The financial industry is changing how it talks about ESG investing, which stands for “environmental, social, and governance,” to cater to both sides of the political spectrum as the term becomes increasingly politically charged.
Eleven major banks and financial firms have removed language regarding ESG in their marketing materials and refrained from using the term in Republican-led states while simultaneously talking up their efforts in Democrat-led states, according to a report from Bloomberg.
While the financial services sector is not changing how it operates regarding ESG, an $8.4 trillion market, the move reflects the divisiveness that exists in promoting and discussing the market.
Florida Governor Ron DeSantis announced last week that he is leading an alliance of 18 states to combat President Biden’s ESG financial fraud and ban ESG investing.
“At my direction, Florida has led the way in combatting the pernicious effects of the ESG regime by directing our state pension fund managers to reject ESG and instead focus on obtaining the highest return on investment for Florida’s taxpayers and retirees,” said Governor Ron DeSantis in a statement.
Democrats are countering such moves to support ESG investment. On Monday, President Biden used the first veto of his term to block a Republican-led anti-ESG measure, as reported by The Dallas Express.
As the battle between states ramps up regarding the direction of ESG efforts, banks are carefully choosing their language and being sure to cater to “regional nuances,” Arthur Krebbers, who runs ESG capital markets at Edinburgh, Scotland-based NatWest Group Plc, told Bloomberg.
Last year, Trey Welstad, a money manager at Integrity Viking Funds, removed the term ESG from a $72 million socially responsible fund, according to Bloomberg.
“The term ESG just became too politicized,” Welstad told Bloomberg.
Other banks are now scaling back talks of sustainability in their quarterly earnings in fear of creating a political backlash, according to Bloomberg.
As GreenBiz Chairman and Co-founder Joel Makower said, mimicking the well-known line from the movie Fight Club, “The first rule of ESG: Don’t talk about ESG.”
Once a key talking point, corporate executives are now curtailing their conversations around climate change and net-zero emissions targets.
Bloomberg says this quarter, the use of these terms on calls with analysts and investors has been reduced by more than 50% from a year ago.
The representatives from the banks or financial firms that spoke with Bloomberg maintained that they are not changing their investment strategies regarding ESG, simply choosing when to play it up.
“When I speak to some of the fund managers who have been blacklisted by certain Republican party run states such as Texas and West Virginia, they generally say they aren’t going to change course because for every anti-ESG mandate that they lose, they gain multiple other mandates that do care about this topic,” Krebbers told Bloomberg.
Some proponents are not bowing to the GOP’s pressure on ESG investing but are carefully avoiding the term.
BlackRock CEO Larry Fink did not mention it in his annual investor letter but highlighted the importance of funding the transition to clean energy.
“Governments are taking bigger steps to drive a transition toward lower carbon emissions. For example, we see the Inflation Reduction Act in the U.S. creating significant opportunities for investors to allocate capital to the energy transition,” Fink wrote.