HEADLINE: “How banks are avoiding ‘toxic’ ESG language”: Sustainability is not dead but the lexicon is changing.” by Anita Hawser
“Only a year ago companies did not think twice about using “ESG” in job titles. Banks, corporates and investors eagerly labelled activities and bonds with three-letter term, encouraged by climate…”
How banks are avoiding ‘toxic’ ESG language
Sustainability is not dead but the lexicon is changing
by Anita Hawser
Trump’s rollback of climate policies spurred a quiet exodus from ESG branding across US banks and corporates © Getty
Only a year ago companies did not think twice about using “ESG” in job titles. Banks, corporates and investors eagerly labelled activities and bonds with the three-letter term, encouraged by climate policies, net zero pledges and favourable public opinion.
But after President Donald Trump rolled back US climate policies and Republican states launched antitrust suits against financial institutions for commitments that deprived the fossil fuel industry of access to financing, companies began quietly to rebrand.
“In the US, the general rule of thumb is don’t use the term ‘ESG’,” a senior ESG banker at a US investment bank recently told The Banker, noting they too have dropped the term from their job title in favour of the seemingly more neutral “head of sustainability”.
“Most banks have changed ESG names,” the banker added, largely due to Trump and the need to appeal to a certain “political zeitgeist” in the US.
Elsewhere, regulators have cracked down on banks’ vague sustainability claims in marketing material, leading to a more cautious use of virtuous terminology.
Here is how the sustainability lexicon is changing.
Out: ESG, green and climate change
Even in more ESG-friendly Europe, the tide is shifting. A partner at one UK law firm says it is seeing a few lenders establish new “ESG legal teams” to focus on the ever-shifting regulatory landscape.
However they are seeking a “non-ESG” name for these teams, according to the lawyer, which is not just “sustainability”. “The toxicity of the [ESG] acronym to some stakeholders is focusing minds in the financial services space on alternatives,” the lawyer says.
ESG is not the only term being challenged. “Green” has also drawn criticism, with banks like HSBC accused of greenwashing for using the label too freely in advertising campaigns to describe activities which a regulator may deem not to be green enough, false or misleading.
One bellwether of firms’ willingness to back anything labelled green or ESG are the bond markets. Amid political backlash in the US, the Climate Bonds Initiative says US issuers are “shying away” from labelling their debt as green. Issuing a green bond right now for US companies is like putting “a red target” on their back, says CBI’s chief executive Sean Kidney.
With these political headwinds blowing across the Atlantic, ABN Amro fixed-income analysts predict a tough year for euro-denominated ESG bonds.
Stateside, talking about climate change could also land you in hot water, says Danielle Fugere, president and chief counsel at US-based shareholder advocacy group As You Sow.
“We can’t talk about climate change,” she told The Banker earlier this year when Trump first took office. “[Not] naming the thing [climate change], is what they [the US administration] want to happen,” she said.
In: adaptation, resilience and robustness
According to an official at the World Bank, terms like “adaptation”, “resilience” and “robustness” are now preferred, after US Treasury secretary Scott Bessent urged the institution earlier this year to soften its climate and social rhetoric.
This is not necessarily down to Trump, the official told The Banker before this year’s spring meetings, but “a natural evolution of branding”. However World Bank president Ajay Banga said ahead of the April meetings that more “clearly defining” climate finance helps reassure US officials uneasy with the term.
While green or ESG bonds may have lost their appeal for US companies, “resilience” bonds are expected to grow in the US in the near future, according to the CBI. “Resilience is mentioned frequently in Trump’s election platform,” says Kidney.
According to a head of sustainability for Europe, the Middle East and Africa at a US investment bank, terms like “adaptation” and “building resilience” are an easier sell in Republican states than ESG.
“Populists understand [these] terms better,” the banker says, adding that resilience in the form of flood mitigation or defence is seen as more beneficial in “red states” than policies that push costly electric vehicles.
“Water” is another term likely to resonate with climate-sceptic Republicans, the banker says. “I can talk about water to a Republican in the deep south. Water is a real issue they live with.”
Mika Morse, former climate risk adviser to ex-SEC chair Gary Gensler, agrees. Water is easier to “wrap your arms around” than terms like ESG, she says. “It has real-world world implications, and is something people are experiencing and observing right now,” referring to recent floods in Republican states such as Texas.
According to Fugere, “extreme weather events” instead of climate change is another favoured phrase in the US right now, with financial plans for such events proving popular.
Twist: defence as the new social
In Europe, where the focus is on ramping up defence spending, some are even pushing the limits of the “S” in ESG. At a recent Financial Times conference in London, banks floated the idea of social bonds tied to defence projects, despite the arms industry’s uneasy fit with sustainability.
The International Capital Markets Association, which developed the green bond principles, recently ruled out defence projects from its framework, a move sustainable finance experts interpreted as “code for don’t do it”.
“I think we need to be very careful,” says Henning Stein, a finance fellow at Cambridge Judge Business School. “[Green and other sustainable bonds] were designed to finance projects with a clear and direct environmental or social benefit. Framing defence as social, even with arguments around stability or infrastructure protection, feels like too much of a stretch. It risks undermining the credibility of the label and confusing investors.”
Rather than retrofitting defence into the sustainability space, Stein suggests new labels such as resilience or security bonds. Yet some insist that in the current geopolitical climate defence serves an increasingly vital social function, even if it falls outside ICMA’s standards.
A European Investment Bank spokesperson, while respecting ICMA’s stance, insists there is a clear link between security and defence and the broader goals of climate action and social progress. The EIB, which this year expanded its mandate to fund defence projects like military-only bases, says: “Without the ability to defend itself and its values, Europe cannot achieve meaningful progress in these areas.”
The missing term
As the sustainability lingua franca shifts, there are concerns about tiptoeing around fundamental issues.
While there is common ground between US Democrats and Republicans about floods and wildfires facing their states — and the insurance crisis that is creating — Morse, who now works as a sustainability consultant, says people avoid talking about the next part of that conversation.
“If the [physical] risk keeps growing, do you reach a point at which you cannot adapt your way out of it or you can’t price your way out of it? And so what needs to be done to curtail the risk in the first place?”
No one, it seems, has yet come up with a politically palatable term to frame that discussion.
It's funny how much time and energy are spent on figuring out the best names for things. A lot of money is riding on this. And therefore a lot of politics. And a lot of kowtowing to politicians... and lots of arm-twisting. So names mean a lot. I think the under-the-surface substance matters even more. Call if whatever you like, but we must deal with climate-change somehow. Our very lives depend on it.