Will Legal Challenges to ESG Investing Affect the Corporate ESG Movement?
"Exxon is rated top ten best in world for environment, social & governance (ESG) by S&P 500, while Tesla didn’t make the list! ESG is a scam. It has been weaponized by phony social justice warriors."
ESG, short for Environmental, Social, and Governance, is at the top of nearly every C-level agenda. It expands on the Corporate Social Responsibility (CSR) movement that started by American economist Howard Bowen in 1953 by adding governance to bring accountability to good corporate citizenship.
In addition to serving as the umbrella under which companies advance their sustainability and inclusion, ESG scores are a guiding light in certain investment funds – and that is where we find examples of conflict and complexity that may just have an impact in the corporate space over the long term.
In this week’s episode of Dial P for Procurement, I looked at the tension that results when you try to satisfy multiple constraints at the same time – such as maximum financial returns and advancements in environmental and social causes. LISTEN HERE.
I pulled out three examples of court cases/charges in the ESG investing space that I believe may signal trouble on the horizon for all ESG initiatives. They are:
As ‘nice’ as it sounds, ESG initiatives can land companies in hot water. Many social and environmental causes have a political underpinning and may be seen by some as partisan activity under the guise of ‘doing good.’
How can companies leverage their resources in service of their culture without creating brand risk?
Aaron Yoon, Assistant Professor of Accounting and Information at Northwestern University’s Kellogg School of Management advises companies to ask themselves whether an investment in ESG align with our value proposition – are we altering our operation in a beneficial way or just putting money into a cause of our choosing?
George L. Strobel II, Partner, Co-Founder & Co-CEO of Monarch Private Capital, offers different advice. He makes the case for investing in specific causes as opposed to putting corporate resources into blended, institutionally managed investment funds, like the one offered by BlackRock.?
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This issue requires careful consideration because of how passive investing works. Rather than attempting to flip and investment the way design experts on Magnolia Network flip a property, passive investors stay around for a while. Once they control a significant percentage of the company, they can advance – or at least advocate for – their chosen causes.
For example, BlackRock, Vanguard, and State Street manage a combined $20 Trillion in assets. They hold a combined 21% of Exxon Mobil, which allows them to decide who is placed on the Board of Directors. They can determine what happens at these companies. (It also re-raises Elon Musk's point of view - is the role of recognized ESG investors in Exxon influencing who makes the S&P 500 ESG Index and who does not?)
My question is, at what point is it no longer “passive” investing?
Listen to the full episode, Looking at ESG Investing with a Critical Eye, on Dial P for more.
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CPO, Professor, Editor in Chief, Advisor & NED (Pracademic)
2 年Kelly Barner the reality of new and indeed proposed legislation calls for organisations to evidence what they have done, planning to do to improve or mitigate as opposed to simply report. This is a shift in emphasis and probably a good and clear catalyst is the German SCDDA, effective 1st January 2023 for large corporates and mid tier organisations 1st Janaury 2024. for me to Crystal Y. Davis, CLSSBB comment there WILL be an obligation for large corpartes to enable trainign and velopment not just internally but for the SME's they engage and ensure they are motivated to engage on the journey. Further, ensure they have a creduble and scalable plan and/or approach that is consistent and claer to everyone, including/especially their employees. ESG is becoming real and so it should...
Strategy Consultant, Executive Coach, PMO, Speaker, Podcast Host | Member, The BOW Collective
2 年Kelly Barner I’ve had this nagging feeling that something wasn’t right here. I absolutely am all in on environmental and social responsibility! However, just the few things I’ve heard that feel rather dogmatic have given me pause. I am particularly concerned about how this new goal post will impact small businesses who work with large corporations.
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