Is ESG Dying?

For those who didn’t listen to an earnings call in 2023, ESG stands for environmental, social, and governance.

ESG encompasses a set of standards that evaluate a company's sustainability and ethical impact. There’s been a push in recent years to incorporate an ESG lens when making investment decisions, positioning ESG companies as better candidates for securing capital and inclusion in the top mutual funds and ETFs.

It’s also been theorized that companies who lean into a clear and public ESG strategy have happier employees, more loyal customers, and as a result, perform better financially.

Oh, and if you’ve ever worked in finance or investor relations, you probably had to fill out a lengthy ESG questionnaire when you raised capital. They’re long.

Flash forward to 2024 and there are rumblings that ESG is a ZIRP phenomenon - something “nice” to focus on when there was ample bandwidth and capital to do so.

According to Forbes:

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“Amid a surge in scrutiny of so-called “woke capitalism,” U.S. mutual fund clients withdrew $13 billion from ESG funds last year, some 150 anti-ESG bills were introduced by U.S. lawmakers so far in 2024 and, according to a report from ISS-Corporate, 13% of shareholder proposals submitted for this year’s proxy season are focused on countering ESG initiatives.

As a result, many companies are adopting the practice of green hushing, whereby they de-emphasize sustainability initiatives in external communications, or green stalling, in which they defer any discussion of sustainability initiatives until it feels safer to do so – or at least until after proxy season.”

-Reports Of The Death Of ESG Are Greatly Exaggerated

Yikes. So much for “doing well by doing good.”

I decided to check the metrics to see if companies were talking about ESG any differently than before. Was it still top of mind (and tip of tongue)?

Using the top ten EV / Revenue multiple companies this week, I analyzed their earnings transcripts from the most recent available quarter (Q1 of 2024) and compared ESG related mentions vs the prior year (Q1 of 2023).

Source: Company earnings transcripts

The results were clear. All ten companies saw a decline in ESG related mentions.

In a future post we can dig into if ESG initiatives drive real financial outcomes or not (I, for one, hope they do). But for now, it’s clear that the companies garnering the most optimistic valuation outlooks are talking about ESG a lot less than they used to.