Is Trump Ringing The Death Knell for ESG?
Among the many acronyms in the corporate world, I would bet none has been pondered more in boardrooms worldwide over the last decade than ESG.
ESG stands for environmental, social and governance and covers everything from green credentials, through diversity and work-life balance, to wider social purpose.
The prevailing business view has been that without strong ESG credentials, companies risk losing customers, investors and reputation.
Donald Trump’s second presidential term could turn that consensus on its head.
Trump has called climate change a hoax, has pledged to reverse environmental laws and “drill, baby, drill” which would put an immediate question mark over the E in ESG.
He has picked Vivek Ramaswamy – who launched an asset management firm to focus on “anti-woke” investing – to work alongside Elon Musk to slash government costs. Last week, the pair said they would end homeworking for all government employees.
The incoming president’s nominee for Defence Secretary has called for generals who pursue diversity policies to be fired.
The direction of travel seems clear so how should companies respond?
One hard-headed view is that ditching ESG requirements will save firms money. For example, the Trump administration may scrap plans to compel companies to identify and disclose their climate-related risks. Worker protection laws may also be rolled back.
But there are many reasons to suggest abandoning years of ESG positioning would be a mistake.
For a start, ESG investing – whereby money is put into companies with a good story to tell and to encourage them to behave responsibly – has become very big business and is not going to vanish. Analysis by Bloomberg predicts ESG assets will exceed $40 trillion globally by 2030.
Secondly, it’s a big world. Europe and most of the Asian economic powerhouses are not going to follow Trump’s lead. Developing nations were unhappy at what came out of this month’s COP29, but the international climate conference did promise them $300 billion a year in climate finance.
There is a real danger of global regulation fracturing in a number of areas, but we are not going to see the world turning its back on ESG issues.
Thirdly, even within the United States there is a split. While some Republican-run states have already enacted restrictions on ESG investing, many big states such as California and New York won’t give up on this in the investment or wider sense.
Furthermore, this is Trump’s second and last presidential term. Who knows what will follow in four years.
Most importantly for companies, the generation gap favours sticking with “wokeism” – if that means being part of the climate solution, promoting diversity and demonstrably having a social purpose.
Younger people worldwide overwhelmingly recognise climate change as a clear and present danger. And they are the customers of the present and future.
Within the business world, there have been multiple signs that younger employees don’t subscribe to the idea that income trumps (excuse the pun) everything else.
Three years ago, a survey of highly remunerated Goldman Sachs staff leaked in which juniors said they faced “inhumane” working conditions, including 100-hour work weeks and “abuse” from colleagues.
More recently there has been plenty of newspaper copy about high-flying young lawyers earning stupendous salaries in their 20s but having no outside life – a price many do not want to pay.
Gordon Gekko is no longer in fashion.
The bottom line is that companies are still going to have to think broadly about how to attract the brightest and best to work for them. A strong ESG story well told is likely to pay dividends.
With Trump on the threshold of the White House again, it may pay corporates to do a little less public virtue-signalling in America for a while, but to abandon ESG looks like a long-term strategic mistake.