Board series: ESG backlash and the backlash to it

By early 2025, an estimated 61 anti-ESG bills have been either introduced by a state legislature but remain pending in committee or are supposed to carry over from the last legislative session. The most active states have been Oklahoma with 14 bills, South Carolina with nine, Missouri with eight, and West Virginia with seven.

The basis of these accusations against asset managers like BlackRock, Vanguard, and State Street is that by prioritizing ESG factors investors are failing to honor their fiduciary duties.

The backlash may be overstated

Yet as anti-ESG legislation efforts have permeated the U.S., we see a growing backlash to the backlash, along with a sense that its impacts may be exaggerated.

According to senior JPMorgan executives, ESG backlash has had little bearing on the country’s green economy; that is, even if certain investors are decreasing use of the term “ESG,” U.S. investors overall are still placing bets in a similar way to their peers in Europe. “If you peel away all the noise and look at what investors are doing, it isn’t so different, albeit they may not be using the labels quite in the way that we do in Europe,” said Chuka Umunna, JPMorgan’s regional head of green economy investment banking.

At the state level, it ended up being less than 10% of anti-ESG bills that were passed. To help explain that trend, consider the Indiana Bankers Association, which represents 116 banks. They are now lobbying against legislation that would require the state to divest and cancel contracts with financial groups that consider social, political, or ideological factors.

Texas feels the impact of anti-ESG laws

Analysis of the impacts of Texas’s anti-ESG laws in recent years, moreover, has found that the state’s laws appear to have unintended negative consequences. As published by the Texas Association of Business, a chamber of commerce with ExxonMobil and Chevron as members, Texas suffered an estimated $669 million in lost economic activity during the fiscal year 2022-2023, with additional losses of $181 million in decreased annual earnings, 3,034 fewer full-time jobs, and more than $37 million in tax revenues. The study’s author, economist Jon Hockenyos, summarized the report’s major conclusion: “These findings illustrate that when government attempts to mandate values, no matter what kind, to businesses, the market loses.” Hockenyos worries these types of laws will continue to erode Texas’s competitive, pro-business environment. For example, after Texas published its list of financial institutions no longer welcome in the state, service fees rose and the state’s financial services market became significantly less competitive.

Europe continues to prioritize ESG

Regardless of the U.S.’s current uncertainty on integrating sustainability into business strategy and disclosures, use of ESG principles persists in other regions. More than 65% of European investors, at least ahead of President Trump’s inauguration, still consider environmental, social, and governance factors as important when it comes to portfolio asset allocation, as shown by a survey by investment manager Fidelity International.

One reason for the continued emphasis by European investors is regulatory. Even if recently trimmed down, the EU still leads in Sustainability regulation with its Corporate Sustainability Reporting Directive (CSRD), which requires companies that operate in the EU or have listed securities in the bloc to disclose their sustainability-related activities and impacts.

Actions boards can take:

• Risk evaluation. Evaluate all current ESG priorities, reports, and understand the breadth and depth of exposure to state-level anti-ESG laws
• European compliance. Understand breadth and depth of EU CSRD requirements regarding climate-related disclosures that may impact ESG priorities and goals
• Benchmark peer group. Evaluate peer group’s ESG strategies and determine where your values, business model, and long-term strategy necessitate your deviation from what others are doing
• Review investment strategy. For a company’s portfolio of invested capital, understand current investment strategies and their alignment to
• Track pending disclosure requirements for 2025. 2025 will see a continuation of ESG and Sustainability-related disclosure requirements. Ensure your organization is tracking these closely and preparing enterprise data and reporting capabilities

Questions for the boardroom:

• ESG commitments. What public commitments have you made on ESG, DEI, and where might you face legal risk? How can you best mitigate exposure?
• ESG value. To what extent has your organization found value in your ESG strategy, commitments, and investments to-date? Where have you not seen the return? How do you measure this?
• Procurement requirements. To what extent are ESG factors baked into current procurement requirements of your existing client portfolio? How can you navigate meeting those requirements while also limiting potential exposure?
• Change management. How can you communicate with your teams about the need to mitigate risk while staying connected to core facets and values of your business?
• Competitors and other industries. How are other management teams navigating the uncertainty and backlash in the U.S. on ESG?
• Political pendulum. To what extent is this current backlash a political fad or is an enduring contour of U.S. business?
• Global compliance. How can your organization best navigate the differences in the ESG and Sustainability regulatory framework between the U.S. federal and state levels vs. Europe, Asia, and other markets?