(Bloomberg) — ESG fund managers are being urged to keep a close eye on their lawyers after Donald Trump emerged as the winner of the U.S. presidential race.
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Trump’s return to the White House threatens to boost a years-long Republican Party attack on environmental, social and governance investment strategies. Investors planning to move forward with ESG portfolios will want to make sure they fully understand the intricacies of the U.S. legal system, Jefferies Financial Group Inc. analysts said.
“We encourage all ESG fund managers to have an attorney on the team, or on speed dial,” analysts led by Aniket Shah wrote in a note to clients on Wednesday. “Antitrust risk remains high for asset managers in the ESG space; there have been no cases yet, so there is no legal precedent. Additionally, legal risks related to fiduciary duties will remain relevant as states enforce anti-ESG laws.”
News of Trump’s victory has already hit stocks in the green sectors hard, with shares of wind energy companies among the biggest losers on Wednesday morning. But beyond the threat of bans and obstructive policies, the ESG industry now appears increasingly vulnerable to legal threats.
Key members of the Republican Party have long argued that companies that embrace ESG are ignoring their fiduciary duties, while Republican attorneys general have argued that financial companies that integrate ESG metrics may be guilty of colluding against the fossil fuel industry and fueling the inflation.
A likely consequence of the new political landscape will be “greenhushing,” the Jefferies analysts said, referring to the phenomenon of no work on ESG being made public.
Corporate Chief Executive Officers will also likely consult with their attorneys on how best to navigate the new environment.
“General counsel are listening to CEOs, who fear legal reprisals against ESG initiatives,” Jefferies analysts said. “The setback could lead to more focused and pragmatic companies, engaging in strategic discussions closely linked to their business model.”
One counterargument is that any “consumer- and employee-led outrage similar to 2016” could push companies to take positions on issues like abortion, as well as diversity and inclusion, the analysts said.
The situation may be exacerbated by states in the ESG divide pursuing diametrically opposed policies. Such a scenario could result in a ‘nightmare’ of fragmented requirements, according to the analysts.
