Greenhushing on the rise as backlash against ESG grows: ‘It’s like an unhealthy marriage’
Her name was McGill, she called herself Lil, and everybody knew her as ESG. Accounting and accountability have been terminated in the name of Climate and “saving the planet.”
Greenhushing on the rise as backlash against ESG grows: ‘It’s like an unhealthy marriage’
Environmental, social and governance criteria are far from dead, but US Republicans’ reaction and fears of greenwashing accusations have led funds to watch their language
Follow
Sunday, 24 March 2024 at 23:01
Share
Resize
Firms are silencing their ESG marketing efforts to avoid a backlash PHOTO: FN STAFF
BlackRock chief executive Larry Fink’s 2020 letter to CEOs stated “climate risk is investment risk”.
It felt like a pivotal moment. The $10tn asset manager had been under fire for years to use its scale and influence to tackle climate change, and had finally shifted its stance.
But four years on and BlackRock has become a political punchbagfor its views on green investing, largely because of a growing backlash in the US. Fink stopped using the popular industry term ESG and there were only three references to sustainable investing or risk in his 2024 outlook.
Today he talks of “transition investing” — backing businesses that will lead the charge and benefit from the shift to a low-carbon economy.
BlackRock is far from alone in making this shift. Companies across industries and jurisdictions are scrubbing terms such as ESG in everything from marketing materials to job specifications, even if they have not changed their approach to sustainability.
Silence speaks volumes
ESG has not disappeared. But people have stopped talking about it. This phenomenon, known as greenhushing, has taken off in the past year as regulators have turned their attention to sustainable investing and firms fear reputational backlash on topics such as climate change.
Meghan Sheehan, head of ESG and sustainability at global communications consultancy Kekst CNC, said she had been told by companies “across the board” that they intended to pull back on talking about ESG and sustainability.
“In the last month I’ve heard that from an asset manager, an energy company and a transport distribution business. They’ve all just said, ‘no’,” she said.
Greenhushing effectESG monikers are falling out of fashionSource: Morningstar Direct
Funds adding ESG-terms to namesFunds removing ESG-terms from namesQ1 21Q2 21Q3 21Q4 21Q1 22Q2 22Q3 22Q4 22Q1 23Q2 23Q3 23050100150200
Greenhushing has been largely framed as a US-specific problem. But senior executives at City firms say it is something they are increasingly concerned about.
Article continues below
Jenn-Hui Tan, Fidelity International’s chief sustainability officer, said in a January webinar that greenhushing could be an unintended consequence of more regulation in the ESG space.
Amanda Young, Abrdn’s sustainability boss, has expressed similar concerns. “People talk about greenwashing, but actually I think we’ve gone the other way and are greenhushing,” she told Financial News in October.
“I know from talking to people that there’s still a massive appetite to make sure ESG is integrated into mainstream investment decision-making processes. They just don’t want to talk about it as ESG.”
READ Bankers wait for ‘lightbulb moment’ on ESG despite deal slump
Abrdn ditched its “sustainable leaders” branding from a pair of funds in February, according to a filing with the US Securities and Exchange Commission.
It is not the only asset manager to rebadge green funds. Data from Morningstar Direct shows that ESG-related terms were dropped from 19 European-domiciled funds between the first and third quarters of last year.
While 55 products saw sustainability-friendly terms added to their names over the same period, this was a steep decline from the previous two years when 836 funds adopted greener monikers.
“People talk about greenwashing, but actually I think we’ve gone the other way and are greenhushing”
Even climate-friendly companies are jumping on the greenhushing bandwagon.
A global survey of 1,400 sustainability executives conducted by climate consultancy South Pole found that 58% had decreased their communications on net zero because of greater regulation and scrutiny.
BlackRock's Larry Fink has tried to convince states like Texas he isn't out to get them on ESG PHOTO: KIRK SIDES/GETTY IMAGES
Greenhushing is the opposite of greenwashing, where companies overhype their green credentials to appeal to environmentally-conscious consumers, but the two are intertwined. Afraid of being burnt by saying too much, companies are instead saying very little.
This fear is not unfounded. Regulators have been more aggressive in going after greenwashers as they try to protect consumers.
READ Barry Norris: ESG has spawned a bull market in mindless bureaucracy
DWS was fined $19m by the US Securities and Exchange Commission over ESG “misstatements” — brought to light by whistleblower and former head of sustainability Desiree Fixler — while Goldman Sachs and BNY Mellon’s investment arms have also been hit with multi-million dollar fines by the US regulator for misleading claims about their ESG funds.
“[Companies] think people will assign expectations and perceptions of us that are wrong so we’re just going to stay quiet about it,” Sheehan said. “It’s like an unhealthy marriage. We’re not talking about it, so we’re fine.”
US states push back
The backlash against ESG investing has also prompted companies to keep quiet. Asset managers have faced a barrage of attacks by Republican politicians in the US for the past two years over their consideration of environmental and social factors when investing public pension money.
In Texas, state pension funds have been forced to divest from 15 firms, including Schroders, Jupiter and HSBC, because of their sustainable investing policies, while Oklahoma, Arkansas, Iowa, West Virginia and Kentucky have introduced similar ‘blacklists’.
BlackRock, which has borne the brunt of these attacks, is being sued by Tennessee for allegedly breaching consumer protection laws by failing to disclose the extent of its ESG activities.
READ Why BlackRock is backing fewer ESG proposals
This political scorn over green investing has turned talking about ESG into a difficult balancing act for firms whose global operations mean they now have to cater to radically different client bases in the US and Europe.
Neil Farrell, founder and head of sustainable investment search at ESG recruiters Farrell Associates, said there had been a “definite bifurcation of marketing” between US-headquartered firms that operate in the City and those based in the UK and Europe.
“Firms have literally got two decks now [to present to clients],” Farrell said. “In the US, for sure, you can’t really use [ESG] and I think people have stopped marketing altogether anyway.”
Firms such as BlackRock and Vanguard have massive stewardship teams that are “doing really good things” but they aren’t allowed to promote it, Farrell said. “Everything needs to go through legal and they just say, ‘no’. To be fair to them, if they’ve got x amount of money in Texas from a pension fund and they’ll get sued, that’s worse than greenhushing, I guess.”
The backlash against ESG has become worse in the run-up to the US presidential election, to be held on 5 November.
This year JPMorgan’s fund arm, Pimco, State Street and Invesco have abandoned Climate Action 100+, the industry’s climate coalition. Some anti-ESG politicians have also changed their tune on BlackRock’s Fink following the fund group’s decision to pull back on its Climate Action 100+ commitments.
“In the US, for sure, you can’t really use ESG”
Texas lieutenant governor Dan Patrick, one of BlackRock’s biggest ESG critics, shared the stage with Fink at a power grid investment summit in Houston, where he called him the “king of Wall Street”, a week before BlackRock announced it was transferring membership in the climate coalition to its smaller international business.
“It was almost like a truce,” said Tariq Fancy, the former chief investment officer of sustainable investing at BlackRock. “I don’t think it was in the red states’ interest to antagonise BlackRock for ever, but BlackRock wanted to be in their good graces also.”
While ESG is a thornier issue in the US, having become embedded in the culture wars, City firms have distanced themselves too.
Fewer European asset managers launched ESG-related campaigns in the fourth quarter of 2023, according to data from advertising services firm Fundamental Media. Targeted brand promotions fell to 30% of total advertising spend from 44% in the previous quarter.
Failure to launchGreen products coming to market stallSource: Morningstar Direct
ESG fund launchesESG fund closures2019'2002505007501000
Sustainable fund launches in Europe have almost halved from 660 in 2022 to 362 in 2023, according to Morningstar Direct.
Lacklustre performance and concerns about the pervasiveness of greenwashing have led to record outflows from the sector, and this has begun to trickle down into asset managers’ product offerings.
Meanwhile, there has been a record number of sustainable fund closures in 2023, with 198 strategies being liquidated or merged away compared with 147 in 2022.
ESG talent backlash
ESG has also been disappearing from job titles. Farrell said UK asset managers were “almost exclusively” using “responsible investment” when advertising available green jobs.
Other firms have rebranded and restructured their sustainable investment teams. Lazard Asset Management scrapped the co-head structure for its sustainable investment team, resulting in Nikita Singhal in New York leaving the firm, while Jennifer Anderson, based in London, stayed on.
READ The FCA’s new ESG rules won’t stop greenwashing, experts warn
Julia Dreblow, founding director of SRI Services, hopes that more clarity on ESG fund regulation in the UK should dispel some of the industry greenhushing.
The Financial Conduct Authority has been less stringent with its Sustainability Disclosure Requirements for green funds than regulators in Europe, Dreblow said, so that firms would not be put off by talking about sustainability.
“We want people talking about it,” she said of the package of reforms, including an anti-greenwashing rule and four labels asset managers can use to market their green products to consumers, which will be rolled out gradually this year.
“But it’s got to be evidenced and put forward in a way that makes sense to a client who actually cares about this stuff.”
To contact the author of this story with feedback or news, email Kristen McGachey
Subscribe
Hush hush BlackRock Ratfink
https://tucoschild.substack.com/p/sustainable-esg-funds-secretly-invested