ESG is beset from every angle. Republicans want to cancel it. Business leaders are muffling their former enthusiasm. Some money managers have even scrubbed the three letters from their funds.
To meet this fraught moment, brand executives who work with some of the largest US companies, including Amazon.com Inc. and Alphabet Inc.’s Google, have had a look — and their message is clear.
ESG proponents need to “punch back hard,” said David Kippen, who runs Evviva Brands in San Francisco and worked with companies including BlackRock Inc. “They can’t just run away.”
He declined to comment specifically on BlackRock, which has been singled out by the GOP for its use of ESG strategies.
The fanfare and buzz around environmental, social and governance investing that crested about a year ago has given way to a barrage of attacks, raising questions about the staying power of the label. The Republican onslaught, which has been picking up since the spring, gained momentum after Florida Governor Ron DeSantis lambasted ESG as “woke capitalism.”
ESG fund managers now find themselves on the backfoot. If the acronym was a type of new technology in what research firm Gartner Inc. calls the “hype cycle,” it’s now perhaps approaching the “trough of disillusionment.”
“I would put it at the beginning of the trough of disillusionment because the bloom is off the rose,” said Bob Kahn, a partner at WANT Branding in Miami, which has worked with companies including Apple Inc.
Brand executives argue against ditching ESG. Instead, the industry needs to better explain what ESG is rather than “paper over a problematic construct,” said Simon Glynn, senior partner at Lippincott, which worked with Delta Air Lines Inc. after its 2007 bankruptcy.
Beverly Murray, who has worked for more than three decades in branding, said if ESG gets replaced with another acronym, “people will stop listening.”
ESG was coined by United Nations staffers in 2004 as a way to appeal to Wall Street by focusing on risks and money-making opportunities, and pivot away from socially responsible investing. But ESG’s stratospheric growth in recent years led to confusion as the label was added to everything from basic stock funds to collateralized debt obligations.
To turn the chapter, the industry needs to start calling out those trying to present ESG as “woke capitalism,” said Brian Collins, co-founder of COLLINS, a design and communications firm in San Francisco and New York whose clients have included Nike and Spotify.
“They could say: Would you prefer to be asleep America? Do we really want to remain unconscious of the problems we have to face,” he said. “We can’t be a nation of sleepers, we need to be wide awake.”
The environmental focus of ESG will continue to be an increasing source of “anti-woke” grievance, according to Collins. He said ESG proponents should use words that politicians on both the right and the left can embrace: “growth, prosperity and resilience.”
Murray, who runs marketing firm R+M in Cary, North Carolina, said the same. ESG needs to get above the political discussion quickly and double down on efforts to emphasize how the strategy identifies investment risks, she said.
“The question they need to pose to ESG detractors is: Don’t you like capitalism? Don’t you want to manage risks?'” she said. “ESG serves companies and can benefit capitalism.”
Despite political efforts to vilify ESG, investors are still funneling money into it, albeit at the slowest pace since 2019.
The challenge of redefining and rebranding ESG is that it’s unlike a company brand where a single entity is involved. ESG is an idea that operates like a “consortium brand” similar to the international football association, or FIFA, where competing groups work under one acronym, according to Evvivas Brands’ Kippen.
Since those in the ESG industry don’t always work in unison, that makes it difficult for them to cohesively fight the attacks, Kippen said. Money managers need to emphasize that ESG is about business risks tied to climate change and societal issues, and that it’s “honest investing,” he said.
ESG is “a complicated strategy, with a complicated set of measurements and data,” said Kahn of WANT. Given those challenges, it’s hard for ESG to have that trust and ”trust is the most important part of a brand.”