13 Mar ESG’s Evolution
A decade ago, the primary public argument over ESG had to do with its inevitability. One side insisted that it was an unstoppable force, that it clearly and inarguably articulated the way business and investing would be done in the near future and then in perpetuity. The other side, doing its best imitation of football analyst Lee Corso, said, “not so fast, my friend,” and warned that ESG’s inexorableness depended on largely fantastical expectations for the development and deployment of alternative energy sources, among other highly dubious conclusions.
Five years ago, the public argument had shifted somewhat and focused on the morality of business and capital markets. One side maintained that ESG was the only proper and honorable way to do business, that it alone represented an ethical approach to the modern problems facing modern investors and modern corporate executives. The other side (myself included), meanwhile, argued the opposite, that ESG was strictly about the top-down imposition of political values on what should be an apolitical framework and that these values conflict directly with executives’ and asset managers’ fiduciary duties.
Today, the public argument has shifted again. Having largely lost the morality argument in the court of public opinion, ESG supporters now declare that they have had their Road to Damascus moment, that the scales have fallen from their eyes, and that they now see the wisdom in reining in ESG and related social justice-directed business practices. They, their supporters, and friendly media have declared ESG “dead” and have suggested that we all just move along because there is nothing to see here. The other side, by contrast, says that this is merely a ruse, that ESG isn’t dead or even mostly dead, that it is alive and well, and that the only wisdom its practitioners have gained is that which has convinced them to conduct their efforts more carefully and furtively.
From my perspective, at least, these various iterations of the primary public argument over ESG are largely indistinguishable from one another. It’s always the same thing. One side says ESG is nothing to worry about, while the other side says it is. Likewise, my take on ESG through the various iterations of the argument remains unchanged. I always side with those who say that it is, indeed, something about which we should all worry.
In this current case, however, the entire discussion has grown more frustrating, largely for two reasons.
First, even as the purportedly “erstwhile” advocates for ESG insist that they have mended their ways and no longer wish to manipulate markets and business for political purposes, they’re not really even trying very hard to convince the rest of us of their conversion. They are merely paying lip service to it. Worse still, they know that their lip service is patently transparent, and they don’t care in the least. They are more than happy to pretend to be reformed even though both we and they know they’re not. Even the media knows it’s mostly for show and, as a result, vacillate between insisting that “ESG is dead and gone” and acknowledging reality:
BlackRock’s [Michelle] Gadsden-Williams — who is now co-lead of global talent and culture — has indicated that the work to advance DEI will persist, even amid activist efforts pushing back on the strategy and other news on rollbacks.
In LinkedIn posts prior to the memo, she shared her thoughts on articles about the benefits of DEI. In November, she shared a Time article that highlighted analysis from the Human Rights Campaign Foundation, showing that brands stand to lose billions by retreating from their DEI strategies.
“Progress was being made. Backing away from this progress is not just short-sighted, it’s one that could severely impact the bottom line,” Gadsden-Williams wrote in a post. “Investing in inclusion builds a stronger, more resilient economy that works for everyone.”
Two weeks ago, Michelle Gadsden-Williams was a managing director and BlackRock’s global head of DEI. Today, she is the “co-lead of global talent and culture.” Her job title has changed, but her job hasn’t. And neither, for that matter, has BlackRock’s dedication to diversity, DEI, ESG, and all the rest. They have just changed how they “talk about it” – just as everyone else has.
The second reason the current iteration of the public debate over ESG is frustrating is that the answer to all of this – and especially to the media’s when it’s in the “ESG is dead” phase of its bipolar disorder – is always, “No, it’s not! It’s only sleeping! We’re winning, but we haven’t won yet!”
To be clear, this is a perfectly accurate response. It is, in fact, inarguable. I just said as much above. No one among ESG’s supporters or their media allies really believes that it’s dead. They do what they do to make a public spectacle and to appear to have made the changes their clients/customers demand. Nothing more. And, given this, ESG’s opponents are, of course, wise to insist that the fight must continue.
At the same time, though, that “answer” is, at best, a half answer. ESG-friendly corporate executives and asset managers have learned that the way to game the system is simply to change their tactics, especially their public pronouncements. In turn, then, ESG’s opponents must change their tactics as well. ESG-world has adapted. It’s time for ESG’s opponents to do the same.
Undoubtedly, the opposition here cannot change everything. Certain themes – e.g. “fiduciary duties” – and certain tactics – e.g. shareholder engagement – are critical to the ongoing success of the counter-movement. At the same time, however, if they want to stay relevant and, eventually, to push politics out of capital markets, then ESG’s opponents have to revise their arguments and tactics to suit the changing nature of the public argument, as well as ESG supporters’ efforts to utilize those changes to their advantage.
It will surprise no one who has read anything I’ve written on the subject in the last several months that my suggestion about how best to shift gears is to focus on the features that enable ESG’s biggest players to have such an outsized impact on business and capital markets. Centralization – politically and financially – is what makes it possible for BlackRock, State Street, Vanguard, Fidelity, and the rest to impose their wills upon corporations and their values on unwitting and unwilling investors. Therefore, part of the solution should be to push a more decentralized model both on government and finance. States must continue to assert their rights. Public pension managers must continue to assert the rights of those whom they represent. Federal legislators and regulators should remove barriers to entry in the financial services world while also carefully monitoring the efforts of the biggest players to enlarge their fiefdoms.
It is good and right and truthful to acknowledge that ESG is not dead, no matter what it’s major players pretend. But it’s not enough.
Adapt or die.
