Finding a Way Forward for ESG Advocates and Critics To Achieve Consensus

Where did the expression “woke” come from? Wikipedia offers us this explanation: “Woke is an adjective from African-American Vernacular English meaning [being] alert to racial prejudice and discrimination.” As the use of the term spread to a broader range of topic areas, we could also say that being “woke” is about being “awakened” and “alert” tochanges in certain areas of interest and importance in our lives. Like the increased importance of ESG issues to asset managers and corporate leaders.

Increased awareness of ESG issues accounts for the shift in focus by fiduciaries beyond just financial results to consider an ever-widening range of corporate governance, environmental and societal issues (of course now including diversity, inclusion, and equitable treatment of all stakeholders). Consideration of ESG is now a fundamental part of asset management and fiduciary duties.

We’ve been sharing news and perspectives about the attacks by certain Red state politicians on both ESG and “woke” companies; these are straw men for public sector leaders who now target and punish those asset managers adopting ESG analysis and methodologies in their management of clients’ assets.

In the Harvard Business Review, two authors recently put many of these issues in perspective for us as they offer possible solutions to rescue ESG from the Culture Wars. They are well versed in the many aspects of ESG, sustainable investing, and corporate sustainability.

One is former Harvard B-school professor Robert Eccles (now visiting professor of management practice at Said Business School, and a lifelong Democrat) and the other is Daniel Crowley, a long-time GOP leader who served as general counsel to House Speaker Newt Gingrich and who now leads the global financial services practice as K&L Gates LLP.

They speak about ESG from deep and varied backgrounds in finance, business, research, and public policy. Bob Eccles is a founder of the Sustainable Accounting Standards Board (SASB); Daniel Crowley led government relations efforts at the Nasdaq Stock Exchange and National Association of Securities Dealers (NASD).

A few highlights of their shared perspectives in the HBR piece:

• The planned congressional hearings on ESG present an opportunity to put facts on the record and begin the process of working toward a bipartisan consensus to take the “political passion” out of ESG discussions. The coming hearings on ESG could be political theater or a learning opportunity to clarify what ESG is/isn’t.
• The key will be to bring ESG definitions back to an original intention, “as a means for helping companies identify and communicate to investors the material, long-term risks they face from ESG-related issues”.
• Climate change is one such risk; e.g., future revenues of fossil fuel companies would be greatly reduced if governments start to tax carbon.
• For capital markets to properly allocate capital, investors need companies to disclose material investment risks. ESG, they write, is simply about identifying material risk factors that matter.

This HBR feature article is compelling reading for those on both sides of the ESG equation, for both ESG advocates and critics. Framing the hearings as explorations of not about being “woke” but on the importance of materiality is the way forward, the authors posit. We urge your reading and sharing of Bob Eccles’ and Daniel Crowley’s enlightening perspectives.

This issue of the newsletter also contains news and opinion beyond the political theater of “ESG wokeness” and U.S. Culture Wars that often drag anti-ESG views into vital conversations about addressing the climate change crisis. The team at G&A Institute will continue to monitor and share top-line results with you in this newsletter.

This is just the introduction of G&A's Sustainability Highlights newsletter this week. Click here to view the full issue.