ESG – Raising Big Legal Issues

The Biden economy – stressed by high spending, inflation, and interest and now low confidence, growth, and energy output – is shuddering, like a plane before a stall. Several banks have collapsed, gambling on low interest bonds and crypto – but the problem may be bigger, traceable to the left’s “ESG,” or “Environmental, Social, and Governance” investment agenda. ESG is raising new legal issues.

As the political left pushes the “ESG” agenda on corporate America, replacing profits and traditional returns with “transformational” social and climate change, influencing banks, pension funds, and wider investment decisions – what rights do countless distraught shareholders, pensioners, and retirees have?

In general, the answer is shareholders can influence these decisions, if they act in large enough numbers, but so can thoughtful, responsible members of these corporate and investor boards. The backlash against ESG is already beginning to happen, as shareholders watch their savings vanish.

Whether overzealous left-leaning companies, funds, and pension boards go “whole hog,” or just place social and climate change ahead of financial returns to shareholders, using the Marxist term “equity,” or redistribution of earned income to groups who did not earn it for “social justice” – shareholders are going to get uneasy. They are already getting uneasy.

Shareholders – and their representatives on these corporate boards – were already taking legal action even before the recent bank collapses, seeking not just a return on lost income, proper compensation for what they see as a breach of fiduciary duty by these corporate leaders, but their resignations.

The bigger question– as wild-eyed Biden talkers seek to crudely coerce private action, ending gas cars, stoves, and mowers, water rights, fossil fuels, and fertilizer – is who will pay the price when this house of cards collapses. 

Already, some inside this White House – and in the nation’s newly “woke” boardrooms – are beginning to have second thoughts. The economy is NOT getting better. Inflation remains high, interest rates continue to rise, energy costs are killing consumers at the pump, grocery store, in rent, and credit cards.

Even as Biden blames everyone except himself and drains America’s precious Strategic Petroleum Reserve, seniors continue to retire – and they want their money, the money the invested to earn. They do not, by and large, want annual reports bragging about more wind power, transgender or gender redefinition policies, and not how the company, fund, or bank is advancing “equity.”

The scrutiny of these “woke” policies, boards, and board members is only going to grow, with it calls for resignations and new leadership, a return to tested investment strategies, and personal accountability.  This, in the end, is where the rubber meets the road.

When it comes to accountability for screwing up the US economy, and holding those who are complicit within the private sector, a few predictions are worth making. Since people who invest their money – directly or indirectly – typically do so to preserve its value, and grow their savings, people will get mad.

When they do, the call for shareholder action against these companies, funds, banks, boards and individual board members will get louder. You can expect a swell of “where is my money, what are you doing?” shareholder actions, calls for resignations, impatience with “woke” justifications.

Perhaps more interestingly – since change accelerates when publicity gets bad, people get mad, and personal liability begins to show up – what makes all these “woke” corporate leaders and board members think they will avoid personal responsibility, and specially liability?

Bets are two-to-one that insurers who write “directors and officers” (D&O) liability policies for all thee “woke” investors, leaders, and board members were not thinking about insuring the individual board members for decisions that look like a breach of “orthodox” fiduciary responsibility.

How many of those D&O policies protect their board members from personal lawsuits by other board members, activist shareholders, and class action suits – for making political decisions, for losing their money – a lot of money – when board members shift from traditional fiduciaries to a “woke” religion?

Again, these questions have yet to be fully tested, but imagine if more banks go under, more corporate, pension, and investment fund returns are lower. The straight line is easy to draw – right back to board members who, on the record, made blundering, anti-profit, pro-woke decisions and cost shareholders, investors, pensioners, and those who counted on their behaving as traditional fiduciaries, dearly.

Bottom line: What the recent bank collapses, and spate of corporate resignation calls – for “woke” hysteria and misjudgment – signals is both big and small. On the big end, it signals Biden’s mismanagement of the US economy is stunning, can no longer be hidden. National debt – and interest on it – have exploded, spending utterly irresponsible, as is the “woke” shutdown of key sectors.

On the small end – as the devil always hides in details – one has to wonder if those who have pushed this “woke” agenda, leaders public and private, are not due for payback. Public leaders may be swept out. But “woke” board members and CEOs may want to check their D&O policies – then check their bank accounts, as liability for costing Americans their savings could be high. ESG raises big issues.

Robert Charles is a former Assistant Secretary of State under Colin Powell, former Reagan and Bush 41 White House staffer, attorney, and naval intelligence officer (USNR). He wrote “Narcotics and Terrorism” (2003), “Eagles and Evergreens” (2018), and is National Spokesman for AMAC.