What to talk about when you don’t talk about ESG

Climate Finance

What to talk about when you don’t talk about ESG

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BlackRock’s Larry Fink won’t say the term now but ESG factors will still count in investing – just don’t call it ESG.

Highly charged political arguments over whether environmental, social and governance issues have a legitimate place in business decisions have put many chief executives, chief sustainability officers and other C-suite champions on the defensive.

Exhibit A: During remarks at the Aspen Ideas Festival in late June, BlackRock CEO Larry Fink said he outright avoids using the acronym: “I don’t use the word ESG any more, because it’s been entirely weaponized … by the far left and weaponized by the far right.”

But that doesn’t mean BlackRock will ignore issues such as a portfolio company’s exposure to climate-fueled floods or extreme weather events, human rights issues in supply chains, stranded assets and other business risks, Fink said during the same conference. It will just discuss them in different language.

And therein lies the most powerful argument business leaders have for prioritizing ESG considerations: In many cases, to ignore them would be a breach of fiduciary responsibility, argued speakers and attendees during the recent GreenFin 23 conference in Boston.

“The purpose of the corporation is to profitably solve the problems of people and the planet, not to become part of the planet’s problems,” said Lynn Forester de Rothschild, founder and co-chair of Inclusive Capital Partners, during a plenary interview, in response to a question about how ESG relates to business value. “We could lose our entire ability to survive in society if we’re going to only support companies that create great shareholder value but destroy the planet. So, it’s not really values versus value — it’s what is the purpose of the corporation, which is another thing that I think is fundamental to what every investor, what every CEO should be thinking about as a North Star.”

For some industries, climate is an existential business risk

Frustration about how to position ESG messaging and concern about the anti-ESG rhetoric of influential governors in Texas and Florida (to name just two) was pervasive at the event; several sessions exploring this topic (“The Elephant in the Room: Navigating ESG’s Politicized Waters,” “A New Conception of ESG That Builds Common Ground” and “ESG Data: A Defense Against Greenwashing?”) were presented to standing-room-only audiences.

“For companies in many industries, this is a core business risk,” said Leo Strine, former chief justice of the Delaware Supreme Court, and currently Of Counsel in the Corporate Department at Wachtell, Lipton, Rosen & Katz, referring to ESG considerations. “For some industries, climate is an existential business risk.”

Strine pointed to one of his firm’s clients, a reinsurance company, as an example of a business that would be irresponsible not to thoughtfully consider the impacts of climate change in decisions about where to back coverage and how to price that service, for instance. “Insurance actuaries are absolutely convinced of the human impact on climate change and the resulting impact of climate change on weather volatility, storms and risk,” he said.

Ron O’Hanley, chairman and CEO of financial services firm State Street, likewise said ESG considerations must be part of the analysis for any long-term investment. “If you think about risk, investment risk, risk is nothing more than the proposition that more things can happen that will happen,” he said. “If you add time to that, think about over time, the amount of things that can happen multiplies.”

“For us, it’s all about value, and the value being created for the actual owners of the capital.”

O’Hanley offered the example of an oil and gas company to illustrate his point.

“If demand’s going down — and it should go down, as renewables grow — where are you going to put your capital? Are you going to continue to put it in a declining asset or are you going to put it into … renewables? So, for us, it’s all about value. We’ve all got our personal set of values; they actually don’t belong in portfolio management on behalf of others. Your personal portfolio management, have at it. But for us, it’s all about value, and the value being created for the actual owners of the capital.”

A unifying argument

Several speakers suggested sustainability professionals should spend more time framing issues in ways that aren’t divisive and reaching across the political spectrum to understand the concerns of those speaking out against ESG. “We talk about climate, and we talk about things in ways that divide unnecessarily,” Strine said.

To illustrate, he pointed to the community of individuals who hunt and fish as a hobby or as a source of food. Strine, who “confessed” to being a liberal Democrat, said hunters and fishers regardless of political party are unified by their belief that climate change is real and their strong opposition to corporate pollution that endangers biodiversity. “What I’ve been talking about, really, is thinking of ESG as making money the right way,” Strine said. “What we mean by that is, are your products safe and not fraudulent? Do they make people’s lives better? Do you pay taxes? Do you avoid polluting?”

Colleen Davis, treasurer for the state of Delaware, an elected Democrat, suggested that positions that may seem “anti-ESG” to one set of stakeholders are grounded in very real social concerns for a different community. West Virginia’s push to conserve coal plants is entirely understandable when you consider their importance to the state’s economy, she said. “The underlying purpose is saving jobs, and that is actually a pillar of ESG.”

A better approach for businesses hoping to advocate the clean energy transition in states such as West Virginia is to underscore the economic potential of new industries rather than pushing the climate change angle. States such as Kentucky and Tennessee, for example, are embracing new multibillion-dollar electric vehicle battery recycling and manufacturing investments. The opportunities were positioned as a matter of business value, alongside the potential for new job creation. “When there is fear embedded in the messaging, it is really important that we speak out against it,” Davis said.

For more insights from GreenFin 23, see coverage here.

This article originally appeared on GreenBiz.com as part of our partnership with GreenBiz Group, a media and events company that accelerates the just transition to a clean economy.

Featured photo: GreenBiz

Written by

Heather Clancy

Heather Clancy, GreenBiz editorial director, is an award-winning business journalist specializing in chronicling the role of technology in enabling corporate climate action and transitioning to a clean, inclusive and regenerative economy. She started her journalism career on the business desk of United Press International, and her articles have appeared in Entrepreneur, Fortune, The International Herald Tribune and The New York Times. Clancy was the launch editor for the Fortune Data Sheet, the magazine's newsletter dedicated to the business of technology. She co-authored the Amazon best-seller for entrepreneurs, "Niche Down, How to Become Legendary By Being Different."