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When it comes to what big business is doing to address climate change, corporate leaders would rather not talk about it.
As sustainable investing has become a cultural flashpoint in the United States, the term “ESG” has been practically expunged from the corporate lexicon.
In the latest round of quarterly earnings calls, just 56 companies in the S&P 500 Index commented on environmental, social and governance initiatives, according to Axios. That number is down by 64 per cent from its peak in the fourth quarter of 2021, when the corporate sector was eager to bask in the reputational glow of corporate sustainability.
A separate analysis by FactSet found that ESG mentions in the transcripts of management calls with analysts declined in four of the past five quarters.
Now, some companies seem to be distancing themselves from their own initiatives, at least partly as a result of the backlash against ESG. That doesn’t mean they are backing away from spending on their environmental commitments. By a range of measures, the energy transition is accelerating, while more and more companies are signing on to emissions-reduction targets.
“These investments in energy transition are still happening; they’re just maybe not being labelled and marketed as energy-transition investments,” said Sarah Thompson, the managing director of sustainable finance at RBC Capital Markets.
“Those companies are not really changing their strategy, they’re just less vocal about it to attract less attention.”
Many investors are by now familiar with greenwashing, whereby companies exaggerate their own environmental credentials.
This newer phenomenon is known as “greenhushing,” and is essentially the opposite.
There are, however, some constructive reasons for the lack of ESG chatter by management teams these days. A maturing of sustainable investing over the past few years has made basic green initiatives at the corporate level less novel and newsworthy.
“We’ve seen tremendous integration of ESG considerations into the investment process and corporate strategy. Now, it’s sort of table stakes,” Ms. Thompson said.
Additionally, securities regulators around the world have had time to catch up to the ESG boom, and the effort to stem the tide of greenwashing is well under way.
Universal reporting standards for ESG disclosures are also progressing quickly, with the International Sustainability Standards Board recently publishing a set of rules meant to establish a global baseline for reporting on carbon emissions. In June, the chief executives of 11 of Canada’s largest pension fund investors urged Canadian companies to adopt the new standards.
As a result, companies are becoming more cautious about publicly discussing ESG commitments, said Deborah Debas, a responsible investment specialist at Desjardins Wealth Management.
“Some companies wanted to make something happen, but they were not able to deliver. Then they were slapped on the wrist by regulators and now they’re a bit more fearful and prudent before they make those claims,” Ms. Debas said.
Still, the recent politicization of ESG investing seems to be a big force behind the chill in ESG public relations, at least in the U.S.
More than a dozen states have introduced legislation targeting ESG investing, which has been characterized as a perversion of the investment process in the name of a woke left-wing agenda.
“We want them to act as fiduciaries. We do not want them engaged on these ideological joyrides,” Florida Governor and Republican presidential candidate Ron DeSantis said in May as he signed a bill into law that prohibits state officials from investing public money to advance ESG goals.
One the main targets of the backlash is Larry Fink, CEO of BlackRock, which helped bring ESG investing to the masses. In June, Mr. Fink said that he has stopped using the term “ESG” altogether. “I don’t use the word ESG any more because it’s been entirely weaponized.”
But BlackRock isn’t changing is position on climate change, nor will it stop putting pressure on the companies it invests in to embrace decarbonization, Mr. Fink said.
“It’s funny to see that they’re avoiding the terminology but still doing the same things they were doing before,” Ms. Debas said.
That appears to be an emerging theme across the financial industry – increasing investment in ESG, but doing it more quietly.
Wednesday marked the one-year anniversary of the U.S. Inflation Reduction Act – the largest federal climate change response in the country’s history. A vast set of tax breaks for sustainable energy investments is proving so popular that it could end up costing more than US$1-trillion over the next decade, according to some estimates.
Meanwhile, more than 3,200 corporations have committed to the international Science-Based Targets initiative for reducing greenhouse gas emissions.
“The pace is remarkable,” Ms. Thompson said.
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