emotionally-fueled misinformation. A scroll through Heartland’s website offers a glimpse into the right-wing think tank’s unsettling and downright bizarre rhetoric - it likens the assessment of ESG metrics to China’s social credit framework, paints alarming pictures of ESG efforts targeting small businesses and families, and equates ESG with Socialist agendas.
The Heartland Institute’s anti-ESG war plan
Long before ESG became a buzzword, anti-ESG-esque sentiments were already present in other movements, such as anti-CSR campaigns. These campaigns have long been actively working to preserve the power of dangerous politicians and corporations. For example, as early as 2004, the fossil fuel industry backed the Free Enterprise Education Institute, which ran an anti-ESG mutual fund and a malicious “CSRwatch.com” website. This suggests that “anti-ESG” is not an entirely new financial conception, but merely a repackaging of well-established, politically right-wing values. The anti-ESG movement will always be here to stay, in one way or another. What remains to be seen now is the direction in which the tide of public, commercial and political sentiments will swing; and how this will affect sustainable progress.
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