Doug Sheridan Says
“The FT Editorial Board writes, advocates of more environmentally and socially responsible models of capitalism in the US have run into a serious backlash.”
The FT Editorial Board writes, advocates of more environmentally and socially responsible models of capitalism in the US have run into a serious backlash. While this has put many companies and investors in an unwanted spotlight, it is achieving less than its proponents hoped. Anti-ESG measures have been scrapped or diluted in several states and newly formed anti-ESG funds have raised relatively trivial sums.
Similarly, a surge in proposals from conservative shareholders at this year’s annual meetings has flopped, with the average anti-ESG resolution garnering just 2.6% support. Outside the US, the backlash is having even less impact.
Even so, asset managers’ belief ESG stewardship should be part of their mandates is wavering in the face of pressure. ISS | Institutional Shareholder Services analysis of this year’s US proxy season found fewer than 25% of shareholders supported resolutions calling for more action on climate or human rights, down sharply from 2022.
Some of the institutional hesitancy may reflect large investors’ claims that too many proposals from activists are excessively narrow. But asset managers’ reticence about supporting such proposals risks feeding public scepticism about their ESG rhetoric.
There are substantive debates to be had about the commercial, practical and moral roles business and finance should play in tackling environmental and societal challenges. But with ESG’s proponents and their antagonists both suffering setbacks, it's time to start thinking about how to wrest those debates away from left-right politics.
ESG investing remains a flawed catch-all, trying to encompass too much in one marketable acronym—there is a case for unpacking it into its separate elements. The success opponents have found by pointing out its contradictions and hypocrisies should encourage supporters to reflect on how it has proved so vulnerable to attack. It should also prompt them to refocus on the core responsibilities that companies have to their employees, the planet and the people who hold their stock.
Doing so, in a way that acknowledges ESG’s flaws and looks for common ground between its critics, may yet rescue a vital debate from the extremes. But believers in cleaner, more equitable and more sustainable forms of capitalism have more to do to make the case that they are driven by their companies’ long-term interests rather than by ideology.
Our Take 1: The FT Editorial Board is right that ESG movement needs reform—less focus on extremes and more on what companies and should do given their limited resources and roles.
Our Take 2: Where the FT is wrong is its assumption that stakeholder capitalism has replaced shareholder capitalism. That may be true in the halls of fading power in the UK and Europe, but not in the US and other parts of the world. In fact, shareholder capitalism remains the key factor driving higher living standards fir billions. That isn't going to change.