As discussed in this article from the WSJ, The Latest Dirty Word in Corporate America: ESG, ESG backlash is driving many company executives to drop any reference to “ESG” and instead use terms like “sustainability” or “responsible business,” or opt for “green hushing” altogether. Citing an analysis from FactSet, the WSJ reported that, on “earnings calls, mentions of ESG rose steadily until 2021 and have declined since…. In the fourth quarter of 2021, 155 companies in the S&P 500 mentioned ESG initiatives; by the second quarter of 2023, that had fallen to 61 mentions.” But are companies just turning down the volume while still pursuing the same aspirations or have they trimmed their objectives too?
But is this just about soft-pedaling of terminology or is there some back-pedaling on programs too? According to a recent report by the advisory firm Teneo, the “recent politicization of ESG” is having an effect: in a survey of 260 global CEOs representing $3.4 trillion of combined company and portfolio value, results showed that “72% of CEOs polled are making one or more changes in how they operate in response to the shifting environment.” In the survey, 8% responded that they have ramped down some of their ESG-related programs; 28% said that they had become “more cautious” in their selection of ESG topics for engagement; another 28% reported that they were allocating more time and attention to ascertain which ESG topics were important to employees and customers; and 45% said that they were continuing to do what was right according to their beliefs, but discussing it less outside of the business.
In the U.S., one area that has been subject to increasing scrutiny has been DEI—diversity, equity and inclusion—particularly in light of the recent SCOTUS decision on affirmative action in universities, Students for Fair Admissions, Inc. v. President and Fellows of Harvard College, as well as challenges from conservative activists. (See this article in the WSJ.) The survey from Teneo showed that CEOs were divided on DEI programs, with 20% increasing their DEI recruiting and retention efforts, 30% continuing their efforts, 35% reporting that they were scaling back their programs, 5% terminating their programs and 10% pausing to re-evaluate their programs. Although the SCOTUS decision concerned university programs, not corporate programs, in light of the upcoming election and the concern expressed by some candidates about perceived “woke” corporations, the issues surrounding DEI may have been invigorated. Teneo speculates that “[t]hose pausing or re-evaluating are likely adapting messaging to minimize risk and are cautiously monitoring the environment. It will be critical for companies to include legal perspectives alongside the business risks of slowing down or scaling back their DE&I programs.”
The impact of that survey data may also be reflected in this report from The Conference Board and ESGAUGE regarding gender diversity on corporate boards. Although no reasons are cited, the report indicates that, while the level of gender diversity has increased significantly from 2018 to 2023, more recently, it has plateaued. More specifically, among the S&P 500, the percentage of women directors increased from 23% in 2018 to 32% in 2023, while the percentage of women directors among the Russell 3000 remains lower, increasing from 17% in 2018 to 28% in 2023. Generally, the largest companies had the highest percentages and the smallest companies had the lowest. In addition, the report reveals that, as of August 2023, 54% of Russell 3000 companies had three or more women directors, compared to 48% in 2022 and 18% in 2018; 86% of companies in the S&P 500 have three or more women directors, up from 47% in 2018 and 56% in 2019. All male boards? Almost none.
But, if you look only at new directors, the percentage of women fell in 2023. Among companies in the S&P 500, the percentage of new directors who are women decreased from 43% in 2022 to 38% in 2023; in the Russell 3000, it declined from 42% to 39%. According to the report, this decline accounts for the sluggishness of the increase overall in the proportion of directors who are women, from 31% in 2022 to only 32% in 2023 in the S&P 500, and from 27% to 28% in the Russell 3000.
These shifts in ESG programs notwithstanding, according to Teneo, “a vast majority of CEOs continue to believe that certain ESG issues are critical to their business and to their stakeholders,” and 92% of CEOs said they were “standing by their ESG-related programs”; only a small proportion of companies reported actually curtailing their ESG-related projects “in response to these political headwinds.”
