Corporate leaders open up about E.S.G.
At a cocktail party this week in Davos, one executive told DealBook something he — and most of the attendees at the World Economic Forum — would most likely never say in public: “I hope E.S.G. just goes away.”
The executive, whose company is involved in the carbon industry, clarified that he still believes that it is vital to focus on climate, but that environmental, social and corporate governance — as the business approach is formally known — has become too broad and distracting. He’s just one of many executives who have talked to DealBook about coming to terms with how politically charged E.S.G. has become, and about how to deal with it.
Have executives overpromised on E.S.G.? Fixating on lofty goals, without delivering on actions, has made business leaders vulnerable to a backlash, executives said. As evidence, some point to BlackRock’s Larry Fink, one of the earliest and most vocal proponents of E.S.G., saying he’s trying to “change the narrative” after taking fire from the right, and despite the fact that the asset manager still has investments tied to fossil fuels. The elevated messaging, and the pushback to it, has also obscured what supporters of the movement say are the real financial considerations of E.S.G., like what climate change means for a real estate business.
One finance executive compared the current “Davos era” approach to E.S.G. with other once-popular management philosophies, like the Six Sigma system embraced by the former G.E. boss Jack Welch. While investing with purpose probably won’t go away, the executive at Davos said, this particular flavor of E.S.G. may.
Executives worry there’s an overemphasis on measurement. Debate over which yardsticks to use to measure E.S.G. achievements like carbon-emissions reduction has become a distraction, some said. Worse, it can lead to so-called greenwashing of a business or investment.
Global bosses think the E.S.G. backlash is an American phenomenon. Many of the executives at Davos say the politicization of the approach is largely contained to the U.S., reflecting the country’s deep political polarization. After all, Europe has embraced E.S.G. to a far greater extent: One executive of a publicly traded green biosciences company told DealBook that European investors want to plumb more deeply into his company than their American counterparts and that their questions sometimes double the length of his meetings with them.
The stakes are high. E.S.G. investing is one of the fastest-growing segments in finance. PwC forecasts that asset managers will increase their E.S.G.-related assets under management to more than $34 trillion by 2026 from $18 trillion in 2021 as the investment boom becomes more mainstream.
Elsewhere in and about Davos:
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