BlackRock’s challenge illustrate the ESG tight-rope corporates are having to walk

As the UK prepares for the second state visit of President Trump, fresh from the back of Nigel Farage’s less pomp-filled visit to the US, you could be forgiven for thinking that the rise of populism is now hard wired into the system and that business will have all but abandoned its focus on anything apart from making money. ESG has been well and truly relegated to the dustbin of history.

Yet yesterday’s announcement from Dutch healthcare services pension fund PFZW that it is withdrawing $14.5 billion in funds from BlackRock because of concerns about its voting record on sustainability issues (i.e. that it is not voting against boards that fail to adhere to climate targets) demonstrates the delicate tight-rope that corporates are having to walk.

In 2024 BlackRock was reported to have supported 4% of environmental and social shareholder proposals down from 7% in 2023 and 21% in 2022. Larry Fink’s shareholder letters have also changed markedly in tone, moving from a high point of extolling the virtues of ESG and stakeholder capitalism to now not mentioning ESG at all. It’s easy to scoff but can you really blame him? In the current geopolitical environment business has to chart a pragmatic route through very choppy waters.

Yet the PFZW decision also shows the other side of the argument that faces C suite leaders. While President Trump and the anti-ESG lobby may have enormous sway and impact, they aren’t the only stakeholder that corporates need to satisfy and some of the less headline-friendly actors can still deliver a meaningful rebuke.

It is true that the second Trump presidency has seen the US re-set the narrative around ESG and reassert its strength in global trade and commerce but many businesses, including in the US, weren’t only embarking on ESG because it set culture-friendly mood music. They were also focused on ESG as a critical tool to measure and manage issues that are key to future business and economic resilience and growth in a world that is changing and in which many stakeholders expect business to lead responsibly.

 The US and UK (and EU) also differ in that both the UK and EU have mandated themselves to deliver net zero by 2050 as a statutory requirement. Which means that the economy and business are compelled to have plans in place to facilitate that objective.

In the face of this inconvenient truth, the fiduciary duty that business and investors have towards their organisations and stakeholders is more nuanced than current political debate. It also operates to longer time-frames focused on risk and investment returns that run into decades.

While corporates are changing their narrative around ESG (focusing on sustainability, resilience, risk-management and other less triggering descriptors of corporate behaviour), strategically many remain committed to reporting and meeting environmental and social impact targets. The risks that made these targets compelling in the first place have not lessened or gone away, mitigating the risk of climate change and nature depletion remain a commercial and reputational imperative.

We also know that the pubic remain highly focused on corporate behaviour. SEC Newgate’s own Responsible Business research showed that last year 75% of the public believed that corporates should conduct business in responsible ways. Organisations that pollute, over-package, allow unethical behaviour or fail to live up to their brand promises face a wall of activist anger and social storms that have an immediate impact on trust, reputation and sales.

So what can we draw from this? Increasingly we operate in a world in which corporates have to be highly focused on all the stakeholders that surround them and need to understand and anticipate the expectations and behaviours of many different actors. They then have to be clear-eyed in what they can and cannot deliver for those audiences and need to ensure that they stay true to their principles and brand promise.

Corporates operate in a world where they need to understand Reform, Trump and the more established political parties they have to engage. They also need to understand and enact the views of investors, the public and their staff. Those views will at times be diametrically opposed. Ensuring clarity of communications around the corporate strategy and plan has always been critical but we now live in a world where corporates need to be constantly engaged in dialogue (rather than broadcasting their views) to ensure that their decisions and rationale are understood and supported (even in a world where that support maybe fragile and grudgingly given).