Big Business Realizes That ESG Has Backfired

Larry Finks's statements might reflect a growing anxiety among investors about getting involved in politics.

What’s happening: The CEO of BlackRock—the world's largest asset management firm—recently said that he will no longer use the term "ESG” because critics have “weaponized” it. He even said he was "ashamed of being part of this conversation” but later walked back the remark and reaffirmed his commitment to “conscientious capitalism.”

Background: ESG or environmental, social, and governance scores corporate commitments to political issues like climate change and social diversity. “Socially conscious” investors use it for potential investments in companies and even countries, which also have ESG ratings. This global model has been used as a catalyst to funnel billions of dollars toward progressive efforts across the public and private sectors.

  • Culture war: Corporations that want to boost their scores adopt diversity, equity, and inclusion training, diversity quotas, climate change initiatives, programs for transgender youth or LGBT advocacy, and the like.

Zoom out: ESG placated regulation-hungry Democrats at a time when Republicans were free-market and not a threat to big business. The efforts swung far left, got caught in the culture war, and recreated the same problem corporations had before—but instead of angry Democrats, it’s now angry Republicans wanting to fight back with regulations.

  • Example: Last year, Florida Gov. Ron DeSantis pulled $2 billion worth of state assets from BlackRock due to its ESG policies. Around a dozen other Republican states have pushed back against ESG in some way.

Looking forward: With successful conservative boycotts of Bud Light, Disney, and others, it seems that corporations are reconsidering loud endorsements of political causes. Although companies were quieter this pride month in terms of marketing and public sponsorships, many continue to fund progressive efforts. The same could be expected for ESG investing.

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