02 Aug 2023

Is this the beginning of the UK’s anti-ESG backlash?

With Rishi Sunak announcing the expansion of North Sea oil and gas drilling, temperatures rising over the ULEZ and a banking industry reeling from the Coutts saga, MHP’s Ben Carr, Associate Director, examines whether the anti-ESG movement seen in the US has made its way to the UK and how businesses should respond.

Ben Carr
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While the British summer is living up to its expectations with more damp weather forecast, many business leaders will have begun August fearing that another set of storm clouds is gathering on the horizon.  

Rishi Sunak’s decision to boost North Sea oil and gas production this week has been criticised as a dangerous watering down of climate policies by critics. It comes amid the potential rolling back of the 2030 ban on petrol and diesel cars in a bid to show the government is “on the side of motorists”, while London’s Mayor Sadiq Khan pushes ahead with the Ultra-Low Emissions Zone.  

The weakening of the national emissions trading scheme to make it cheaper for industry to pollute in Britain, alongside government ministers criticising “ESG investment groupthink” in the shunning of defence stocks, are further additions to the growing list of anti-green moves and rhetoric making headlines in recent days.  

The government is seemingly attempting to drive a policy wedge on climate change in the UK political debate, marking the end of a period of consensus across parties on the country’s net zero ambitions. 

Governance in the frame 

Away from climate change and looking at the governance pillar within ESG, the recent Coutts debanking saga is further evidence that a broader ESG backlash may be emerging in the UK. 

The ousting of NatWest CEO Dame Alison Rose was set in motion by concerns that businesses are yielding too much power and should not be pursuing political positions or goals. Indeed, Nigel Farage has declared war on ‘woke capitalism’ and has since launched a national campaign to mobilise those stripped of their bank accounts for political or other reasons. 

For a deeper dive into this saga and the dynamics at play, see MHP’s Deputy CEO, Nick Barron’s article: Coutts is not Britain’s Bud Light. 

US vs UK  

Comparing these recent events with the genesis of the anti-ESG movement in the US, some notable similarities exist.  

Firstly, political forces are driving camps on both sides of the Atlantic, with legislative levers being pulled to affect change. The US has seen 99 anti-ESG legislative bills filed in the first four months of 2023 compared to 39 during the whole of 2022, primarily driven by Republican lawmakers, including measures to reduce climate constraints for fossil fuel firms.  

Secondly, the financial system has been an early target of the debate. The banking sector is firmly under the spotlight in the UK. While in the US, asset managers have felt the brunt of the backlash, with some US states outlawing ESG considerations in investment strategies, and fund managers mandated to prioritise generating higher returns for investors.  

However, as the movement has matured in the US, several issues have defined activism, including LGBTQ+ rights, abortion and diversity and inclusion, highlighting a potential course the UK’s own backlash may take with a shift to more social issues.  

For now, contagion is likely within the financial services industry and beyond as brands come under a new level of scrutiny fuelled by deepening polarisation. 

Mitigating risk 

So how should firms respond? Firstly, communications should be considered against this evolving backdrop. Using less polarising language is one place to start. Terms like net zero and ESG have broad meanings, leaving space for politicisation. 

Stress-testing messaging to consider the variety of potential stakeholder responses through the lens of recent criticism is crucial. Where are the vulnerabilities? How can communications proactively address possible adverse reactions? 

Most importantly, firms should be clear about their sustainability story. Being specific about the impact the business is having on the planet and its communities, demonstrating why particular values are important and focusing on tangible achievements and progress are practical ways to mitigate risk. 

Whether or not this is the beginning of an anti-ESG backlash on the scale the US has experienced remains to be seen. But it would be prudent for firms to ensure they are prepared to operate in this shifting landscape. 

By Ben Carr

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