Is the U.S. Anti-ESG Movement Sustainable?

In the United States, an anti-ESG (environmental, social, and governance) movement led by Republicans and conservative think tanks has been gaining momentum in recent years. The main claims of the anti-ESG movement include: 1) prohibiting or restricting asset management companies from investing or voting with ESG factors in mind, 2) prohibiting investment in or contracting with financial institutions that “boycott” fossil fuel and firearms industries on ESG grounds, and 3) alleging that financial institution alliances committed to decarbonize their portfolios could constitute antitrust law violations.

With pressure for decarbonization that is targeting the fossil fuel industry and other industries increasing, the anti-ESG movement is more likely to gain traction in red states (states with Republican political leadership) such as Texas, where these industries account for a large share of the state economy. Furthermore, the anti-ESG movement is being strongly promoted by Republican legislators and state governors who want to solidify their support base in the run-up to the November 2024 presidential election and congressional/gubernatorial elections.

The anti-ESG movement is rooted in the growing U.S. social divide, and the gap between Democratic and Republican supporters in terms of values regarding climate change and environmental conservation is widening further. The U.S. anti-ESG movement is therefore not transitory, but instead sustainable. In short, it will continue over the medium term. If a Republican presidential candidate wins in November 2024, we could see the introduction of new ESG regulations and another withdrawal from the Paris Agreement.

Strengthening ESG factors not only reduces business risks and increases companies' resilience to systemic risks such as climate change over the longer term, but also contributes to enhancing enterprise value by building trust with customers, shareholders, employees, and society. It is therefore important for companies (including Japanese ones) to carefully monitor developments on both sides of the ESG debate and to move forward with ESG in a steady, continuous, and strategic manner in line with their own corporate purposes and management philosophies, without being swayed by U.S. political trends.

Financial institutions and institutional investors should remain steadfast in supporting corporate transformation, including decarbonization, by leveraging their insights to provide solutions and through engagement with long-range time horizons. In addition, it will be necessary to understand the actual ESG status of companies and improve the transparency and credibility of ESG rating methodologies, in order to demonstrate the correlation between ESG factors and investment performance over the medium- to long-term and to create a social consensus on ESG.

PDF link(PDF:621KB)