Is this the beginning of the end for ESG? 

Environmental, Social, and Governance (ESG) principles were once the rallying call of woke capitalism: a catchall in which corporations gave license to themselves to engage in social issues whether or not they are related to their bottom line. Now it seems ESG is on the decline, and it can only blame itself. 

In the past week, financial behemoths State Street and JP Morgan cut all ties and commitments with “Climate Action 100+” (CA100) a global investor coalition demanding members drastically dial back emissions, prioritizing so-called “green” policies over fiduciary duties. While not going as far as State Street and JP Morgan, investment giant Blackrock disengaged from most of its CA100 obligations. 

In theory, the primary function of ESG is to guide the investment decisions of major corporations in accordance with specific ideological aims. Some have described ESG as an example of “stakeholder capitalism,” a term coined by Klaus Schwab of the WEF that gives stakeholders (those who merely care passionately about a particular social issue) the same relevance and standing as “stockholders” (those with a monetary investment) in a company. 

This shift from stockholder-to-stakeholder supercharged social issues in board rooms around the world. For example: according to data from Stand.earth, a climate action organization, over 1,591 organizations have committed to divest from fossil fuels to meet ESG standards. 

But it appears ESG efforts are beginning to falter. A report by the Daily Mail, global ESG assets shrunk by $5 trillion over two years. The picture is even bleaker for ESG in the United States. Over the same time frame, ESG investments within America dropped from $17 trillion to $8.4 trillion. Consumers’ Research executive director Will Hild attributes the drop in ESG assets in the U.S. in large part due to “state leaders across the country” fighting back against the injection of “woke politics into the bond market” by asserting their control over state pension funds, ending ESG-related investments and taking a chunk out of ESG funding in the process. 

The decline of ESG is occurring within the broader context of woke capitalism failing. The fact is that if market forces demanded environmental, so-called “social justice,” and diversity initiatives, there would be no need for groups such as CA100 to mandate them. Much as consumers have shunned “woke” entertainment and marketing, so, too, are consumers and investors alike pushing back against ESG and the institutions that promote it. And as ESG continues its tumble, the power of the American consumer will continue to rise.