Execs used to trumpet their diversity and climate efforts. Now not so much

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By Nicole Goodkind • Thursday, June 15

Good morning. In today's newsletter: US companies are going quiet about ESG initiatives. Plus, expect interest rates to stay elevated for a while.

US stock futures are pointing lower after the Fed warned of more rate rises to come. Markets in Europe are also generally weaker. But stocks in Asia were boosted by another Chinese rate cut.

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ECONOMY WATCH

Execs used to trumpet their ESG efforts. Now not so much

Just three years ago, diversity and sustainability were big talking points for executives at many major companies and ESG funds — investments that evaluate stocks using environmental, social and governance factors — were riding the wave.

But corporate interest in trumpeting these initiatives appears to have been short-lived. Just 74 members of the S&P 500 even mentioned "ESG" in their first quarter earnings calls, according to new FactSet data.

That's the lowest number since the second quarter of 2020, when the police killing of George Floyd in May ushered in a new era of corporate social awareness.

What's happening: Mentions of "ESG'' peaked in the fourth quarter of 2021, when about 160 companies listed on the S&P 500 index brought up the term in their earnings calls. Since then, mentions have declined in four of the past five quarters.

Compared to the final three months of 2022, the number of S&P 500 companies citing "ESG" on earnings calls in the first quarter of 2023 has decreased by 23%.

ESG funds have also lost popularity with investors. Total assets under management in ESG funds fell by about $163.2 billion globally during the first quarter of 2023 from the year before, according to Lipper, a financial data provider.

It's not that the funds are underperforming, either. The average overall return for these funds was 2.2% in March — outperforming the 12-month moving average return for the wider market by 2.8 percentage points.

Instead, a confluence of political, geopolitical and market events has severely damaged interest in ESG investing.

The rise of green hushing: Russia's ongoing war in Ukraine forced traders to reconsider investing in energy and weapons stocks. And increased scrutiny by elected leaders in the United States played into political differences around ESG investing and opened the door to vocal critics.

Because of a partisan divide, about half of US states are enacting provisions to block efforts to invest in state-run investment accounts with an ESG lens, Lipper found.

What's followed is a growing conservative backlash against corporate social and environmental initiatives.

Angry campaigns from conservative groups against LGBTQ-inclusive programming from AB InBev led to real drops in revenue for the company. Bud Light lost its place as the top-selling beer in America this week following backlash over a social media promotion with transgender influencer Dylan Mulvaney.

A recent Wall Street Journal column erroneously suggested that the recent collapse of Silicon Valley Bank was caused in part by the bank's focus on diversity and inclusivity and Republican Congressman Mike Collins of Georgia blamed diversity initiatives for the Norfolk Southern train derailment in East Palestine, Ohio. The Congressman asked whether the company's diversity initiatives were "directing resources away from the important things like greasing wheel bearings?"

Companies "see that certain terms have become lightning rod terms. ESG is one of them," said Douglas Chia, president of Soundboard Governance and former executive director of the Conference Board's ESG Center.

Firms looking to avoid the controversy are dialing back rhetoric that shows their enthusiasm for ESG programs, said Chia. But even though they aren't talking about them publicly, they're still continuing on with these initiatives, he added.

All walk, no talk: Major corporations are actively preparing for soon-to-be climate disclosure requirements from the Securities and Exchange Commission and the largest financial institutions in the US have all voluntarily participated in a climate change stress test designed by the Federal Reserve.

About 70% of US CEOs said last October that their ESG programs improved their financial performance. That's up from 37% last year, according to a KPMG report.

"I don't think internally it means that there is less of a commitment. It's just that externally companies don't want to be as vocal about these initiatives for now," said Chia. "I think when some of this dies down after the 2024 elections, companies might dial it back up."

It's not all politics, either. David Duffy, CEO and co-founder of the Corporate Governance Institute, says that companies are also pulling back because they're afraid they'll be called out for a lack of substance to their claims of creating a more inclusive workplace.

"You can say you're increasing diversity initiatives just for the optics, but without data to back it up, you'll eventually get called out by stakeholders," he said.

VOICES

Oil demand could peak this decade, IEA says

"The shift to a clean energy economy is picking up pace, with a peak in global oil demand in sight before the end of this decade."

FATIH BIROL, EXECUTIVE DIRECTOR, INTERNATIONAL ENERGY AGENCY

Read more from CNN Business

MARKET FLASH

Interest rate cuts still 'a couple years out,' says Powell

The Federal Reserve said Wednesday it would pause its historic rate-hiking campaign as it waits for the effects to trickle further through the economy, reported my colleague Bryan Mena.

But Wall Street was not cheery as central bank officials also signaled that additional rate hikes are likely in 2023 and that cuts weren't coming for a couple of years.

"Looking ahead, nearly all Committee participants view it as likely that some further rate increases will be appropriate this year to bring inflation down to 2% over time," Fed Chair Jerome Powell said in his post-meeting news conference.

While "it will be appropriate to cut rates at a time when inflation is coming down really significantly, we're talking about a couple years out," Powell said.

Not a single policymaker forecast a rate cut this year, he said, adding that he doesn't think a cut is appropriate.

"Inflation has not really moved down. It has not reacted much to our existing rate hikes. We're going to have to keep at it," he said.

The S&P 500 and Nasdaq, which were positive before these comments, plunged into the red following the gloomy outlook, while the Dow was down nearly 300 points. Stocks eventually recovered a bit and ended the day mixed.

UP NEXT

US core retail sales for May are expected at 8:30 a.m. ET

Plus: US initial jobless claims are also due at 8:30 a.m. ET.

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WHAT WE'RE READING AND WATCHING

▸ Big investors are getting nervous about this market. This is why. (Barron's)
▸ The Reddit blackout shows no signs of stopping (CNN)
▸ Rich nations spending in strange places to fight climate change (Reuters)
▸ Bud Light loses its title as America's top-selling beer (CNN)
▸ Russia's big economic problem: Not enough workers (WSJ)
▸ UPS and Teamsters reach a deal on air conditioning delivery vans (CNN)

FINAL WORD

Economists blame Beyoncé for inflation surprise

Swedish consumers now have Beyoncé to blame for their bills, bills, bills, my colleague Anna Cooban reports.

The chief economist at Danske Bank, the biggest bank in neighboring Denmark, said Wednesday that the singer's decision to kick off her "Renaissance" world tour in Stockholm last month led to a surge in hotel and restaurant prices in the area as tens of thousands of fans descended on the city.

Danske Bank's Michael Grahn estimated that the extra demand from Beyoncé's fans, known collectively as the BeyHive, was behind two-thirds of the price rises seen in the hospitality sector in May.

That, in turn, contributed to a more modest decline in overall inflation than had been expected. Annual consumer price inflation eased to 9.7% in May from 10.5% the previous month, official statistics show, while economists polled by Reuters had predicted a sharper slowdown to 9.4%.

"[That's] definitely not normal," Grahn told CNN. "Stars come here all the time, [but] we seldom see effects like this."

Grahn said many fans had traveled to Sweden for the two sold-out concerts in the country as tickets were relatively cheaper than elsewhere and a "very weak" Swedish currency boosted their spending power.

Still, he expects the Beyoncé effect to be short-lived, with hotel prices likely to fall over June.

Bruce Springsteen is due to play three shows in the Swedish city of Gothenburg later this month, which could put upward pressure on prices, Grahn said, but that's not as likely.

"What we saw with Beyoncé was a little bit special."