ESG has become a crucial focus for the food and agribusiness sector, gaining significant attention in recent years. It is driving companies and investors to adopt more sustainable practices, ethical standards, and demonstrate greater transparency. It is at the forefront of corporate policy and has great command over investment patterns. Yet, despite this, a contrasting sentiment has arisen, one that challenges the principles and implementation of ESG, and questions the impact of these initiatives.
Anti-ESG critics contend that the way in which this form of “woke capitalism” hoists ESG initiatives onto organisations hinders company profits and growth, diminishing stakeholder dividends. They claim that financial performance is overlooked in favour of environmental and social objectives, leading to a disconnect between corporate responsibility and traditional business interests. This opposition has manifested in various forms. From shareholder pushback and anti ESG legislation to the creation of anti ESG investment funds, this article will examine the emergence of anti ESG sentiment and the current discourse surrounding ESG as a whole.
Why is anti-ESG sentiment growing?
No single factor has ignited anti ESG sentiment, in fact, a myriad of reasons have fuelled the backlash, including political ideologies, corporate resistance to change, scepticism about the effectiveness of ESG criteria, and concerns over potential economic impacts.
Political polarisation, particularly in the global North, means that ESG plans and platforms have been transformed into ideological battlefields, with the prevailing dissenters viewing them as partisan and an infringement on business autonomy. Unfortunately, discussions surrounding ESG topics (such as social justice, climate change, and corporate governance) are now considered highly political, which polarises stakeholders and increases friction. Unfortunately, this often happens irrespective of the ESG initiative’s merits.
Many governments have implemented policies to promote ESG compliance via strict environmental regulations and biodiversity conservation efforts. However, critics argue that such regulations are unjustified and place undue pressure on companies, hindering their competitiveness. They believe that businesses should operate solely based on market and economic demands, and should not be governed by state-led social and environmental initiatives. Advocates of this view assert that shareholders, not government officials, should determine appropriate business practices. They argue that consumers who prioritise sustainability will naturally support companies that align with those values, and therefore, the market will correct itself. Ultimately, businesses that fail to adapt to their customer’s way of thinking will fail, making government-mandated ESG policies unnecessary.
Anti ESG sentiment is also prevalent at the boardroom level. ESG strategies have become common in many corporations, with boards setting targets for sustainability, increasing gender and ethnic diversity, and improving corporate reporting. However, these efforts have faced criticism for “greenwashing,” where companies present themselves as environmentally responsible while making little-to-no tangible change to their business model or practice. A recent Global Reporting Initiative survey found that approximately 60% of corporate ESG reports were perceived as greenwashing devices that primarily served as publicity ploys. This underlying sentiment has gained traction within the anti ESG movement, with many critics arguing that companies are using ESG scores as a marketing tool rather than a genuine driver of positive change. It is also difficult to measure the impact of ESG initiatives. This lack of clear, nominal data naturally fuels scepticism, and feeds into the notion of ESG as a bureaucratic, regulatory framework as opposed to a genuine tool for driving necessary and tangible change.
Additionally, some critics argue that ESG practices are a luxury only large, profitable companies can afford. Small and medium-sized enterprises (SMEs), which often operate with narrow profit margins, face dissuasive challenges in bearing the costs of ESG implementation. These cost constraints combined with a seemingly risky ROI are key reasons why SMEs struggle with ESG adoption.
Impact of anti ESG sentiment on the corporate world
In response to the growing hostility toward ESG practices, some companies in F&A are taking a step back and critically examining their ESG commitments, with many citing concerns around alienating specific customers or stakeholders. For instance, some retail companies have become wary of taking strong stances on social issues, fearing backlash from consumers who may disagree with their positions.
Similarly, major industries, particularly those in the extractive sector like oil and gas, have been vocal in their opposition to ESG policies. These industries argue that ESG policies are politically motivated and potentially harmful to their business models and the broader economy. They contend that stringent ESG requirements could lead to reduced investment in crucial energy infrastructure, potentially compromising energy security and economic growth. This pushback is not limited to public statements; it has manifested in lobbying efforts and legal challenges against ESG-related regulations and policies.
The shift in sentiment has also had a profound impact on corporate communications and investor relations. Companies that were once eager to highlight their ESG credentials in annual reports and investor presentations are now adopting a more cautious approach. Some are scaling back their ESG-related disclosures or reframing them in terms of risk management and long-term value creation rather than as standalone sustainability initiatives. This change in communication strategy reflects the delicate balance companies must strike between appealing to ESG-conscious investors and addressing the concerns of sceptics.
Environmental concerns and the climate change debate
The environmental aspect of ESG, particularly as it relates to climate change, remains a contentious issue. Global warming is a key focus within ESG frameworks, with advocates arguing that businesses have a responsibility to reduce emissions and promote sustainability. This perspective is supported by growing evidence of the economic risks posed by climate change.
However, there is growing opposition to ESG due to scepticism about the severity of climate change or concerns that the transition to a green economy is too costly relative to its benefits. Critics argue that the pace of transition advocated by ESG proponents could lead to economic disruption, job losses in traditional industries, and increased energy costs for consumers. They advocate for a more gradual approach to environmental sustainability that would be less disruptive and more economically viable. They claim that an overly onerous approach to tackling environmental concerns will stifle growth and innovation. Instead, they contend that market forces and technological innovation will naturally lead to more sustainable practices over time. This perspective often aligns with broader scepticism about the role of government and regulatory bodies in shaping corporate behaviour.
The social aspect of ESG
The social component of ESG, particularly Diversity, Equity, and Inclusion (DEI) policies, has become another flashpoint in the anti ESG movement. DEI policies are a key component of ESG frameworks, pushing employers to adopt more responsible hiring practices that promote diversity and inclusion in the workplace. Proponents argue that these initiatives lead to more innovative, resilient, and profitable companies by tapping into a broader talent pool and better reflecting the diversity of their customer base.
However, critics argue that these initiatives may lead managers to prioritise candidates from certain demographic groups simply to present a multicultural image or to comply with Equal Employment Opportunity guidelines. They contend that this approach could potentially compromise merit-based hiring and promotion practices, leading to less efficient organisations. Some critics go further, arguing that DEI initiatives can create division within companies by emphasising differences rather than unifying employees around common goals.
Additionally, ESG’s emphasis on social responsibility—such as corporate donations to social causes and addressing social injustices—is viewed by some critics as outside the scope of a company’s primary purpose. They believe a business’s main objective should be profit generation, not advancing what they see as social justice efforts. This perspective underscores a broader debate about the role of corporations in society and whether they should take on responsibilities beyond their traditional business functions.
The future of anti ESG sentiment
Looking ahead, the current political and economic climate suggests that anti ESG sentiment will continue to grow in the near term. As businesses face increasing pressure from certain stakeholders to prioritise ESG initiatives, pushback is expected from those who feel excluded or burdened by these efforts. This tension is likely to play out not only in corporate boardrooms but also in the political arena, with potential legislative and regulatory battles over ESG-related policies.
Companies will face ongoing challenges in balancing ESG goals with maintaining profitability while addressing concerns from various stakeholders. This evolving dynamic act may lead to a more nuanced approach to ESG, where companies focus on those initiatives that clearly align with their business strategies and demonstrate tangible benefits.
Effectively managing these conditions will be crucial for corporate leaders, as stakeholders and critics will continue to scrutinise these actions closely. It is likely that companies will need to develop more sophisticated stakeholder engagement strategies and improve their ability to measure and communicate the impact of their ESG initiatives.
At Farrelly Mitchell, we understand the complexities surrounding sustainability and ESG. We are at the forefront of agribusiness policies and regulations, providing our clients with strategic guidance and practical solutions tailored to their unique challenges. Our sustainability consultants help our clients to integrate clean energy, green finance, and circular economy principles into their core business strategies. To learn more about our services and leverage our insights, contact us today.
