It was former British prime minister Harold Wilson who coined the phrase ‘a week is a long time in politics’. The past seven days have certainly proved that to be true.
But the impact of whoever wins the race for the White House later this year will certainly be felt in the capital markets for decades to come.
Indeed, the ongoing repercussions of Donald Trump’s first term as US president are still reverberating through listed companies. Earlier this week, the Financial Times ran a story claiming that US firms are increasingly excluding ESG criteria from bosses’ bonus plans after pressure from conservative shareholders.
Of the 60 companies that have dropped these factors from executive compensation schemes, 12 explicitly removed diversity criteria, as the political backlash to diversity, equity & inclusion (DE&I) initiatives rumbles on. Much of that opposition has come from one source: Strive, the so-called anti-ESG asset manager founded by Trump ally Vivek Ramaswamy in 2022.
When I spoke to Justin Danhof, Strive’s head of corporate governance, in 2022, he characterized the rise in investors rejecting ESG resolutions as a tidal shift. He described it as a backlash against ‘green smuggling’, whereby asset managers sneak ESG and stakeholder capitalism principles into corporate governance matters that Danhof argued were ‘to advance politicized corporate agendas’ not supported by their clients.
There is growing pressure from Republicans on companies that have previously championed DE&I initiatives, particularly in industries with close ties to traditional US industry. Earlier this week, tractor maker Deere said it would roll back various schemes such as supporting external ‘social or cultural awareness parades’ and reaffirmed it had no ‘diversity quotas’ or ‘pronoun identification’ in the business. In June, retailer Tractor Supply said it would eliminate all its diversity roles
Meanwhile, recent data from Georgeson shows that investor support for environmental shareholder proposals was lower last year than in 2022, with big players like Vanguard, Capital Group and Dimensional supporting less than 10 percent of proposals with an environmental bent.
And yet the inflows into these anti-ESG fund managers have slowed to almost a trickle. Morningstar figures from 2023 show money moving into these funds peaked at $376 mn during the third quarter of 2022 – with 80 percent of that flowing into Strive’s first fund – and has fallen to a small fraction of that ever since.
There is still significant investor appetite for companies that take these matters seriously, to the point that a new sustainability-focused stock exchange is about to launch in New York. The Green Impact Exchange, spearheaded by NYSE luminaries Daniel Labovitz and Charles Dolan, will list only companies that make a ‘binding commitment’ to set implement, measure and achieve sustainability goals while being transparent with investors about the state of play as things progress.
Though still pending SEC approval, the exchange hopes to start operating in 2025, says Labovitz. ‘If your company makes a gesture that says, I am willing to be held accountable for my environmental promises through the listing process, that is a really significant statement,’ he points out. ‘It means your company is sincere in its motivation to follow through on those promises. It means you’re serious.’
Whether the potential appearance of Kamala Harris in the White House later this year may continue to see the pro-ESG voices become louder in the capital markets remains to be seen.
Bearing in mind Wilson’s words, a week is indeed a long time. The three months until November’s presidential election will see a lot more change.
