The ESG Backlash is Growing

These days, articles about ESG are often tempered with mentions of a growing anti-ESG movement. Indeed, ESG has become a political wedge issue.  The Wall Street Journal has reported that none other than Leonard Leo, of Federalist Society and anti-abortion fame, has taken on the anti-ESG rallying cry, having started a multi-million dollar oppositional think-tank and lobbying apparatus.  We can expect to hear a lot more questioning of the ESG movement.

Unfortunately, the advertising component of ESG appears to be the low-hanging fruit in this drama. Although "greenwashing," the overstatement of environmental benefits of products and services, is nothing new, a new wave of "investigations" threatens to undermine the use of common claims and methodologies.  We have seen this play before.  News and investigative articles call into question some aspect of greenwashing.  Enterprising plaintiffs' lawyers file class action cases, with mixed success.  Regulators ratchet up disclosure requirements, thus feeding more litigation.  And so, the cycle continues anew. 

The lowest of low-hanging fruit this time appears to be carbon.  Dozens of companies have publicly pledged reductions of net carbon output, relying on a combination of direct emissions cuts and offset purchases.  It is the offset market that appears to be attracting the greatest backlash.  

Once touted as environmental visionaries and saviors, landowners who have preserved forests and entrepreneurs who have invested in renewable energy projects are facing searing questions from all sides as to why, suddenly, their projects are making money.  Among hardcore activists, making money and doing good at the same time are often viewed as mutually incompatible.  For the ESG backlashers, the entire concept of carbon offsets is akin to a fraud that exacts a hidden tax on goods and services, while enriching limousine liberals.  

Now, we are reaching the stage where the regulators enter the fray.  The FTC will be updating its Green guides in the near future.  The United Kingdom Advertising Standards Authority has recently issued its own rules on carbon zero claims, which will generally require the use of enhanced disclosures from advertisers regarding which carbon offset verification system is being used.  The ASA has also promised to enhance monitoring and enforcement, which could ensnare many companies who do not as yet comply with the guidelines.  I assume that the FTC is looking at the ASA guidance closely in connection with it own Green Guides updates.

There is no easy advice for advertisers except caution. There will continue to be pressure to tout environmental progress, but such progress must be appropriately measured, verified and reported. The standards for doing so are still in flux.   In the meantime, activists on all sides, regulators and plaintiffs will be looking for targets.