NYU Law Forum examines the backlash against ESG investing

Socially responsible investing concerned with environmental, social, and governance factors—known commonly as ESG—has grown rapidly in popularity among investors, but the movement now faces a strong political backlash. Its critics emphasize ESG’s departure from the standard investment goal of prioritizing financial returns, and blame it for driving up energy prices through disinvestment in fossil fuels.

On February 22, an NYU Law Forum, sponsored by Latham & Watkins, convened experts in corporate governance and finance to discuss the criticism leveled against ESG and how investment firms and regulators should respond. Panelists included Dalia Blass, senior managing director and head of external affairs at investment manager BlackRock; Betty Huber ’96, partner and global co-chair of Latham & Watkins’ ESG Practice; Allison Herren Lee, senior research fellow at NYU Law’s Institute for Corporate Governance & Finance; and Shivaram Rajgopal, professor of accounting and auditing at Columbia Business School. The conversation was moderated by Robert Jackson Jr., Pierrepont Family Professor of Law and co-director of the ICGF.

Watch the full discussion on video:

Selected remarks:

Dalia Blass: “We are having a [national] conversation without speaking the same language, and that is a huge problem. There is a material and fundamental lack of understanding about sustainable investing and what it means to manage sustainable risks and opportunities from different stakeholders when it comes to capital markets. Why? Because of how the term 'ESG' is used, and what it means to different people.” (video, 5:31)

Shivaram Rajgopal: “In general, our income statements and balance sheets also don’t do such a good job of measuring and thinking about externalities. Both positive and negative externalities…. So linking cash flows to that is messy, simply because we need some kind of regulation, or a carbon tax, or something that will make companies internalize the externalities. Otherwise, how do I show you a link to cash flows?” (video, 20:32)

Betty M. Huber ’96: “This anti-ESG agenda—that’s not what’s happening at my desk.…. As a global law firm, we also focus on the EU regulations. If you take a look at the SFDR, the Sustainable Finance Disclosure Regulation, that’s … basically demanding products to disclose what their ESG strategies are. And if you don’t do that, you don’t get share of the wallet. When I talk to my European colleagues, they’re shocked to hear that this [backlash] is happening. To them, they’re thinking ESG disclosures, ESG strategies—this actually leads to long term value.” (video, 11:26) 

Allison Herren Lee: “The question is whether in fact what is going on here is that investors, on their own, have identified an entire set of risks and opportunities that sit outside the financial statements [and] need to be brought into the analysis.... Here, I think we have enough history of investors’ demand for this information and enough history of companies understanding how valuable it is to their constituencies to understand that, in fact, we have a hole, a gap here that needs to be filled.” (video, 32:32) 

Posted on April 6, 2023