Despite recent eulogies for the environmental, social, and governance (ESG) movement and for diversity, equity, and inclusion (DEI) policies, many insiders say the funeral is premature.
“Their demise is inevitable, and it has been accelerated,” David Bahnsen, chief investment officer of the Bahnsen Group and formerly an asset manager at Morgan Stanley, told The Epoch Times.
However, “they are not over,” he said.
Institutional asset managers gave the ESG movement critical leverage over companies because they collectively own about 80 percent of the shares in S&P 500 companies. Immediately upon its introduction, ESG was endorsed by 23 financial institutions collectively representing more than $6 trillion in assets at the time.
Most major banks, asset managers, and insurance companies quickly joined U.N.-sponsored climate clubs, including the Net Zero Banking Alliance, the Net Zero Asset Managers initiative, and the Net Zero Insurance Alliance. This was followed by a proliferation of ESG rating agencies, consultants, accountants, and others dedicated to measuring companies’ compliance with ESG criteria.
“ESG is on death watch,” Daniel Cameron, CEO of the 1792 Exchange, an analytics nonprofit, told The Epoch Times. “You saw a lot of iconic brands last year walk away from DEI in particular.”
Companies stepping back from diversity programs include Amazon, Google, Target, Meta, Walmart, Boeing, Molson Coors, Lowe’s, Ford, Toyota, Harley-Davidson, Jack Daniels, Caterpillar, John Deere, McDonald’s, Nissan, Stanley Black & Decker, and Tractor Supply.
Rethinking or Rebranding
Some experts say this trend may be little more than rebranding.“Boeing, who just got rid of its [DEI] department, noted in the press release that none of them were laid off; they were distributed across the company in other roles,” Will Hild, executive director of Consumers’ Research and a longstanding critic of ESG, told The Epoch Times.
And many companies, including Apple, Cisco, Costco, Microsoft, Delta Airlines, and JPMorgan Chase, have defended their DEI programs and insist they will keep them in some form.
Tim Schwarzenberger, portfolio manager at Inspire Investing, says the notion that “DEI is dead or it’s on life support” is wrong.
“I was talking to a major energy company, talking to their chief diversity officer—they have their livelihood on the line,” Schwarzenberger told The Epoch Times.
Defenders say that the ideas behind ESG have been wrongly maligned.
“DEI is not a synonym for the ‘S’ in ESG,” Julie Anderson, a professor of management at American University’s Kogod School of Business, told The Epoch Times. “When I refer to the ‘S,’ it’s usually labor, health, and human rights.
“Politics has intentionally conflated and stolen the ‘S’ category and turned it into a gender and racial issue, which is a fraction of what it really is.”
Whether it goes by ESG or another name, its underlying principles appear to be alive and well.
The study found that environmental and social proposals accounted for 62 percent of the total in 2024, up from 44 percent in 2014. More recently, environmental and social proposals increased by 57 percent between 2020 and 2022 and hit a record of 610 proposals for the year ending in June 2024.
US Splits From Europe
What has changed, however, is that the United States’ most powerful asset managers appear to be less inclined to support these proposals, at least during corporate proxy votes.While support among American asset managers has waned, the “average support for significant E&S [environmental and social] resolutions by Europe’s largest asset managers is consistently very close to 100 percent,” the report states.
Utah state treasurer and ESG critic Marlo Oaks has called for laws and regulations “to make it significantly more challenging to utilize the proxy system to advance political agendas” and to create accountability for fund managers “voting for resolutions that are not in the economic interests of shareholders.”
He also said the ESG agenda is increasingly moving outside of the proxy voting process.
“Much of the corporate activism happens behind closed doors—for example, through engagement meetings—such that there is little accountability or transparency,” Oaks told The Epoch Times.
Some say that, here too, the movement may be losing momentum.
“We’re not privy to the contents of their corporate engagements,” Hild said. “But what I’m hearing is that [asset managers] are far less aggressive with corporate management teams than they once were, and that’s alleviating a lot of the pressure on corporate America.”
While the focus of ESG has been on climate and environmental issues, concerns are now rising about the extent to which the raw materials and components for wind and solar energy and electric vehicles flow through China.
“There is more of an emphasis on energy independence and not relying on, either directly or indirectly, adversaries for our energy,” Cameron said. “I think the more of that that people understand, particularly in the financial world, the less desire there’s going to be to boycott the fossil fuels industry.”
Some analysts say that support for ESG and DEI was never deeply rooted among many corporate executives.
Bahnsen believes most companies were never “ideologically committed to it to begin with.”
“I believe it was marketing and capitulation and fear—and in many cases pharisaical virtue-signaling,” he said.
Declining Value of Alliances
That doesn’t mean that ESG is dead, analysts say. Even though the SEC’s climate reporting mandate has been dropped, many companies will conduct so-called “green accounting” anyway.“All multinational companies have an international investor base, and internationally, investors continue to demand, and policy makers are still moving forward with [climate] reporting requirements,” Anderson said. She said ESG has become a “business as usual” risk-analytics tool for investors.
Nor does the fall of net-zero alliances mean that ESG is finished, she said.
“I think the utility of those alliances has been diminished and that you will see more people, more asset managers, step away from them,” Anderson said. “They don’t need to be part of an alliance; they don’t need to pledge it publicly; they don’t need to tell anybody that they’re doing it.
“They’re embedding it in their investment process as a part of their fiduciary duty.”
