Companies first began prioritizing ESG (Environmental, Social and Corporate Governance) in 2005, when the United Nations issued an influential report that urged managers and investors to take action. The UN’s goals – which included protecting water supplies and promoting equality – were hard to disagree with. Many believed that pursuing ESG would also be good for a company’s bottom line and an investor’s returns.
Since 2020, however, the ESG movement has become controversial for two main reasons. First, its goals grew to include topics in the culture wars, from abortion to guns. Second, the evidence began to show that putting ESG priorities first did not improve the bottom line or returns.
These realizations changed how people viewed ESG. For example, investment companies created ESG funds for their customers. During the heyday, people made increasing levels of investment into those funds, with steady increases in both 2019 and 2020. But since then, people have been withdrawing their investments from ESG funds, with growing declines in each of the past three years.
During this time, large companies have cast doubt on the movement. For example, iconic investment institutions — Bank of America, Citigroup, JP Morgan Chase, and most recently, BlackRock — withdrew from a UN-backed group that promoted ESG, especially its environmental prong.
Major companies such as Ford Motor, Walmart, McDonald’s, and Target have abandoned workforce diversity programs, an important element of the social prong in ESG. These shifts paralleled legal and political change. In 2023, the U.S. Supreme Court ruled that race-based preferences are unconstitutional in college admissions even if used to promote diversity. Many companies reexamined their own hiring preferences as a result. In 2024, voters elected President Donald Trump, who ran on a platform opposed to many ESG initiatives, especially those that prioritized environmental regulations and diversity programs.
For corporate boards, these changes are both good news and bad news. The good news is many of the good ideas ESG originally stood for remain valid and helpful to a business. The bad news is on many topics the debate puts them in the middle of a battle.
As Director of the Weinberg Center for Corporate Governance at the University of Delaware and a public company director myself, I advise boards to focus on the basics. Directors owe legal duties to their companies to act in the best interests of the company and its shareholders. There is no rulebook on exactly how to do that, and directors meet their duty by making informed business judgments in good faith. While boards should consider relevant social or environmental factors, these should always be evaluated through their direct impact on the company’s financial well-being.
There are many sides to these issues and the best boards will listen attentively and pose discerning questions. On February 13, I will host a panel discussion titled “From Boom to Backlash: Guiding Directors in a Shifting ESG Landscape” at Clayton Hall. This event will explore how boards can navigate the challenges of the current ESG environment, and how corporate directors should think about their roles in light of changing attitudes towards environmental and social topics in their governance.
The University of Delaware community is honored to offer this neutral forum to discuss these important topics and welcomes fellow citizens to the discussion.
Event Details: From Boom to Backlash: Guiding Directors in a Shifting ESG Landscape
Date: February 13, 2025
Time: 2:00 pm – 5:00 pm
Location: Clayton Hall, University of Delaware
Format: Panels, Q&A, and a complimentary reception
Admission to the event and reception are complimentary but advance registration is required
Lawrence A. Cunningham is the director of the University of Delaware’s John L. Weinberg Center for Corporate Governance.