The ESG Movement Is Being Hijacked by Investors, and They Are Destroying It

Two articles I recently read, The Roe Leak Ratchets Up the Pressure on Business (Barron’s) and The Supreme Court Tries to Overrule the Climate (The New Yorker), sang a similar tune: As “democratic” institutions, like the US government, roll back protections that are favored by the majority of the population, increased pressure will fall on corporations to do more to meet societal demands for environmental sustainability and social equity. However, investors are intervening and directing corporate efforts away from meaningful impact.

Society at large has been working to harness business as a force for good since the 1960’s through what is often called the environmental, social, and governance (ESG) movement . But as the ESG movement has grown, it has drifted from its original intent as more groups - particularly investors - have co-opted the term to mean something different entirely.?

Below, I share my thoughts on why this is happening, why it’s a bad thing, and what we can do about it.

Present Day Events Put Pressure on Corporations to Do More for ESG

The recession, governmental roll-backs of environmental and social protections, and slow-moving bureaucratic responses to climate and health crises have people looking for alternatives to fill the gap left by elected leaders.

As Alison Taylor argues in Barron’s , “Survey after survey shows that the public wants companies to speak up and use their voice on social issues, and that business is more trusted than government. Young employees seek workplaces aligned with their values, and these pressures aren’t set to disappear anytime soon. Companies are merely doing what they are built to do: respond to market forces.”

Despite rising fears of a recession, governments, employees, consumers, and investors continue to put pressure on corporations. However, the pressure they apply on corporations is very different, and seeks to accomplish very different goals.?

Sadly, investors have the heaviest hand, and are doing the most to shape the future of the ESG movement. This is not a good thing for the ESG movement as originally imagined, or for our democracy.

So What is ESG?

I prepared a video here to help explain the ESG movement which is a supplement to this ESG guide created by MovingWorlds:

And here are the slides used in the video above:

Why Investors Should NOT Be The Loudest Voices in The ESG Movement

While the history of the ESG movement was not led by investors, it is now being hijacked by them. The ESG movement was originally founded by concerned citizens and visionary leaders who used the power of the economy to bring about social change. Investors joined the ESG movement for different reasons: to make better investment decisions rooted in financial returns. As an example, investors want to know how much carbon companies produce not so that they can make them more responsible, but so they understand the risk that future events, like regulations or a carbon tax might have on their returns. Investors want to know about human rights and racial inclusion not for social justice, but because they want to know the risks of lawsuits that will hurt their finances.

Today, investors tend to receive the majority of press related to ESG, a sign that the movement has been wrested away from consumers, community members, and employees. As an example, search Google News for “ESG” and you’ll see that investors are overly-represented in the most popular articles:

Similarly, a Google Trends search shows that investor-related ESG searches on Google outweigh all others:

While the power that investors have to pressure companies to prioritize ESG reporting is on its surface a good thing, the reporting requirements are just that: reporting requirements. And the reporting of ESG does NOT necessarily force actions or the achievement of targets.?

This investor-led primary of the ESG movement creates confusion in the marketplace, and leads to events that diminish the movement, like when Elon Musk called the movement a “scam” in response to Tesla’s removal from a prominent ESG investing index.

More importantly, when investors expand their control of the ESG movement, it comes at the expense of the majority of employees and consumers pushing for change in the first place. So even when the majority of employees and consumers want corporations to do more for society and the planet, investors drown out their voices and prioritize measurement and disclosure over action and true integration of sustainability throughout core business operations.

In an awesome New York Times interview with Amy Domini (Founder and chair of Domini Impact Investments) and Rachel Robasciotti (Founder and chief executive of Adasina Social Capital), Amy points out that the power of investors needs to be acknowledged: “[ESG is] a fulfillment of a fiduciary obligation. Assets aren’t being managed to the greatest interest of beneficiaries if, in fact, they can’t breathe or life is too dangerous at the end of their wealth building. So I see it as a means to an end, and that end is a planet that is livable — and lives worth living. And I see it as a strategy that explicitly acknowledges that investors have a role to play in providing these outcomes to the world.”

Robasciotti built on this point, saying that “The reason why that matters is that doing it the way we’ve always done it has given us the world we have now. If we’re going to have a different world — if we are going to invest in making more of what we actually want — we’re going to have to choose a different set of people who haven’t yet been at the table.”

So the ESG movement needs different people at the table beyond your statistically likely investor, and in fact, it needs people that are not investors.

• Consumers should spend their money with companies that do not just report on ESG, but set audacious targets.
• Current employees should inquire to learn how their company is settings Science-Based Targets, and how their Executives and Board are being held accountable
• Prospective employees should search for companies that set targets, and let their hiring manager and team know that their alignment with people and planet explains why they chose your company
• Corporate social responsibility leaders should work hard to integrate a culture of sustainability and social equity across their enterprise -- here's a step-by-step process
• Business leaders should set targets, publicly, and hold themselves and their board members accountable
• Regulators should pass laws that do more than require disclosure

In Summary

Wrestling control of the ESG movement away from investors — the majority of whom just want improved disclosure?— to all stakeholders that want meaningful change is not going to be easy. But as Bill McKibben posits in The New Yorker ,?“Convincing banks to stop funding Big Oil is probably not the most efficient way to tackle the climate crisis, but, in a country where democratic political options are effectively closed off, it may be the only path left.”?

Learn More About ESG

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