In the United States, the movement against progressive change - referred to by some as the anti-woke movement - is effectively waging a crusade against sustainable investing. This is already impeding sustainable investors worldwide, and there is a risk that such sentiments also gain traction elsewhere.
The ‘anti-woke movement’ nowadays focuses on much more than gender neutral toilets and (in the Netherlands) the St Nicholas celebrations. The term ‘woke’ has evolved into a catch-all term for all progressive initiatives that left-wing politics, ‘the elite’ or a minority is supposedly trying to impose on ‘ordinary citizens’. Especially in the US, conservative pressure groups are cleverly capitalising on this by sticking the woke label on everything they do not like. Lately, this also includes sustainable investing.
When it comes to sustainability, the US financial sector has traditionally lagged Europe. Nevertheless, ESG criteria (Environment, Social and Governance criteria) and the stakeholder approach were also gaining in popularity in the US, even among large asset managers such as BlackRock. This was a thorn in the side of conservative pressure groups. These groups therefore renamed sustainable investing woke investing, and this frame proved effective as it gained the support of many Republicans. This led to slander campaigns, political pressure and sometimes even to explicit anti-ESG legislation.
Such legislation already prohibits public pension funds in a number of Republican states from integrating sustainability criteria in their investment decision-making. Taking ESG into account is alleged to have a negative impact on the financial returns for the participants and to result in unjustly cancelling certain companies. The fact that sustainable investing does not result in lower returns at all is conveniently ignored.
Similar pressure has resulted in ten large insurance companies withdrawing from an international climate alliance aimed at greening insurance portfolios. It was suggested that such an alliance was likely to result in higher prices for consumers. The threat of potential competition-related lawsuits and being labelled as woke insurer was too much for these insurance companies.
Remarkably, many of the insurers that turned their backs on the association were European, albeit with activities in the US. This shows how the impact of a small group of radical conservatives in the US reaches far beyond the country’s borders. This international reach is also making itself felt via other channels.
One of these is the ongoing battle against plans to make sustainability reporting mandatory for large US companies. The Securities and Exchange Commission (SEC), the US financial supervisory authority, wants to introduce similar regulation as in the EU, but due to all the clamour the SEC has recently decided to postpone its introduction yet again and the reporting requirements may be pared back. Conservatives have effectively framed the SEC as the ‘Securities and Environment Commission’. It is not unthinkable that the slow process in the US has contributed to the EU toning down its reporting requirements this month. The independent international body International Sustainability Standards Board (ISSB) is indeed aiming for harmonisation, which in practice often means that the frontrunners need to slow down their pace to suit the laggards. The toning down of international reporting requirements makes it harder to conduct proper sustainability analyses.
Leading US rating agencies are now also being targeted. US credit rating agency S&P Global, which investors all over the world rely on for their sustainability analyses, this month gave in to the pressure and no longer assigns ESG scores to companies. S&P took this decision after a conservative US public prosecutor launched an investigation into the ESG analyses carried out by S&P, because ”too many consumers and investors have been hurt (financially) by the woke ESG movement’s obsession with radical social change.”
Do not fuel European anti-woke sentiment
That a small group of radical US conservatives can have such a global impact is worrisome. It is therefore important to ensure that their influence does not become even greater. European politicians can play an important part here, by not fuelling the anti-woke sentiment any further. They can do so by refraining from woke-labelling in heated discussions, and instead discussing topics based on their actual substance. If that happens, sustainable investing has little to fear: research has shown that people support progressive plans far more often than is assumed. It’s up to politicians to make sure that this support is not overshadowed by superficial anti-woke sentiment.
This is an translation of Joeri de Wilde's column on Financial Investigator, published 22 August 2023.