ESG: “Victory” vs. Victory

ESG: “Victory” vs. Victory

The following commentary/analysis is one I wrote in my capacity as a senior fellow at “the nation’s oldest consumer protection agency,” Consumers Research, where, among other things, I compile a weekly letter for public pension-fund managers.  I am sharing it here today because I thought it might be useful to some of you.


On the Importance of NOT Declaring Victory and Going Home

One of the greatest concerns among those who have been following the ESG issue for a long time and who have dedicated considerable personal and professional resources to pushing back against the politicization of capital markets is that the campaign to reverse this trend, to de-politicize business and markets, will stall too soon, that it will end before “victory” is completely won.  A big part of the problem with the campaign, ironically, is that it has, to date, been far more successful than anyone could have anticipated five or six years ago.  Not only does success often bring complacency, but in the case of ESG, the issue is so complicated and so multifaceted that it appears possible – and increasingly likely – that some who have joined the effort more recently may not understand the totality of the problem and may, as a result, be too eager to declare victory and move on to other issues.

Two recent articles on the prevalence of socially “sensitive” language in business discussions and marketing help illustrate this point.

The first, from Bloomberg, analyzes the use of such language in corporate financial results calls in the United States and Europe:

ESG was near the top of just about every top executive’s talking points just a few years ago. Now, tired of drawing flak from activists on either side of the political spectrum, many CEOs have decided to bottle it up — particularly in the US.

Bloomberg scrutinized transcripts of financial presentations by the 100 biggest European and American traded companies during the latest results season, and found a sharp drop in references to environmental, social and governance issues.

Climate change and related terms generated 269 mentions in the US so far this quarter — more than 60% fewer than a year earlier….

Diversity and related terms generated 121 mentions among America’s biggest listed groups during the current quarter, down from 244 a year ago.

This is important.  It is indicative of a change in perspective about what shareholders and analysts want to hear.  Like the data that show how big asset managers are voting for fewer and fewer ESG-related shareholder proposals, it represents a real and tangible victory for those who wish to depoliticize business and to reduce the influence of ESG factors on American markets.  This is inarguably good.

At the same time, however, a story from Vox, which identifies some of the same trends and progress, also shows why this type of victory is only the start of what will, ultimately, be necessary:

For most of advertising history, “red” or “blue” as partisan loyalty signaled more your taste for Coke or Pepsi than your identity as Republican or Democrat. Mass markets, by definition, necessitated selling to both sides of the aisle.

As with so much else, the presidency of Donald Trump — built upon a self-conceived human brand — radically upended those norms.

Post-2016 election, one Adweek column thundered, “Brands cannot expect to play Switzerland as the rest of the world picks a side.” Consumer culture suddenly became the vehicle for political expression, with Madison Avenue giving voice to countless causes. The staid “corporate social responsibility” morphed into the more muscular “brand purpose,” which beget impassioned activism. Social justice became “trendy;” politics, the means to signal commercial “integrity.”

Today, just as during the Trump presidency, controversial issues abound, protesters convulse public spaces, and a divisive election looms. The world is picking sides — on abortion and Gaza and Trump’s trials. And from brand-land? By and large, the sound of silence.

That’s because, despite prior pretense, advertising follows, not leads; it needs markets, not morality. That silence, therefore, says much about our sociopolitical moment: As culture warriors find themselves on the defensive, brands, wary from the backlash against Bud Light’s use of a trans influencer, no longer show interest in advancing their causes.

Worth noting here is that the good folks at Vox don’t have even the vaguest idea where any of this “socially responsible” stuff comes from.  Anyone who talks about the “backlash” against Bud Light’s “use of a trans influencer” without also noting the pressure that the Human Rights Campaign puts on corporations in the first place with its Corporate Equality Index is either being wholly dishonest or is wholly ignorant of the components that go into creating the “S” portion of an ESG score.  And given that this is Vox we’re talking about, it’s probably safe to assume the latter.

Even more worth noting here is that his story, which ostensibly shows the same “victory” for depoliticization revealed in the above Bloomberg story, also shows why the politicization of business will be so difficult to eradicate.  This isn’t specifically about ESG, and it isn’t about a handful of asset management giants deciding to focus on hypothetically relevant risk-management concerns.  Rather, it’s about a pervasive sense that businesses – publicly traded and shareholder-owned businesses – can and should be involved in political fights, picking sides and declaring value priorities.  Or to put it more bluntly, it’s about the ideological capture of the business world, the belief that American businesses should be ideologically aligned with the rest of the institutions in American society.

In my book The Dictatorship of Woke Capital, I spend a great deal of time and expend a great deal of effort discussing that which the East German Marxist Rudi Dutschke calls “the long march through the institutions.”  The reason I do so is that I think it’s important to understand that “stakeholder capitalism,” and “ESG,” and “corporate social responsibility” and countless other terms and trends are not discrete phenomena but are all part of a broader, more pervasive pattern of the imposition of ideology on the institutions of cultural transmission.  Since the end of World War I, Marxist revisionists have, by design, been slowly but surely altering the forces that influence and form the cultural milieu in which we all live.  Since roughly the 1970s, American business and capital markets have stood as the lone institutional bulwark against the full ideological capture of the culture.  And all of this – radically upending the norms, as Vox puts – it is part of the effort to break down and eliminate corporate America’s ability and willingness to persist as that bulwark.

That doesn’t mean that anyone should be freaking out about how the Commies are taking over business.  And it doesn’t mean that resistance to ESG is drawn from the same well of sentiment that fostered McCarthyism.  It just means that which we call the politicization of business and capital markets is, in reality, the ideolo-zation of business and markets, which is both more insidious and more difficult, ultimately, to root out.

Stephen Soukup
Stephen Soukup
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Steve Soukup is the Vice President and Publisher of The Political Forum, an “independent research provider” that delivers research and consulting services to the institutional investment community, with an emphasis on economic, social, political, and geopolitical events that are likely to have an impact on the financial markets in the United States and abroad.