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Anti-ESG Isn’t Really About Investing

Elizabeth Gilbert

By: Elizabeth Gilbert Kaetzel

When Mike Pence decided to write an article calling out ESG as a leftist propaganda tool (1), he threw the ESG and impact investing world into turmoil. The article inflamed debates about ESG both within and outside the field, quickly turning the phrase into a lightning rod for political commentary. In his article Pence frames ESG as “woke capitalism,” but the debate he ignited goes beyond criticism of a risk framework for investing. Within impact investing, responses are split into different factions. Some are trying to clarify what ESG actually is - a framework for measuring the risk of environmental, social, and governance factors. Others are hoping to use this opportunity to bring up larger issues that have plagued ESG for years or calling to throw out ESG altogether for a higher-impact alternative. But these arguments all fail in addressing why anti-ESG rhetoric is so effective. For Pence, anti-ESG is not actually about what ESG is or isn’t, and those aiming to amend the definition in the public sphere will not get anywhere. The narrative has already been shifted, and ESG has been added to the list of ways “the left” seeks to force their politics on others. The only way to not lose the progress we have already made in ESG and impact investing is to refocus the narrative on what we actually stand to lose. 

Notably, the political pushback on ESG has exploded just as ESG terminology has begun to hit the mainstream consciousness. In the wake of significant fossil fuel divestment and powerful investor campaigns, ESG has become a force with real influence in the public sector. Many impact investors have already moved past ESG and have been calling for more equitable and community-driven investment solutions from the industry. Meanwhile, financial players only typically interested in traditional investing are beginning to offer ESG funds to meet client demand. While there is certainly a discussion to be had about ESG fund regulation and impact measurement, the war on ESG aims to undo the progress which enables us to have those conversations in the first place.

The Anti-ESG Approach

So far the industry response to anti-ESG rhetoric has largely been to attempt to distinguish ESG from “impact investing” more generally (2), but we should be asking who this strategy benefits. For anti-ESG pundits, this distinction is beside the point. If anything, our definition of impact investing sounds even more dangerous than ESG if your fear is “woke capitalism.” The reality is that whether or not it’s accurate, ESG has become colloquially synonymous with investing according to “nonfinancial considerations,” a “variant of socially responsible investing, sustainable investing, and impact investing.”(3) The actual definition of ESG as a risk framework for measuring the financial risk of environmental, social, and governance factors has been lost in the public understanding. Titles like “Pence Rips Socially Conscious Investing, Wants to ‘Rein In’ ESG” (4) further blur these approaches in the public mind. This blurring of definitions makes it easy to use ESG as a strawman for general arguments about the increasing popularity and demand for investments that consider social impact. 

Ultimately, anti-ESG rhetoric from the Right is a narrative campaign, not an economic one.

In order to find an effective response to combat the anti-ESG campaigns we first need to understand the actual critiques and tools at play. Ultimately, anti-ESG rhetoric from the right is a narrative campaign, not an economic one. Narratives shape how we understand and make meaning of the world(5). They are more than just stories- they are a “pattern of meaning” that emerges from a collection of stories, words, and discourse. Narratives are strongly rooted and therefore difficult to combat - they must instead be countered with an alternative narrative.(6)

Politicians that feel threatened by the power of ESG investors are using language they know will inflame constituents, tapping into existing narratives about the threat of “woke culture.” Recently a West Virginia state treasurer wrote to banks across the country threatening “collective action in response to the ongoing and growing economic boycott of traditional energy production industries by U.S. financial institutions.” (7) The phrasing of “traditional energy production” is intentional; it is a dog whistle for people from communities whose jobs rely on the oil and gas industry. It tells a story that ESG is not about the material risk of fossil fuels, but rather an effort by the left to further alienate blue-collar workers, reinforcing the narrative that “woke culture” is a threat to those that lean politically Right. 

This narrative cannot be countered by a thoughtful explanation of ESG’s risk metrics. ImpactAlpha has pointed out that “while based in a campaign of disinformation, the anti-ESG movement is well-coordinated and unlikely to fade from the public spotlight on its own.” This is in part because of how effective narratives are for making political change. According to one theory of changemaking in public policy, major changes can take place when the following occurs: (8)

  1. An issue becomes more salient, rising to the center of the political agenda

  2. An issue becomes defined differently, with a significant change in the policy’s image

  3. New actors enter the arena, feeling qualified to weigh in under the redefined issue

We can already see this process at work in anti-ESG. While ESG practitioners try to walk back step 2, new actors have already entered the debate and the central argument has moved. The anti-ESG movement is leveraging these powerful narrative tools to advance their ultimate goal: policy change that restricts the ability of investors to change capital markets for the benefit of social justice. It no longer matters what ESG originally meant. If impact investors want to save the progress we’ve made for advancing social impact, we have to regain control of the narrative. 

A Narrative Response

To do this requires a response to what core narrative the anti-ESG message is tapping into. Interestingly, in many places, criticism of ESG from practitioners and anti-ESG pundits are surprisingly similar. These criticisms focus on ESG’s claim that investors can make the world better while making money - not just making some money but actually building wealth - without consistent regulation from fund to fund. While researching this issue I found a blogger who wrote “The ESG evaluation process is arbitrary, opaque and centralized, leaving significant room for corruption,” and that ESG allows “an elite few to allocate capital to causes that further enrich them in the name of “social good.” (9) Not until halfway through the article can you tell this was not written by an impact investor, but rather an enthused capitalist and traditional investor. Yet these same criticisms are offered by investors seeking to reform and expand ESG for greater impact. 

While the anti-ESG movement may tout itself as anti “woke capitalism,” the ideology has taken hold because it taps into real public criticisms and fears. Anti-ESG messaging taps into a fear that the elite who hold wealth and power have control and can make decisions that ultimately threaten people’s livelihoods. This is the narrative those who wish to save the future of impact investing must contend with. 

This highlights that while the anti-ESG movement may tout itself as anti “woke capitalism,” the ideology has taken hold because it taps into real public criticisms and fears. Anti-ESG messaging taps into a fear that the elite who hold wealth and power have control and can make decisions that ultimately threaten people’s livelihoods. This is the narrative those who wish to save the future of impact investing must contend with. 

An excellent example of how to do this is the recent shift in climate change rhetoric. This fall ImpactAlpha profiled the “new narrative of climate action” which shifts the focus from what we will lose to what we stand to gain. (10) Instead of talking about ending the fossil fuel industry, it shifts to an “energy transition,” describing the change as an opportunity for more jobs and equitable energy access. In the case of ESG, Fran Seegull writes about “reclaiming ESG as pro-business and pro-worker,” (11) identifying a key way to combat anti-ESG arguments in a way that positions impact investing as a benefit instead of a threat. 

By employing narrative strategies impact investors have the ability to build on existing progress and advocate for future reform. Regulations are coming for the ESG market, but it is still to be seen whether they will be ones that shackle them beyond effectiveness or strengthen them to make a meaningful impact. This is a powerful moment, and how it ends will depend on which side does the narrative work.

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Endnotes:

  1. Mike Pence, Republicans Can Stop ESG Political Bias, Wall Street Journal (May 26, 2022).

  2. Jaclyn Foroughi, ESG Is Not Impact Investing and Impact Investing Is Not ESG, SSIR (November 10, 2022).

  3. Andrew Petillon, Republican War on “Woke Capitalism” is Really Just a War on Capitalism, Slate (June 23, 2022). 

  4. Mark Niquette, Pence Rips Socially Conscious Investing, Wants to Rein in ESG, Bloomberg (May 10, 2022). 

  5. Narrative Initiative, Narrative Change: A Working Definition, Narrative Initiative (2022).  

  6. Frameworks Institute, The Features of Narratives, Frameworks Institute (September 2021). 

  7. David Gelles and Hiroko Tabuchi, How an Organized Republican Effort Punishes Companies for Climate Action, New York Times (May 27, 2022). 

  8. Brett Davidson, The Role of Narrative Change in Influencing Policy, On Think Tanks (July 20, 2016).

  9. Macro Jack, Environmental, Social, and Governance is a Wolf in Sheep’s Clothing, Bitcoin Magazine (August 20, 2022). 

  10. Amy Cortese, New narrative of climate action: Unstoppable progress and immense opportunity, ImpactAlpha (November 15, 2022).

  11. Fran Seegull Reclaiming ESG as Pro-Business and Pro Worker, Impact Alpha  (September 14, 2022). 

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