Champions, critics drive ESG debate, disclosures

This article is one in a series of midyear outlooks for 2022 by the InvestmentNews team.

Amid the broader culture wars happening right now across the U.S., it was probably only a matter of time before ESG entered the fray.

Conservatives have singled out environmental, social and governance criteria in investing in a campaign against “wokeness.” Some states, including Texas and West Virginia, are seeking bans on investing through managers that include any products that exclude oil and gas holdings, for example. Former Vice President Mike Pence has also called out ESG as a potential rallying point for the Republican party.

There has also been political pushback on the Securities and Exchange Commission’s recent proposals on ESG issues, including a rule that would require public companies to disclose their climate risks and carbon footprints and anti-greenwashing rule amendments for fund names and product marketing.

Those proposals seek to not only help public companies understand their own greenhouse gas emissions and prepare for the energy transition, but also could provide asset managers and investors with significantly more information about the risks that holdings in their portfolios face.

Opponents have criticized the SEC’s authority to impose climate-related disclosures, while supporters are pushing the regulator to do even more. Central to arguments on both sides is whether climate data should be considered material.

Outside of those efforts, there has been a deluge of interest in ESG. Many more investment products have appeared on the market that include ESG factors, which is part of why the SEC has focused on the issue of greenwashing.

Asset managers and institutional investors have also been engaging with public companies around ESG issues with more success than ever. There was a record number of shareholder proposals in the current proxy season, and for the first time some resolutions on climate disclosure, pay equity and other issues have received majority votes in favor.

ADVOCATES CLAIM WINS

Big names — including Walt Disney Co., Twitter Inc. and Lowe’s Cos. Inc. — have seen shareholder resolutions pass, even as companies fought to keep them off ballots and encouraged votes against them. Numerous companies have also voluntarily agreed to make changes outlined in resolutions before those went to a vote, another indicator of the leverage that shareholders have for corporate engagement.

More surveys have also shown that ESG issues are important to everyday investors, including 401(k) savers — a majority of whom have indicated they would increase contribution rates if sustainable investments were options in their plans.

Increasingly, those options are becoming available. Last month, for example, the government’s Thrift Savings Plan added a mutual fund window, which could provide ESG fund options for its participants.

For 401(k) savers, change is likely just around the corner. The Department of Labor is set to pass a rule that would encourage plan fiduciaries to take ESG issues into account when considering investment options, and it would specifically allow ESG funds to be default options for participants.

Emile Hallez is the U.S. news editor for ESGClarity.com.

More articles in this series:

• Response to inflation is likely to dominate economic policies
• Agenda-driven SEC determined to prevail despite critics’ pushback
• SECURE 2.0 occupies rare common ground, tees up progress
• Escalating economic drama dampens appetite for adviser moves
• Are tools smart enough for tough times? Market volatility to test advisers’ tech
• New ways of recruiting diverse talent intersect with demand

Related Topics: ESG