Staff Writer Harris Bidiwala examines the forces shaping ESG activism in finance, exploring how profit motives and political shifts under a Trump presidency could curtail its influence.
ESG-driven shareholder activism, where investors push companies to adopt Environmental, Social, and Governance practices, began with ethical investment movements in the 1960s, targeting industries like tobacco and apartheid-era South Africa. Over the past three decades, this approach has evolved into a major force, influencing board decisions and corporate strategies. Like all “feel good” initiatives, it started as a niche perspective, but surprisingly evolved into a larger movement, leading large institutional investors like BlackRock and State Street to become pivotal in ESG activists.
Activist investors use their voting power to demand changes, often framed as aligning profits with public good. However, critics highlight “greenwashing,” wherein companies either exaggerate ethical commitments or support false efforts towards the climate crisis which prioritises financial returns over real change. These tensions raise questions about whether ESG activism is a genuine push for progress or a clever rebranding of profit motives.
Understanding ESG activism
These activists have become major problems for those not willing to comply, seen with Engine No.1, a small activist hedge fund, replacing three ExxonMobil board members to force a shift towards sustainable practices. After the Cambridge Analytica scandal, shareholder pressure from groups like Trillium Asset Management led Meta to establish an independent oversight board and additional privacy safeguards for content moderation. These reforms indicate that no industry or market is safe from ESG-driven shareholder activism, and must comply – willingly or not.
However, with the incoming second Trump presidency, ESG-driven shareholder activism looks to take a downturn; his highlights from his first term inform this concern. His withdrawal from the Paris Agreement, expansion of oil and drilling rights, reduced mandatory ESG disclosures under the U.S. Securities and Exchange Commission (SEC) and idea of “woke capitalism.” These activists do not seem to have a bright future ahead, but is it because of a renewed Trump era or the reality of investor motives?
Trump Takes on ESG
If you take the view that it’s because of a second Trump term, his well-documented disdain for “woke capitalism” and disregard for ESG principles would shape policy and market sentiment. Trump’s administration would likely roll back regulations and initiatives that have supported ESG’s mainstream adoption, reinforcing a narrative that prioritises traditional economic drivers over social or environmental considerations.
While this could curb the influence of ESG activism at a macro level, it is unlikely to extinguish it entirely. Instead, ESG activism may retreat to its earlier form—a niche mandate championed by specific investors and funds, rather than occupying the prominent position it holds in corporate boardrooms today. The market, aware of Trump’s stance, would likely adjust to his policies, re-prioritising sectors and strategies aligned with his administration’s focus, while ESG efforts persist in pockets where investors remain committed to aligning ethics with profitability.
Additionally, anti-woke capitalists will take this opportunity to have its say on ESG-driven activism. Its ardent believers and even those who find themselves agreeing with certain concepts may feel the ESG agenda is pandering to a progressive phase of elites. Leaning into the populism Trump supporters thrive on, ESG can be painted as a distraction from core economic priorities, prioritising public image over the needs of the working class.
Certain investors and companies who have strong grassroots customer bases may find that ESG no longer carries the benefit it once did and could revert to protect their base. The increasing support of the political right-wing globally from Giorgia Meloni’s Brothers of Italy and Marine Le Pen’s National Rally may suggest a shifting focus away from ESG as public concerns adapt.
Investors’ Profit Play
As society becomes more progressive and liberal, certain values remain constant and deeply embedded, regardless of changes in social attitudes or political climates. Among these is the pursuit of economic self-interest, a principle that has consistently influenced human behaviour throughout history. For investors, this core value is expressed through their raison d’être: the maximisation of profit.
This drive is not inherently at odds with initiatives like ESG-driven shareholder activism, but it does frame their approach. While ESG initiatives are often marketed as ethical or altruistic endeavours aimed at improving corporate responsibility, it is essential to consider the profit-driven motivations underlying these actions. By aligning social ideals with financial returns, investors craft a narrative that merges doing good with doing well, making ESG initiatives appear not just virtuous but also economically viable.
However, this alignment is fragile. The overwhelmingly positive PR surrounding ESG actions perpetuates the belief that “doing good for the world will do wonders for your bottom line.” This, in turn, inflates the valuation of companies that align with ESG principles, even when their financial fundamentals are weak, creating a frenzy for investments that should not deliver sustainable returns. Investors, far from being deceived, are often fully aware of this dynamic. They understand that many ESG-aligned companies would struggle without their ethical branding, yet they continue to invest because they are betting not on the company itself, but on the accelerating progressiveness of society and its growing appetite for ESG ideals.
However, I think that investors are much more honest with themselves than they appear. They know some of these ESG companies would be near worthless without their ESG alignment and yet still invest. This is because what they’re really betting on is not the company itself, but the progressiveness of society which seems to be rapidly accelerating with no obstacles in sight.
Profit vs. Progress: The Final Verdict
Last year, it was found that asset managers like Legal & General and State Street used ESG funds to hold over £800 million in bonds issued by fossil fuel companies. Despite whatever ESG-driven shareholder activism they might partake in, as money managers, they understand what drives the market and where they need to position themselves to produce the highest returns. While most individuals may call this textbook style greenwashing, opponents have defended this by simply labelling it as a “risk management strategy” due to the current market share of the energy industry. Whatever you want to call it, none of these reasons feel or sound intrinsically linked to improving ESG-aims.
These revelations about ESG funds holding fossil fuel investments expose a deeper truth: ESG-driven shareholder activism operates within the confines of market’s utility, where profit remains the ultimate goal. While a second Trump presidency may undermine regulatory support for ESG and embolden critics of “woke capitalism,” such political shifts alone are unlikely to fully dismantle the movement. Activism driven by ESG principles has proven resilient to external pressures, adapting to remain relevant where it aligns with financial incentives. However, it is this reliance on profit-driven motives, not political opposition, that poses the real threat to ESG’s longevity. When the promise of returns fades, so too will the mainstream appeal of ESG, relegating it back to the niche mandates of select investors.
In the end, ESG-driven activism was never just about ethics—it was always about profit. A second Trump presidency may push ESG back to the edge, stripping it of its mainstream clout but not erasing it entirely. Investors will adapt, as they always do, using ESG where it suits their bottom line and abandoning it where it doesn’t. The myth of ESG as a transformative force will continue to unravel, exposing it for what it has become: a convenient narrative in the relentless pursuit of profit.
