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Wall Street is paring its bets on ESG and DEI as political pressure rises

Big businesses keep backing away from "ESG" and "DEI" as the political heat around these buzzwords mount in an election year.

Companies are reducing their involvement in a high-profile climate group; talking less about environmental, social, and governance (ESG) concerns on earnings calls; and paring back new hires devoted to diversity, equity, and inclusion (DEI) in workplaces.

The latest retrenchment came last week when financial giants JPMorgan Chase (JPM), State Street (STT), and Pimco all pulled out of Climate Action 100+, a coalition formed in 2017 to encourage companies to reduce their emissions.

BlackRock (BLK), the world's largest money manager, also ended its US involvement with the group.

MANHATTAN, NEW YORK, UNITED STATES - 2023/09/14: Marquee at the main entrance to JPMorgan Chase headquarters building in Manhattan. (Photo by Erik McGregor/LightRocket via Getty Images)
The main entrance to JPMorgan Chase's headquarters in Manhattan. (Erik McGregor/LightRocket via Getty Images) (Erik McGregor via Getty Images)

A JPMorgan asset management spokesperson explained the decision partly as a result of the firm's "development of its own climate risk engagement framework over the past couple of years," adding that "we believe that climate change continues to present material economic risks and opportunities to our clients."

The asset managers "are delivering what their clients want," wrote Doug Holtz-Eakin, the president of the American Action Forum, in a recent column.

The moves followed a wave of political pressure on the climate coalition, with House Judiciary Committee Chair Jim Jordan (R-Ohio) even issuing a subpoena.

In a statement, Jordan called the withdrawals "big wins for freedom and the American economy, and we hope more financial institutions follow suit in abandoning collusive ESG actions."

The GOP is applying pressure on other fronts, as well. Former President Trump has promised to banish ESG "forever," while a top Trump ally has called DEI "bigotry." Republican-led states are also aggressively pushing companies to revisit their DEI policies and suggesting they could be illegal.

WASHINGTON - JANUARY 17: Rep. Jim Jordan, R-Ohio, arrives for the House Repubican Conference caucus meeting in the U.S. Capitol on Wednesday, January 17, 2024. (Bill Clark/CQ-Roll Call, Inc via Getty Images)
Rep. Jim Jordan (R-Ohio) at the US Capitol in January. (Bill Clark/CQ-Roll Call, Inc via Getty Images) (Bill Clark via Getty Images)

A shift on multiple fronts

Companies are shying away from ESG and DEI in other ways. One has to do with what they discuss on their quarterly earnings calls with analysts.

A recent analysis from FactSet found that mentions of ESG on S&P 500 earnings calls were set to reach new lows this year compared to earlier in the decade. Direct mentions of DEI were even less frequent.

Mentions are dramatically down from recent high-water marks, including a 2021 that saw over 100 mentions of ESG each quarter.

Another change from companies is that they have slowed their hiring of people with DEI attached to their titles.

A 2023 report from LinkedIn found a surge between 2019 and 2022 in C-suites hiring for DEI-related titles like chief diversity and inclusion officer. The growth was largely seen as a response to the global protests against racism and police brutality following the murder of George Floyd by a white police officer in Minneapolis.

But the study also found that the tide has more recently ebbed, with these roles experiencing a 4.5% decline in 2023.

Another recent look at the subject from employment data provider Live Data Technologies found that chief diversity officers were more vulnerable to layoffs and experienced higher turnover in recent years.

LONDON, ENGLAND - OCTOBER 02: The PricewaterhouseCoopers (PwC) offices stand in More London Riverside on October 2, 2018 in London, England. The government has called for a review of the British auditing industry after a series of scandals including the collapses of Carillion and BHS revealed serious failures in the auditing process.  The 'Big Four' accounting firms, which are Deloitte, PwC, Ernst & Young (EY) and KPMG audit the large majority of the UK's largest listed companies. (Photo by Jack Taylor/Getty Images)
PwC offices in London, England. (Jack Taylor/Getty Images) (Jack Taylor via Getty Images)

The downward pressure on DEI in offices and boardrooms has further increased in recent months following a Supreme Court ruling last June that schools can't explicitly consider race in the admissions process.

In just one example, giant accounting firm PwC pulled back on some of its diversity targets in the US given the legal uncertainty following the high court's decision.

"The momentum fueling DEI slowed," added a recent report from consulting firm Paradigm.

A political fight that may only increase

The step back by corporate America comes as political fighting over these topics is expected to increase.

A new poll released Thursday from left-leaning group Unlocking America's Future found that American voters are largely unfamiliar with terminology like "ESG" but responded very positively to terms like "responsible companies" (78% favorability) and "sustainable business practices" (73%).

The takeaway, says Kyle Herrig of the group, is that anti-ESG forces "have misread the American people with their attacks." He added that pro-ESG forces should use the new data to go on the offensive against the ongoing Republican efforts on the other side.

But companies may not be in a rush to follow, with evidence growing that there's a benefit for businesses that can effectively sidestep the term while still keeping a focus on larger trends.

BlackRock is perhaps a good example.

CEO Larry Fink had been the unwitting face of ESG in recent years after a series of his annual letters to investors often discussed the concept. But that has shifted to the point where he now refuses to say the term at all and says it has become "weaponized."

DUBAI, UNITED ARAB EMIRATES - DECEMBER 04: Larry Fink, CEO of Blackrock, speaks at a roundtable discussion titled:
Larry Fink, CEO of Blackrock, speaks at a roundtable discussion about "Financing the New Climate Economy" at the COP28 Climate Conference in December in Dubai. (Sean Gallup/Getty Images) (Sean Gallup via Getty Images)

But he recently orchestrated a $12.5 billion dollar deal to buy private equity firm Global Infrastructure Partners. He explained the move to his investors partly as a way to tap into clean energy trends. "If we are going to decarbonize the world ... capital and infrastructure is going to be very necessary," he said.

But he also noted that the deal would be a way to work with state and global governments keen on traditional energy sources.

The effort appears to have already paid off with Fink recently finding himself courted by a former fierce critic in Texas who is now seeking to shore up the state's electrical grid.

According to a Bloomberg account of a recent gathering in Houston, Texas Lieutenant Governor Dan Patrick called Fink the "king of Wall Street" after years of criticizing him.

"We need more dispatchable power as soon as we can get it," he told the CEO.

Ben Werschkul is Washington correspondent for Yahoo Finance.

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