U.S. finance is facing ESG criticism, and more will follow in 2023

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ESG

In 2022, a coordinated and escalating backlash against a campaign by financial institutions and activists to hold corporations accountable for their efforts to address social inequality and climate change was spearheaded by Republican U.S. legislators.

 

ESG, or environmental, social, and governance issues, as it is known in the industry, might reduce investment profits, according to detractors.

 

They were helped in their argument by an increase in oil prices this year, which negatively impacted the performance of several ESG funds that had shifted away from energy equities, which are major contributors to climate-damaging carbon emissions.

 

Despite this, banking institutions continued to join industry coalitions that aim to aid businesses in transitioning to a low-carbon economy as scientists warned that there was running out of time to stop global warming.

 

This year's corporate annual meetings saw notable successes for activist shareholders, such as the demand for a human rights report from firearm manufacturer Sturm Ruger & Co. (RGR.N).

 

BlackRock (BLK.N), the largest money manager in the world, spent the majority of the year in the eye of the storm. In a letter to peers, BlackRock's chief executive defended ESG investment at the beginning of the year.

 

Because of its stance on climate change, BlackRock, along with JPMorgan (JPM.N), Goldman Sachs (GS.N), Morgan Stanley (MS.N), and Wells Fargo & Co (WFC.N), was later prohibited from receiving state business from West Virginia.

 

Following suit were other states, with Texas accusing Bank of America (BAC.N), BlackRock, and other financial institutions of "boycotting" fossil fuel businesses in the transition to a greener economy. Florida announced that it would withdraw $2 billion in BlackRock investments.

 

While Texas and other states launched a similar inquiry into S&P Global, Missouri launched a probe into ratings business Morningstar (MORN.O) to determine whether its ESG scores violated state consumer protection laws (SPGI.N).

 

However, not all of the pressure was directed in one direction, with Democratic state leaders and left-leaning organisations like the Sierra Club, who together have more money to invest, urging BlackRock and others to remain steadfast or step up their climate efforts.

 

HOW DOES IT AFFECT 2023?

 

The likelihood of a reduction in pressure in 2023 is remote given the numerous probes into finance-related ESG activities that are still ongoing in various jurisdictions.

 

Market observers will be observing how major investors use their voting rights during the annual shareholder meeting season, even though BlackRock has previously stated that it does not anticipate many changes from the previous year.

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