ESG as Entirely Sound Governance

• Date: 01 July 2024
• Author: Caitlin C. Bozman

American Bar Association | Litigation Section

Class Actions & Derivative Suits

Summer 2024, Vol. 34 No. 1

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ESG as Entirely Sound Governance

By Caitlin C Bozman

In recent years, ESG (environmental, social, and governance) has become an increasingly

politicized issue in the U.S. In 2019, former president Trump targeted ESG in an executive order

restricting the inclusion of ESG funds in 401(k) plans. In a 2022 op-ed, former vice president

Pence described ESG as a “woke left” strategy designed to impose a “radical environmental and

social agenda” on public companies. And this past April, the Securities and Exchange

Commission stayed final rules requiring ESG-related disclosures after a flood of lawsuits

challenged the rules as environmental regulation that oversteps the agency’s authority.

A historical view of ESG tells a much different story than recent headlines. ESG long pre-dates

concerns about “woke capitalism,” and it was not always a politically charged issue. Although

the term “ESG” emerged in the early 2000s, its underlying principles are much older. In a

historical account, law professor Archie Carroll explained that while corporate social

responsibility began its rise to popularity in the mid-twentieth century, the evidence of corporate

concern for social impact dates back centuries.

As to the term “ESG,” many trace its origins to a 2004 report published by the United Nations,

Who Cares Wins. The report consists of recommendations by 18 leading financial institutions—

including Goldman Sachs, HSBC, and UBS—for incorporating ESG considerations into

corporate governance and investment strategies. In explaining the rationale for ESG, the report

emphasized that in the long term, better managing environmental and social impacts benefits

financial markets and all their participants.

The United Nations continued these early ESG efforts in 2006, with the launch of its Principles

for Responsible Investment. Issued just two years after the Who Cares Wins report, the inaugural

principles reflected already-increasing support for ESG among global financial institutions, with

63 signatories whose assets under management totaled $6.5 trillion. At the launch event, then

secretary general Kofi Annan described ESG as the “tenets of sustainable development,”

emphasizing the importance of ESG in “achieving better long-term investment returns and more

sustainable markets.”

The anti-ESG movement also dates back to the early 2000s, but it took much longer than pro-

ESG efforts to meaningfully gain traction. In 2004, a partisan nonprofit led by prominent tobacco

lobbyist Steven Milloy launched a website called “CSR Watch,” which hailed itself as exposing

the “anti-business” motivations behind corporate social responsibility and socially responsible

investing. The website is now defunct.