How are companies reacting to anti-ESG efforts?


It’s not just Mickey Mouse that’s feeling the heat from anti-ESG efforts lately. Reuters reports that, so far this year, legislators have filed about 99 so-called “ESG backlash” bills compared with only 39 in 2022; as of April 3, they report, “seven of the bills had been enacted into law, 20 were effectively dead, and 72 were still pending.” What are they about? A number of them are designed to protect fossil fuel companies from climate-related demands of various investment funds, while others relate to “hot-button environmental, social and governance (ESG) topics like abortion rights and firearms.” Not to mention the 68 anti-ESG proposals submitted this year to date (compared to 45 in 2022) as reported by Axios, citing data from the nonprofit Sustainable Investments Institute. According to the article, about a third of these proposals relate to corporate diversity endeavors, requesting that companies “report on the ‘risks’ that their anti-discrimination or racial justice efforts pose to their business.” Several others request that companies “avoid public policy positions unless there’s a business justification” or report on the risks arising out of their attempts to “achieve net zero” or other “decarbonization goals.” What is the fallout from these anti-ESG attempts? How can companies address the growing investor demands for ESG disclosure without—or perhaps despite—creating the impression among ESG opponents that they are just pursuing “an agenda”—or “Satan’s plan” according to Utah’s State Treasurer (as quoted in Reuters)?

One effect of the anti-ESG movement is that businesses have started to keep quiet about, or at least lower the volume on, their ESG initiatives—a phenomenon so common it now has a name: “greenhushing.” The article notes, for example, that Larry Fink’s recent letter to BlackRock investors didn’t even mention ESG, and other companies appear to have cut back on some of their climate goals. According to this paper, the term “greenhushing” originated anecdotally in 2008 in Treehugger, a sustainability website founded in 2004, to describe the phenomenon of companies deliberately not communicating about their environmental and other corporate social responsibility initiatives for fear of retaliation or other negative pushback. Reportedly, the term was used as a sustainability marketing strategy in contrast to the strategy of “greenwashing.”


The paper, “The Desirability of CSR Communication versus Greenhushing in the Hospitality Industry: The Customers’ Perspective,” discusses recent research examining the impact of the managerial practice of “greenhushing” in the context of the hospitality industry. In one study using focus groups, the paper concluded that hotels’ communication about corporate social responsibility and awareness creation for environmental issues was “desired by consumers.” In a second study, conducted online, the author concluded that “one-way and particularly two-way CSR communication” led to “more favorable attitudes toward hotels’ CSR communication and lower intentions to behave unethically, compared with greenhushing.” The author concluded that there was “little justification for greenhushing in a hospitality context from the customers’ perspective.”

But are companies just turning down the volume while still pursuing the same aspirations or have they trimmed their objectives too? As reported in this article from the World Economic Forum, a report issued by the consultancy South Pole suggested that many companies are trying to avoid retaliation for their ESG initiatives—“by going radio silent. Nearly a quarter of the 1,200 firms it surveyed don’t plan to publicize their science-based emissions targets, which are deemed necessary to help curb the worst impacts of climate change. That’s stirred speculation that a new era of ‘greenhushing’ may portend a lack of progress.” According to the director of the Sustainability Initiative at MIT Sloan, however, greenhushing is not new—”companies have long felt a need to occasionally turn down the volume on their sustainability focus.” And, as Axios observes, the retreat “isn’t simply about anti-ESG efforts. Businesses are also more inclined to stay mum as regulators like the SEC start paying more attention to companies’ ESG-related claims.”


The risk of SEC-initiated litigation related to ESG fraud and greenwashing appears to be growing. In 2021, Acting Director of Enforcement Melissa Hodgman, warned us to anticipate more ESG disclosure-related enforcement actions. In March 2021, then-Acting SEC Chair Allison Herren Lee announced the creation of a new climate and ESG task force in the Division of Enforcement, which sought to identify ESG-related misconduct. (See this PubCo post and this PubCo post.) Recently, Enforcement has fixed its attention on misleading statements in sustainability reporting—greenwashing—even outside of periodic reports. (See, e.g., this PubCo post and this PubCo post.)

But some companies are taking a different tack. In some cases, these anti-ESG “statehouse efforts face increasing pushback from businesses and pension funds looking to account for climate change and protect returns.” According to Reuters, these “proposed laws have in turn provoked their own reaction from business leaders, legislators and public officials who worry they would hurt returns by cutting off public pension funds from outside investment managers or interfere with executives’ obligations to shareholders.” In one example, a Texas bill that would require fund managers working for the state to focus only on maximum profits rather than any social or political goals drew concerns from several public pension systems that their external managers “could have run afoul of the proposed legislation.” Even though the bill was subsequently narrowed, two of the pension systems said they remained concerned about potential risks and liabilities that could discourage investment managers from doing business with the systems and possibly result in significant lost earnings. In another instance, legislation in Kansas aimed at limiting the use of ESG in investment decisions had to be moderated “to address concern it would cost $3.6 billion over 10 years in lower pension system returns.” According to a government relations consultant cited in the article, “‘[t]here has certainly been a lot of pushback and education about how this might operationally affect some particular industries,’ she said. She estimates fewer than a fifth of the anti-ESG ideas and policies originally sought would be passed into law, a share that could still prove significant.”


As discussed in a business journal article from the Wharton School, academic research looked at the financial impact in one state of legislation aimed at prohibiting local jurisdictions from contracting with banks that had adopted policies against guns and fossil fuels. It turned out that the legislation may not necessarily have worked in the state’s economic best interest. As a result of the legislation, a number of major underwriters exited the state. By decreasing competition, the legislation increased the costs of borrowing, the research found. The research estimated that, for the “first eight months following effectiveness of the legislation, the cities in that state will pay an additional $303 million to $532 million in interest on $32 billion in bonds.” In this case, as it turned out, the law had “so many loopholes and exceptions” that, when the state began to ask financial institutions to describe their climate policies, several banks attempting to re-enter the market were able to say that their policies were in compliance. For example, one loophole noted by NPR allowed companies that wanted to continue to work in that state to “still avoid investing in fossil fuels as long as they are doing so for strictly financial, rather than ethical or environmental, reasons.” (See this PubCo post and this PubCo post.)

So how should boards balance the demands of these ESG critics and key stakeholders? That question is addressed in this report from audit firm PwC. PwC advocates that “directors consider both sides of the ESG debate. Certain environmental, social and governance issues may impact a company’s ability to be successful in both the near and long term; others might not.” As a result, there isn’t one approach that works for all, but PwC highlights this point: “At its core, ESG is about companies developing long-term strategic plans, identifying and mitigating material risks, recognizing emerging growth opportunities to their businesses and their boards’ oversight of all of it. More robust ESG data, not less, could lead to companies making more informed decisions and to better public policy.”

PwC observes that, beyond the rhetoric, there are really “two key catalysts behind the calls for greater ESG disclosures —(1) professional investors who are using ESG data to inform decisions about whether to buy or sell your company’s shares and (2) ESG fixed income and equity investment funds that allow millions of retail investors to marry their financial goals with their values. We don’t anticipate these two catalysts losing strength any time soon,” even in the face of continued ESG criticism. Investors want transparency, PwC suggests, because they use ESG data in their models to understand a company’s risks and opportunities. Accordingly, “directors will need to balance the potential for their actions to address ESG risks and opportunities to be misconstrued—and the reputational risks that follow—with this increasing market demand and the evolving regulatory disclosure requirements,” such as those expected from the SEC (see this PubCo post, this PubCo post and this PubCo post) and European regulatory authorities (see this PubCo post and this Cooley Alert.)

PwC advises directors to view “this as an opportunity to refine their company’s story and build brand health—with both critics and key stakeholders,” by addressing the substantial investor concerns about greenwashing and providing the business rationale and financial implications of ESG initiatives in their corporate reporting. Investor confidence would also increase if “the information was assured by an independent auditor.” PwC advocates that:

“To build trust, companies must collect, analyze and report robust, auditable ESG data. The company should present the data to tell a true story of how the company is mitigating risks and taking advantage of opportunities. These are management responsibilities. Boards should have in place appropriate processes to get the right information and exercise their oversight responsibilities. Boards need to be able to assess whether investments of time and money toward sustainability are accretive to long-term value. More simply, boards need to ask whether management is setting the right priorities, making the right promises to stakeholders and keeping those promises. Companies may not be able to mute all of their critics, but being proactive on ESG reporting can help them distinguish themselves from peers and potentially take advantage of the ESG asset flows.”

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