Investor Transparency and Shareholder Opportunity Go Together Like E, S, and G
Environmental, Social, and Governance (ESG) practices at corporations have been making headlines and fueling a vigorous debate along with new lawsuits. Two recent podcasts from Recharged with the State Impact Center highlight some of the emerging themes.
The debate has advocates on one side emphasizing how ESG factors are an invaluable asset when examining potential risks that could harm earnings. In December, Minnesota Attorney General (AG) Keith Ellison and Arizona AG Kris Mayes led a coalition of 18 attorneys general in a letter to Congress explaining how ESG information is an asset to fund managers and how it helps provide more information on potential risks to investments. The AGs also addressed how these factors give insight into how adaptable a company is when it comes to the changing climate and how well they will be able to respond to other trends and future shifts in society and the environment.
On the other side, also in December, Tennessee AG Jonathan Skrmetti filed a lawsuit against BlackRock, a multi million dollar investment company. He accused BlackRock of misleading consumers about the extent and impact of its ESG investing activities. In response, BlackRock rejected the claims, stating that it fully and accurately discloses its investment practices. The company continues to affirm its commitment to ESG.
In Recharged with the State Impact Center we recently explored these themes in depth. Minnesota AG Keith Ellison and Executive Director of the Meltzer Center for Diversity, Inclusion, and Belonging at NYU David Glasgow helped unpack the role ESG plays for community activists. AG Ellison and Glasgow not only addressed the importance of using ESG factors in investment decisions but also highlighted the obligation corporations have to be transparent with their customers about their ESG practices and commitments.
In a previous episode, Former Maryland AG Brian Frosh discusses how ESG provides investors with the opportunity to understand their investment and minimize their risk and potential financial losses.
People want to know how a company is developing and managing its workforce and how it responds to concerns its customers, shareholders, and community members affected by that company may have. As AG Ellison explained, “if you limit a shareholder’s ability to file a resolution to be environmentally responsible, you’re limiting that company’s ability to assess risk and plan to meet future consumer demands.” Another relevant factor is government oversight. In a 2022 report, KPMG, a multinational accounting firm, wrote about the role agencies play in ensuring that companies meet their commitments, emphasizing the opportunity governments have “to build long-term sustainability and achieve desired outcomes for constituents and other stakeholders,” in the ESG movement.
Despite hurdles, reports show that companies are finding ways to continue ahead with their ESG initiatives, recognizing that the challenges are worth the effort. And as some critics continue to question ESG practices, it is important to keep in mind the responsibility corporations bear to be honest about the environmental and social impact of their actions.