Thursday, July 13, 2023

It's not just Larry Fink. C-suite ESG mentions drop as political heat rises.

 BlackRock Chairman and CEO Laurence Fink is interviewed by Maria Bartiromo on Fox Business Network's 

BlackRock's Larry Fink isn’t the only CEO no longer using the now-controversial acronym ESG.

ESG — which stands for a focus on environmental, social, and corporate governance principles — was mentioned by just 74 S&P 500 companies on corporate conference calls held during the first-quarter earnings season, according to data gathered by FactSet.

That was the lowest count in nearly three years and down from a peak of 156 in the fourth quarter of 2021. Executives are now more likely to mention artificial intelligence (AI), which garnered 110 mentions in calls held from March 15 through June 9.

The ESG mentions could fall again when companies begin to release their second-quarter results in the coming weeks.

"Something drastic happened in the past year or so," said Erick Mokaya, lead author of The Transcript, a newsletter devoted to trends in earnings calls.

Don’t expect to hear the term at all when BlackRock (BLK) reports on July 14. Its boss, Fink, stated recently that he now refuses to say ESG because the term has become "weaponized" and "misused by the far left and the far right."

BlackRock CEO Larry Fink. (AP Photo/Mark Lennihan)

The pledge was notable because Fink had become a corporate face of that trend over the last decade thanks to years of annual letters to investors that urged long-term investors to consider responsible ESG practices when evaluating companies.

These comments earned him critics from both sides of the ideological spectrum. Some on the right accused him of "woke capitalism." Some on the left said Fink's own firm didn’t go far enough to reduce its own exposure to climate issues by divesting from oil and gas investments.

BlackRock also became the target of high-profile efforts by state officials, including Florida Governor Ron DeSantis, to pull public pension money from BlackRock. Florida withdrew $2 billion from the firm as punishment for its ESG stance.

The political focus around the issue keeps ratcheting upwards. House Republicans are aiming to make July into 'ESG month’ on Capitol Hill as they undertake efforts to reverse the trend toward do-good investing. The once-dry investing term has also become a mainstay issue on the 2024 GOP presidential campaign trail.

'We aren't getting this one right'

Mokaya pointed to one moment last September as a key turning point for how ESG is treated by the c-suite.

It was then that JPMorgan Chase (JPM ) CEO Jamie Dimon appeared before Congress and questioned much of the ESG orthodoxy, saying "we aren’t getting this one right."

Dimon argued that a more nuanced approach to things like climate practices was needed.

"Since then, a lot more CEOs have gotten bolder" about questioning previous ESG strategies and downplaying the term, said Mokaya.

Some investors have also pulled back. Inflows into US sustainable funds hit their lowest level in seven years last year in 2022 amid the growing backlash, according to a report from Morningstar. The outflows continued through the first half of 2023, according to Refinitiv.

Jamie Dimon, Chairman and CEO of JPMorgan Chase, arrives to testify during a Senate Banking, Housing, and Urban Affairs Committee Hearing on the Annual Oversight of the Nation's Largest Banks, on Capitol Hill in Washington, DC, September 22, 2022. (Photo by SAUL LOEB / AFP) (Photo by SAUL LOEB/AFP via Getty Images)
Jamie Dimon, CEO of JPMorgan Chase. (SAUL LOEB/AFP via Getty Images)

July is 'ESG month'

The outflows and declining mentions on CEO calls coincide with rising heat in the political arena that is expected to continue in the coming months.

DeSantis has signed a sweeping law to bar state officials from investing public money in ESG efforts. DeSantis has also taken the issue to his presidential campaign where he likes to brag that his bill “kneecapped" ESG.

Florida is not alone, either. There are currently 26 states proposing anti-ESG investing bills according to a recent study by Morgan Lewis.

WASHINGTON, DC - JUNE 20: U.S. Speaker of the House Kevin McCarthy (R-CA) speaks to reporters outside of his office at the U.S. Capitol Building on June 20, 2023 in Washington, DC. McCarthy spoke to reporters about the Department of Justice's charges against U.S. President Joe Biden's son Hunter Biden. (Photo by Anna Moneymaker/Getty Images)
Speaker of the House Kevin McCarthy (R-CA) speaks to reporters on June 20. (Anna Moneymaker/Getty Images)

The activity on the campaign trail comes as the House of Representatives plans their own focus on the issue in the month of July.

US lawmakers are set to make proposals to change the rules that govern asset managers as Republicans in the House look to further roll back the trend.

Shareholder activism will also be under the microscope as will the Biden administration's handling of the issue. A hearing about "protecting investors" is scheduled before the House Financial Services Committee on July 12.

ESG "is clearly politicized in the US and that's something asset managers and lending institutions just have to deal with," TD Cowen Managing Director John Miller recently said.

Ben Werschkul is a Washington correspondent for Yahoo Finance.

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