ESG has largely been adopted by firms in Europe – with proven value. But its deployment in the USA has been stalled by those who contend that ESG diverts attention and resources from core business objectives. Siyi Li, Trinity Business School Finalist in the 2024 CoBS Student CSR Article Competition tackles the question and forwards 3 areas of focus to make ESG regain traction Stateside.

International Companies at the Crossroads of US ESG: Dollars or green future? by Siyi Li.

Is it possible for a profit-driven company to truly meet its ESG obligations? In recent years, the international business landscape has been influenced by environmental, social, and governance (ESG) standards, which have compelled companies to align themselves with the principles of sustainability and ethical business practices.

The ESG paradox is gradually surfacing as ESG commitments are converted into action. The ultimate goal of the Corporate Investor is profit, which is sometimes aligned with ESG objectives and sometimes in conflict. In fact, this is only one of the reasons why anti-ESG sentiment has arisen; the reasons for the anti-ESG movement are numerous and complex. What is undeniable is that the anti-ESG movement has been changing the behaviour of companies, with more managers avoiding talking about climate risk and expressing reservations on ESG issues. In the face of this anti-ESG movement, how should international companies respond to it?

Anti-ESG movement in U.S.

The Harvard Business Review (2023) defines the anti-ESG movement as a loosely defined set of beliefs and actions aimed at countering the shift towards “awakening” or progressive thinking in society and business. This movement is a mix of ideological positions, economic concerns, and political tactics that pose a significant challenge to the once seemingly unstoppable rise of ESG regulations.

The heart of the movement is a coalition of conservative policymakers, financial institutions and parts of the corporate sector. They argue that ESG standards, with their emphasis on sustainability and ethical operations, unduly encroach on the core principles of American free market ideology, i.e., the primacy of shareholders’ interests and the sanctity of unfettered market forces. Profit maximisation reigns supreme among business principles, but the emergence of ESG standards marks a paradigm shift. Companies are expected to make positive contributions to society and the environment.

This shift has challenged the traditional belief in profit maximisation and international companies have been thrust into a conflict of interest situation. Anti-ESG groups in the US have taken action in several areas in the US. In legislation, several states such as Texas and West Virginia have proposed or enacted measures that effectively prohibit state pension funds from taking ESG factors into account in their investment decisions. In finance, CEOs such as JPMorgan Chase (Jamie Dimon) have questioned the practical implications of ESG ratings, while Asset Manager Institution BlackRock has faced shareholder pressure over its ESG-driven investment strategy. The Securities and Exchange Commission (SEC) itself has become an arena for debate. Proposals to enhance ESG disclosure have come under intense scrutiny, and there is debate around the importance of such data to the investor decision-making process.

Opponents perceive ESG as an onerous obligation and an impediment to the unbridled pursuit of shareholder value. However, this argument ignores the integral role that sustainable practices play in long-term profitability. Recent research has shown that companies with robust ESG practices have improved long-term financial performance (Eccles & Klimenko, 2019). Compliance with ESG is not just an ethical behaviour, but also a strategic requirement that can shield companies from regulatory penalties, consumer boycotts and environmental hazards.

Should companies acquiesce to this anti-ESG rising tide?

In recent years, ESG principles have become the foundation of global corporate strategies. These principles guide companies towards sustainability and social responsibility, while also attracting like-minded stakeholders and ensuring profitability. However, anti-ESG sentiment in the US presents complex challenges for global companies. International companies must balance recognising local sentiments with upholding global sustainability and responsibility commitments. This balance is critical to maintaining their standing with international investors and consumers.

ESG principles are proving to be more than just ethical guidelines. They are strategic imperatives for driving innovation, enhancing brand reputation, and opening up new markets. Unilever and Tesla have demonstrated that integrating ESG into business operations can lead to sustainable growth and profitability. Unilever’s Sustainable Living Programme has increased its market share and consumer loyalty in every region. Tesla’s commitment to reducing carbon emissions through electric vehicles has revolutionised the automotive industry and attracted investment, highlighting the financial viability of ESG-focused business models.

In contrast, the US has seen a significant increase in the anti-ESG movement, driven by concerns about potential economic impact and political ideology. This perspective has sparked a debate about the role of businesses in addressing environmental and social issues. Some argue that ESG principles divert attention and resources from core business objectives. Companies face the challenge of aligning their global operations with ESG requirements while not alienating domestic stakeholders in the United States. This can be difficult, but it is essential for long-term success.

How should companies respond to it?

• Adaptive Communication: Constructing ESG in the American Vernacular

To overcome the challenge of anti-ESG movement, companies must rearticulate ESG principles in a way that aligns with the spirit of innovation, entrepreneurship, and individual freedom that is inherent in the United States. This means expressing ESG principles in a language that resonates with American values, rather than relying solely on ethical or moral arguments. Demonstrate that a commitment to these principles is not incompatible with pursuing profits. Emphasise the role of these principles in promoting job creation and economic vitality, especially in emerging sectors like renewable energy. For instance, explaining the economic impacts of multinational corporations investing in local community solar projects in the U.S. can serve as a compelling narrative that demonstrates ESG’s contribution to job creation and energy affordability.

Furthermore, integrating ESG principles with quintessentially American values can enhance stakeholder empathy. Companies can portray ESG efforts as a driver of technological advancement and market expansion, appealing to the American spirit of innovation. Sharing success stories of local communities or small businesses that have thrived through ESG initiatives can make the principles more tangible, fostering a greater sense of buy-in and support among skeptical stakeholders.

• Operational Flexibility: Localizing Global Principles

International companies must demonstrate operational agility to customise global ESG strategies for the U.S. market. It is important to address local nuances and concerns. This requires a keen understanding of regional issues and priorities, such as environmental challenges and socio-economic dynamics. Engaging with local stakeholders, such as non-governmental organisations, community leaders, and businesses, is crucial for co-developing ESG initiatives that meet local needs and aspirations. This collaboration not only ensures the relevance of ESG efforts but also increases community support and buy-in. Companies can pre-emptively adjust their ESG strategies to ensure compliance and leadership in sustainable practices by adapting to the changing regulatory environment at the local and state levels.

• Constructive Engagement

International companies should take an active role in the wider ESG debate in the United States. This involves adopting a proactive approach to policy advocacy, using corporate influence to support balanced ESG regulations that reconcile environmental and social goals with economic prosperity. By engaging in policy discussions and sharing insights from global ESG success stories, companies can help shape a more informed and constructive regulatory environment. Forming alliances with similar businesses, industry groups, and non-profit organizations can amplify the voice of reason in the ESG debate. They can articulate the multifaceted benefits of ESG, dispel misconceptions, and promote a more nuanced public understanding of ESG principles. This can significantly impact public opinion and policymaking, steering it towards a more balanced and sustainable path.

ESG at a Crossroads

Returning to the heart of the discussion, it is evident that the increasing anti-ESG movement in the US presents a significant challenge for international companies that adhere to ESG principles. To address this challenge, companies must recalibrate their ESG communications, ensure operational adaptability, and engage proactively. This strategic approach outlines a path to resolving the dilemma.

At this crossroads, we must ask how these companies can adapt to the current anti-ESG movement and use their influence to shape the future of ESG. This question prompts a deeper reflection on the role of business in society, leading us toward a future that combines profitability with ethical stewardship.

Useful links:

• Link up with Siyi Li on LinkedIn
• Read related articles: Board of Directors’ Duties Mitigating Climate and Human Right Risks and Worthy Suitor? How ESG can improve M&A deal success
• Download this and other articles in the special issue Global Voice magazine #30
• Browse and buy the award-winning book by Trinity Prof. Daniel Malan: Power and Corporate Responsibility: Dimensions, Purpose and Value
• Discover Trinity Business School, Trinity College Dublin.

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