CEOs Sharpen ESG Positions as Conservative Backlash Intensifies

CEOs at Home Depot Inc, Booking Holdings Inc. and other executives found themselves clashing with investors this proxy season as companies faced an unprecedented level of pushback on ESG policies.

Sharp investor queries at Meta Platforms Inc, Mastercard Inc. and others took aim at corporate environmental, social or governance policies—particularly on diversity and inclusion efforts—claiming that the practices are “woke” or misguided.

While many companies have shied away from talking too much about ESG amid a conservative backlash over the acronym, some executives dove into the anti-ESG fray in responding directly to investors during question-and-answer sessions at annual meetings.

Companies faced increasingly thorny questions from shareholders over a wide range of topics including diversity, abortion, and climate change. Executives should be ready to prove the business case for their ESG policies, corporate governance experts say.

Glenn Fogel, the CEO of Booking.com’s Booking Holdings Inc, swatted away concerns by an investor in June who took issue with the company’s diversity policies.

“It appears that the questioner erroneously believes that our practices relating to equity could be or are tantamount to a predetermined social engineering initiative,” Fogel said.

Home Depot CEO Ted Decker similarly pushed back on an investor question about why the company supports ESG and diversity and inclusion initiatives “rather than focusing on its core business.”

“We believe that running [a] responsible, sustainable company makes our business stronger, more agile, and more resilient,” Decker said at the company’s annual meeting in May.

These are just a few examples of how senior management sought to establish a new playbook for how companies are navigating the recent turmoil over ESG.

“You’ve got to be prepared,” said Hamed Mahmudi, an assistant professor of finance at the University of Delaware. “You have to defend it with, ‘look—this didn’t hurt my bottom line,’” he added.

Make the Case

But sharp answers aren’t enough. Executives should provide evidence that their policies are beneficial, citing the impact on revenue or retention figures, for example, professors with an ESG expertise say.

“Start connecting the dots for the investors and that’s going to help everyone, and then it’s not a red or blue issue,” said Witold Henisz, vice dean and faculty director of the ESG Initiative at The Wharton School of the University of Pennsylvania. “Be prepared for these questions and always link it back to the business case, because that’s going to be less politically polarizing.”

While most annual meetings took place in the spring and summer, some companies are sure to be pressed further at investor meetings later this year—when ESG is set to be a prominent Republican campaign issue. Nike Inc’s annual meeting will be held in September, for example.

Some CEOs were in a more difficult position addressing anti-ESG efforts with investors, for example Anehuser-Busch CEO Michael Doukeris, who spoke at an August earnings call about the “anti-woke” pushback against the company’s LGBTQ Pride marketing for Bud Light. The company said that its US revenue fell 10.5% in the second quarter, around the time of the Bud Light boycott.

“Regardless of favorability, our consumers across all the sentiment groups have three points of feedback in common. One, they want to enjoy their beer without a debate. Two, they want Bud Light to focus on beer. Three, they want Bud Light to concentrate on the platforms that all consumers love,” Doukeris said.

Corporate executives should view the backlash as an opportunity to clarify their ESG strategy and how they talk about it, an August report from think tank The Conference Board said. The report said 63% of 125 companies surveyed are paying more attention to how ESG links to shareholder value.

Some of the shareholders asking anti-ESG questions during annual meetings weren’t identified when the company read out their query. When talking about the origins of the anti-ESG efforts, academic experts pointed to reports about conservative activist funding behind the messaging.

The number of shareholder proposals by anti-ESG groups is rising: there were 91 such proposals this year compared to 53 in 2022 and 21 in 2021, the report by The Conference Board said. Home Depot, for example, faced a proposal from the American Conservative Values ETF asking the company’s senior management to avoid taking a public position “on any controversial social or political issues.”

The investor support for such proposals is typically quite low; 2% of investors voted for the Home Depot proposal in May.

One company, AMP ltd, was even asked at their annual meeting in March if they want to “go woke and broke” by implimenting ESG policies. The company’s chair, Debra Hazelton, said in response that it’s the board’s responsibility to act in the best, long-term interest of shareholders.

In an email, AMP said: “We always endeavour to address shareholder questions in a full and transparent manner while demonstrating the actions we’re taking to deliver our business priorities.”

‘Greenhushing’

Some companies are shying away from talking too much about ESG in response to backlash, particularly as Republican lawmakers press businesses on their climate and diversity policies.

There was a recent flurry of reports about the rise of “greenhushing,” a term that describes companies reeling in how much they talk about their sustainability goals and other ESG initiatives in an attempt to shield themselves from criticism. A June report by FactSet said only 74 S&P 500 companies cited the term “ESG” during their first quarter earnings calls—the lowest number since Q2 2020.

Last week, Bloomberg News reported that McDonald’s quietly removed the term ESG from some parts of its website.

The backlash has made companies broadly more hesitant to talk openly about ESG, said Angeli Patel, executive director at the Berkeley Center for Law and Business. But even if the conversation around ESG is changing, companies aren’t likely to make big shifts in the way they actually operate, Patel said. “While it has silenced some conversation publicly, I don’t think it has really stalled efforts.”

“Companies that have made these commitments are going to continue acting on them,” she added.

A Bloomberg survey published this week found that two-thirds of respondents anticipate that firms will stop using the term ESG but won’t abandon the practices underlying them.

Senior management might feel more comfortable speaking about ESG to investors at annual meetings because the events typically aren’t viewed by the general public, said Yaron Nili, a law professor who focuses on corporate governance at the University of Wisconsin-Madison.

Overall, the kinds of questions companies are hit with at investor meetings are broader than they used to be, Nili said, and executives need to be ready for whatever comes their way. That’s in part because many investor meetings went virtual during the pandemic, so it’s easier for more shareholders to participate in the meeting.

“Regardless of the specifics, it’s, generally speaking, positive that companies have to communicate with their investors. Especially for those that don’t get heavy interactions with management,” he said.