There was a time in America when business leaders were solely focused on increasing profit and shareholder value. But those times are gone.
In recent years, corporate CEOs have spoken out on abortion, immigration, racial equality, climate change and social justice, among other consequential issues. For this, they have been heralded for their leadership in society. However, any corporate leader making public pronouncements on social issues today does so at their own peril. Not only do they face backlash from political activists, they also risk reproach and retribution from shareholders who have waning tolerance for “distractions” from core business issues.
At the apex of the George Floyd movement, business leaders seized the moment to speak out on inequality in America. Numerous companies made self-conscious, spur-of-the moment commitments to donate millions in corporate largesse to an array of social justice groups, many of which were hastily created for the moment. One of the largest recipients was the eponymous Black Lives Matter, an organization that claims to work on behalf of African American communities. Regrettably, BLM’s bold self-dealing sabotaged any semblance of integrity and tarnished any residue of wide-scale credibility.
In a short time, the incandescence faded from issues of injustice — and the erstwhile commitments, once front-page news, receded from public view. In turn, this was supplanted by the coronavirus and its overarching impact as a life-and-death issue. Social justice, by contrast, became marginal to what matters most in the world.
In the past two years, the terms ESG and DEI have come under relentless assault from the American right. Today, ESG and DEI, per se, are anathema. Notwithstanding the global dialogue at Davos, these acronyms have all but lapsed from the corporate lexicon. Any remnants of their former prominence are carefully manicured, and any business leader upholding them, even in principle, may be seen as a heretic.
Depending on who is talking, ESG is either a blessing or a bane. It is either an indispensable tool for investors or an intrinsic threat to American society — a corporate check-off or a clear and present danger to democracy. While reasonable people may have differing views on ESG, its impact on business and politics cannot be denied.
ESG was introduced by United Nations officials in the 1990s as a curt little term for environmental, social and governance risks in finance. Successive U.N. actions put ESG in a global context: the 1992 UN Framework on Climate Change, the 1997 Kyoto Protocol, the 1997 Global Reporting Initiative, the 2000 UN Global Compact, the 2006 Principles for Responsible Investment, the 2015 Sustainable Development Goals, the 2023 EU Corporate Sustainability Reporting Directive, among others. It became shorthand for the tools used to assess investment risks, and helped experts sort out the sustainability and ethical dimensions of large-scale investments.
As a finance concept, ESG was de rigueur for decades, finding favor on Wall Street. It was considered anything but dangerous. That is, until it was not.
The ESG conversation has moved from the clubby circle of investment insiders to the bully pulpit of American politics. When a confederation of business leaders, politicians and state attorneys general issued a clarion call to oppose “woke” ideology, the term ESG became business blasphemy — something sinister and repulsive to the American republic and contrary to the canons of capitalism advanced by Milton Friedman.
From the Harvard Law School Forum on Corporate Governance: “The backlash against ESG in the United States has been unmistakable in 2023. More than one-third of states have passed anti-ESG laws in 2023, most ESG-related shareholder proposals failed to garner majority support, new lawsuits have been filed challenging companies’ ESG-related activities and decisions, and some companies seem to be distancing themselves from the term ‘ESG’ itself.”
Ron DeSantis made ESG, or “woke ideology” as he calls it, a centerpiece of his presidential platform. While the foundering governor could not claim many victories, vilifying ESG may be among his greatest hits. And the multisyllabic Vivek Ramaswamy made a big splash — and a billion dollars — railing against ESG through his popular book and anti-ESG hedge fund. Both men found that demonizing ESG aligns with disemboweling affirmative action, critical race theory, DEI and reproductive rights.
Under duress, several large investors have clawed back much of their money earmarked for ESG. Shareholder initiatives and proxy contests on related issues have recently been voted down by institutional investors such as BlackRock, Vanguard and American Century.
In different times, business leaders could afford to take strong positions on social and environmental causes with impunity. Whether to capture consumer trends or differentiate from the competition, CEOs knew they could impact society and influence Americans uniquely by talking about problems in the world beyond the bottom line. While this may be par for politicians, it is perilous for CEOs who step on the public stage, with large egos, little training and corporate legacies at stake.
To the delight of many investors, activists and policymakers, corporate conversations on social impact are fewer and further between these days. Even observations on the environment and climate change are subject to scrutiny and scorn. CEOs have been chastened by the 20th century adage to “put your money where your mouth is.” Many are choosing to prudentially invest in silence.
Adonis Hoffman is CEO of The Advisory Counsel LLC. He previously served in senior roles in the U.S. House of Representatives, the FCC and as an adjunct professor at Georgetown University.