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Over the past 18 months, the Environmental, Social and Governance (ESG) agenda. has suffered setbacks in corporate DEI programs, declining investment dollars and the collapse of the Net-Zero Insurance Alliance.
Over the past month, major banks have withdrawn from net-zero alliances Meta dismantled many of its Diversity, Equity, and Inclusion (DEI) programs. ESG seems to be getting out of hand. But don’t be fooled.
A closer look at what the banks have said shows they are still full of unrepentant ESG financiers. Many of the changes touted are superficial or cosmetic rather than indicative of an underlying philosophical shift.
Diversity, equity and inclusion initiatives have been the subject of heated opinions of praise and condemnation. (Adobe Stock)
Dozens of Fortune 500 companies (including McDonald’s and Walmart) representing trillions of dollars in market cap and millions of workers have rolled back or eliminated their DEI programs by 2024. ESG-labeled mutual funds have lost a lot of money over the past two years. And the new administration has pledged to jettison DEI at federal agencies.
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The Net-Zero Insurance Alliance has been fractured by the mass exodus of insurance companies over the past year and a half, as many state attorneys general expressed concerns that joining such an alliance could violate antitrust and anti-collusion laws. US states have withdrawn billions of dollars from Blackrock over ESG concerns.
These changes are welcome correctives to the flawed and deeply ideological goals of ESG proponents. The latest dominoes to fall are major US financial institutions. Goldman SachsWells Fargo, Citigroup, Bank of America and JP Morgan have all withdrawn from the global Net-Zero Banking Alliance.
Even Blackrock, once an outspoken proponent of ESG, withdrew from the Net Zero Asset Managers Initiative. While this appears to be consistent with other ESG rollbacks, cynicism is warranted.
If you look at the press releases from these major financial institutions, you will notice that they show no remorse and still intend to pursue net zero targets. For example, Goldman stated: “Our priority remains to help our customers achieve their sustainability goals and to measure and report on our progress.” Citigroup was even more blunt: “we remain committed to achieving net zero.”
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Blackrock has been the most explicitly unrepentant. “(Our) memberships with some of these organizations have caused confusion… and subjected us to legal investigations… (But this) does not change how we develop products and solutions for clients or how we manage their portfolios.” Translation: “We just want to move away from problematic PR, but we won’t change the way we do business.”
The moves by these major banks appear to imitate Blackrock CEO Larry Fink’s strategy of not using the term “ESG” because it is a political hot potato, but remaining committed to “sustainability.” Blackrock continues to invest heavily in green infrastructure and renewable energy projects.
That’s fine if their customers explicitly request such investments. But as American Airlines learned last week, pension fund managers have a fiduciary obligation to pursue the best financial returns for their clients, and can be held liable for using the funds they manage for other purposes.
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While superficial progress has been made as US financial institutions have withdrawn from destructive global net-zero alliances, they appear disingenuous when it comes to actually changing their ways. This shouldn’t be a surprise, as bank staff haven’t changed much. We also see no signs of a change of heart in the ESG area.
Instead, they seem concerned about public pressure and criticism from the government next federal government and from state government officials. Withdrawing from these alliances also gives them more freedom to communicate their net zero intentions, without having to deliver on a fixed date.
But if ESG policies were distracting and destructive before, they still are today. Ideological ESG priorities harm companies’ ability to function well and benefit their contractual stakeholders. Companies have a hard enough time being profitable without pursuing multiple social justice priorities.
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Banks would do better to make clear their commitment to maximizing shareholder value and doing business with everyone. The pursuit of long-term profits successfully benefits shareholders, employees, suppliers and customers.
Most companies, especially the unrepentant financiers, need to clean up their human resources departments to focus on value creation rather than racial identity politics or costly virtue signaling on environmental and social issues. And if the American Airlines case shows that companies that fail to do so may well be breaching their fiduciary duty to customers and shareholders.
