The Backlash to the ESG Backlash

Author

Tim Mohin
06 Sep

Now, the battle over ESG has taken a turn, and the anti-ESG backlash is experiencing its own backlash. 

The general sentiment is that the sustainability movement is here to stay. Most companies are still operating their sustainability programs, even if they do not publicize them, and almost never use the term ESG. Plus, multiple studies have shown that states with anti-ESG policies are losing vast sums of money. In Texas, for example, one study claimed that the state has lost almost $700 million because of its anti-ESG investment policies. 

Robert Skinner, a partner at the law firm Ropes & Gray, claims that all of these anti-ESG policies will likely be blocked in courts as they are based on a fundamentally flawed premise: that positive social and environmental outcomes reduce profits. He said, “ESG risks are fundamental material financial risks that asset managers ignore at their peril.” 

The anti-ESG backlash has not gone away and will continue to be a political football. Just last week, Republican state treasurers penned an open letter to the Business Roundtable, a group that includes the CEOs of some of the nation's largest companies. The letter asked them to stop all ESG principles and use Exxon’s recent case against activist shareholders to ensure they stand up to “bullies.”

DEI Backlash Gathering Steam

Robby Starbuck, the activist pressuring companies on DEI Jason Davis/Getty Images

One area where the anti-ESG is scoring points is Diversity, Equity, and Inclusion (DEI). Polarization around DEI has accelerated in recent months, with big brand names rolling back their DEI policies. 

Bloomberg observed that there might be political whiplash if Kamala Harris (who has been labeled by some Republican commentators as a “DEI hire”) is elected President in November since her Administration would likely support diversity, equity and inclusion. Alison Taylor pointed out that, “It’s incredibly dumb to fold like this and encourage more activism on every passing political whim.” 

California Amends Climate Laws

Last week, we provided an update on California’s Climate Accountability Package. In summary, all three of the key laws (addressing disclosures of climate emissions, climate risk, and voluntary carbon credits) were amended to address the concerns raised by California Governor Gavin Newsom and in ongoing litigation. 

The climate emissions and risk disclosure laws were combined into SB 219 and were passed through the State Assembly and Senate by large majorities and are now on the Governor’s desk for signature. 

The main changes were:

  • The California Air Resources Board (CARB) would have six additional months to adopt implementing regulations (July 1, 2025), but most company reporting deadlines would stay the same. 

  • Reporting Scope 3 emissions is still required, but on a new schedule to be specified by CARB (previously 180 days after their Scope 1 and 2 reports). The first Scope 3 reports would be due in 2027. 

  • Reports can be consolidated at the parent company level, making subsidiaries exempt from reporting.

  • Payment of the annual fees would be delinked from the filing of disclosure. 

All eyes now turn to Governor Newsom and whether he will sign or veto the amendments before a September 30th deadline, even though they did not include the two-year reporting delay he requested. Adding another level of complexity, the litigation against these policies is set to begin oral arguments in a federal court next week (September 9th). The results of which will have enormous repercussions for both California and the SEC Climate Rule. 

The Voluntary Carbon Market Disclosure Act (VCMDA) was also amended in a new bill (AB 2331). While the amendments addressed major concerns about the policy, it was not brought up for a final vote in the Assembly before the legislative session ended on August 31, therefore will not go to the Governor for signature this term. The bill can be re-proposed when the next term starts in December - just after the US elections and six months before the revised compliance deadline of July 2025. 

Kamala Asked to Come Clean on Climate

Susan Walsh/AP

As Kamala Harris ramps up her election campaign, she is balancing between appeasing climate voters and activists and trying not to appear ultra-liberal to swing voters. However, she is now being pressed by both sides to explain what her climate policies will be.

Harris confirmed she would not call for a fracking ban as she had previously claimed. But that has not been enough to quell demands for more details. Anne Bradbury of the American Exploration and Production Council said, “These are significant and major policy questions that impact every American family and business, and which voters deserve to understand better when making their choice in November.”

On the other side, activists are asking Harris to put climate at the center of her campaign. To manage these competing factors, Harris hired Camila Thorndike as her campaign “climate engagement director.”

SBTi Releases New Framework Amidst Controversy

The Science-Based Target Initiative (SBTi) released the world’s first global framework to decarbonize buildings. The framework offers strategies for companies and financial institutions to ensure the building value chain is aligned with 1.5C reductions. 

The release comes amidst ongoing controversy about how the emissions reduction validation group might use carbon offsets in future frameworks. In addition to the row about carbon offsets, the Financial Times published concerns about the potential for conflicts of interest surrounding one of SBTi’s biggest funders, The Bezos Fund. Earlier in the year, a former SBTi employee complained to a UK charity watchdog about The Bezos Fund's influence on the SBTi (a UK-registered charity). The UK Charity Commission is set to release findings advising how SBTi can avoid conflicts of interest and improve governance this week.

South Korean Court Rules Government Must Do More on Climate

Anthony Wallace/Agence France-Presse

A top South Korean Court ruled that the South Korean government had not done enough to protect citizens from the effects of climate change, mirroring a similar result in the EU earlier in the year. The verdict sided with more than 250 primarily young plaintiffs, who claimed the current Carbon Neutral Act does not go far enough to mitigate climate change. The court found no issue with the government's interim 2030 goal of a 40% reduction compared to 2018, but it required them to create a longer-term 2050 target by February 2026.

The views expressed on this website/weblog are mine alone and do not necessarily reflect the views of my employer. 

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