ESG is the buzz-acronym for investing based on equity, sustainability and governance practices of a company. WOKE is the buzz-acronym for a political movement reflecting one side of a cultural war. Anti-WOKE legislation of varied sorts has been adopted in nineteen States, and is heavily lobbied against by vocal groups including climate change deniers, fossil fuel groups and the Republican governments of several important and growing States (think Florida and Texas for starters). ESG has become a toxic phrase in some parts of the marketplace.
What does all these mean for the conduct of corporations? The Spring issue of Directorship, the official publication of the National Association of Corporate Directors, attempts to get underneath the rhetoric on both sides to measure the actual impact of the WOKE movement on the ESG agendas adopted by a large majority of America’s biggest corporations.
The conclusions need a caveat. The NACD article relies on anecdotal input from admittedly senior people, but the interviewees are few in number, and the survey jointly conducted by NACD and Wall Street Pro was pretty limited in content.
The conclusions generally are: corporations are committed to ESG values; 75% of S&P 500 companies factor ESG into CEO compensation; companies may scale back the rhetoric and stop using ESG as a catch-all, but remain committed to its values and for the most part will not alter substance; over time, companies likely will break apart the elements of ESG and start pursuing and reporting them as separate issues to avoid political pressure.
The corporate mind-set is reported as of the view that ESG attentiveness is related to better economic performance. By adhering to this view, corporations can end-run most of the anti-WOKE legislation, which tries to tie permitted corporate policy to economic factors only. People may stop trumpeting ESG efforts (Blackrock itself, an earlier investor supporter, is reputed to have already done so) but they will continue to pursue them.
Finally, seems to me that adherence to the substance of ESG as related to profit, putting aside positive social impact for purposes of this narrow analysis, needs to be founded on actual economic success for the bottom line which justifies ESG for the entity and its investors. I have not seen recently any robust studies of the correlation of ESG focus to corporate profits, but a year or two ago I did see (and post about) the majority (albeit not 100%) view that such correlation existed. It does seem, at this point, that ESG is here to stay as an operational element if not a PR focus; the substantial infrastructure supporting ESG in many corporations will remain in place. No doubt some smaller number of corporations will declare themselves ESG-free, but not with the present assent of the world of corporate advisors (including NACD).
[Disclosure: I am on the Emeritus Board of NACD-New England.]