Yearender: U.S. finance faces ESG backlash, more to come in 2023

Sturm, Ruger & Company

27/12/2022 12:00

By Ross Kerber, Isla Binnie and Simon Jessop
       BOSTON, Dec 27 (Reuters) - A movement by financial firms
and activists to challenge companies over their efforts on
climate change and social inequality faced organised and growing
push-back in 2022, led by Republican U.S. politicians.
   Focusing on environmental, social or governance-related
issues, ESG in industry parlance, could hit returns to
investors, critics said. 
    A rise in oil prices this year bolstered their case by
hurting the performance of many ESG funds that had moved away
from energy stocks, responsible for producing a large share of
climate-damaging carbon emissions.
    Despite that, the list of financial firms signing up to
industry coalitions aiming to help companies make the shift to a
low-carbon economy lengthened as scientists warned time was
running out to limit global warming. 
    Activist shareholders also won significant victories at
corporate annual meetings this year such as a call for a human
rights report at gun maker Sturm Ruger & Co  RGR.N . 
    In the eye of the storm for much of the year was BlackRock
 BLK.N , the world's biggest money manager, whose chief
executive kicked off the year with a defence of ESG investing in
a letter to peers.
    BlackRock, along with JPMorgan  JPM.N , Goldman Sachs
 GS.N , Morgan Stanley  MS.N  and Wells Fargo & Co  WFC.N , was
later barred from winning state business from West Virginia
because of its stance on climate change.
    Other states followed, with Texas accusing BlackRock and
banks including Bank of America  BAC.N  of 'boycotting' fossil
fuel companies in the transition to a greener economy. Florida
said it would pull $2 billion in investments from BlackRock.
    Elsewhere, Missouri launched an investigation into ratings
company Morningstar  MORN.O  over whether its ESG scores
violated state consumer-protection laws; while Texas and others
launched a similar investigation into S&P Global  SPGI.N .
    The pressure was not all one way, though, with left-leaning
groups such as the Sierra Club and Democratic state officials,
which collectively have more money to invest, calling for
BlackRock and others to stand firm or be even more ambitious in
its climate efforts. 
    WHY IT MATTERS
    The criticism comes at a critical time for global climate
efforts. A landmark U.N. report earlier this year said time was
running out to cap global warming at 1.5 degrees Celsius by
2050.
    The pressure from the Republican politicians has already had
a chilling effect, with the world's biggest mutual fund manager
Vanguard recently pulling out of the Net Zero Asset Managers
(NZAM) initiative, a group of investors pushing for net-zero
emissions, citing a need to demonstrate its independence.
    In the world of regulation, meanwhile, the Securities and
Exchange Commission (SEC) has faced pressure to scale back
planned rules on climate-related financial disclosures.
    Given the United States is the biggest economy in the world
with many large multi-national companies, any fracturing of the
regulatory response from the world's leading markets could dull
their collective impact.
    WHAT DOES IT MEAN FOR 2023?
    With a number of investigations into finance-linked ESG
activities still in train across various states, the prospect of
a let-up in pressure in 2023 is slim.
    Market watchers will be looking to see how leading investors
exercise their voting power in the season for annual shareholder
meetings, although BlackRock has already said it does not expect
much change from last year.
    The outcome of the SEC's climate disclosure rules, as well
as its efforts to rein in 'greenwashing', where firms issue
misleading statements around their environmental efforts, will
all help shape the future for ESG in the country.
    For some, the ESG question is even more existential: has it
become so politicised that firms decide not to use it in
marketing and corporate communications, maybe opting for other,
less loaded words?
    Explore the Reuters' round-up of news stories that dominated
the year, and the outlook for 2023
 (Reporting by Simon Jessop; Editing by Anna Driver)
 ((simon.jessop@thomsonreuters.com; +44 (0) 207 542 5052;
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