Citi, Valero and ADT are telling shareholders that anti-ESG sentiment is a new business risk, as companies start to raise alarms about conservative attacks on socially conscious policies in their annual reports this year.
The bank, oil refiner and home security provider were among 11 companies that directly referenced “anti-ESG” in their 10-Ks for the first time this year, mostly under risk factors, according to a Bloomberg Law review of company filings with the Securities and Exchange Commission. Many of the companies mentioned anti-ESG risks in connection with state government actions and activists.
Companies in 2022 faced an influx of conservative shareholder proposals and initiatives by Florida, Texas and other red states fighting ESG practices, while the Biden administration and liberal investors continued to push corporate sustainability. It’s not surprising that companies are starting to see potential risks from being pulled in two different directions, said Hillary Sale, a Georgetown University Law Center professor, who studies corporate governance.
“There’s a lot of good reasons why, as a business reason, companies should be focused on ESG and getting it right, and what they’re facing now is pressure not to do it,” Sale said. “That doesn’t make sense for many companies with respect to their shareholders or their stakeholders.”
Citi Ire
Citi last year also was the target of a conservative shareholder proposal that sought a civil rights audit over concerns the bank is possibly discriminating against “non-diverse” employees. The National Center for Public Policy Research resolution received 2.9% of shareholders’ support, according to Bloomberg Intelligence data.
The bank says its ESG commitments like fighting against the racial wealth gap and climate change are “core to who we are.” But Citi faces financial and compliance risks as it navigates pro- and anti-ESG sentiment, the firm said in its 10-K filed last month. Investment firms including Ares Management Corp.,
Citi’s concerns about anti-ESG sentiment are tied to conflicts over government social, economic and racial justice initiatives and climate risk regulations, according to its 10-K, which doesn’t identify the matters by name. The SEC is working on various ESG rules, including regulations that would require companies to report their greenhouse gas emissions. Congressional Republicans and Republican state officials have challenged the SEC’s work, with at least one attorney general threatening to sue.
Citi “faces potentially conflicting anti-ESG initiatives from certain U.S. state governments that may impact its ability to conduct certain business within those jurisdictions, as well as from Congress,” according to its 10-K.
A Citi spokeswoman declined to comment.
ESG foes brought up Citi’s policies multiple times at the annual Conservative Political Action Conference near Washington earlier this month.
The bank was listed among several financial institutions that push a social agenda espousing progressive causes in “The Shadow State,” an Epoch Times documentary on ESG screened at CPAC. CPAC attendees also were urged at one point to consider moving their money from Citi to a bank founded by former Housing and Urban Development Secretary Ben Carson and other conservatives.
Citi and other companies are right to fear pushback over ESG, said Scott Shepard, a fellow at the National Center for Public Policy Research.
“What’s really going on is just companies shaking their heads and coming to their senses a little bit and saying maybe there are real risks to taking highly partisan positions,” Shepard said.
Valero Worries
ADT Inc. and
Valero, which bills itself as the world’s biggest renewable fuels producer, included information in its report about its work with
But Valero also has the attention of Strive Asset Management, co-founded by anti-ESG crusader and Republican presidential candidate Vivek Ramaswamy. The firm, which aims to force companies to “focus on profits over politics,” offers exchange traded funds that have holdings in Valero.
The Texas-based oil company may lose investors if it’s unable to meet ESG demands, according to its 10-K filed last month.
“Recently, backlash from certain governments and investors against ESG funds and investment practices has resulted in increased scrutiny and withdrawals from such funds,” Valero said in its 10-K. “Such backlash has also resulted in ‘anti-ESG’ focused activism and investment funds, which may result in additional strains on company resources.”
A Valero representative didn’t respond to requests for comment.
‘Fact of Life’
At ADT, the company used its ESG report to help tout its 2021 purchase of a solar panel installation company, which CEO Jim DeVries said will “significantly increase ADT’s role in reducing greenhouse gases.” ADT also said in the report the company planned to expand its ESG efforts and make more disclosures about them in the future.
But the Florida-based company is concerned about “certain ‘anti-ESG’ sentiment among some individuals and government institutions,” according to the 10-K it filed last month.
“As we continue to establish our ESG related initiatives, we could face a negative reaction or legislation that impedes our activities or reflects poorly upon the Company, any of which could have a material adverse effect on our business, financial condition, results of operations, and cash flows,” ADT’s 10-K said.
An ADT representative didn’t respond to requests for comment.
ADT, Valero and other companies may feel pressure from both sides of the ESG debate, but anti-ESG sentiment is unlikely to deter executives focused on corporate responsibility, said Paul Washington, executive director of the Environmental, Social and Governance Center at the Conference Board, a business think tank.
Neither an economic slowdown nor a backlash over ESG will change companies’ spending on the matter this year, according to a Conference Board survey of more than 1,100 senior executives released in January.
“Anti-ESG sentiment is going to continue to be a fact of life,” Washington said. “Whether it rises to a level of risk that merits disclosure in a 10-K will depend on whether we see further governmental action.”
— With assistance from David Hood and Clara Hudson.
Source: news.bloomberglaw.com
