The anti-ESG movement has claimed a major victory.
The Net Zero Insurance Alliance (NZIA), an industry group for insurers, was dissolved in April after several high-profile members left.
The problems with the NZIA started in 2023 when a group of US state attorneys general wrote to NZIA members to tell them they were “concerned with the legality of your commitments to collaborate with other insurers and asset owners in order to advance an activist climate agenda.” The letter added: “Under our nation’s antitrust laws and their state equivalents, it is well-established that certain arrangements among business competitors are strictly forbidden because they are unfair or unreasonably harmful to competition.”
Insurance giants such as AXA and Allianz quit the group shortly after as part of a broader exodus that resulted in the NZIA losing five of its eight founding members.
The NZIA’s dissolution is a major victory for the anti-ESG movement. The NZIA was backed by the UN. It was organised under the umbrella of the Glasgow Financial Alliance for Net Zero, a group chaired by former Bank of England governor Mark Carney. Other groups under the GFANZ umbrella include the Net Zero Banking Alliance and Net Zero Asset Managers Initiative. It was as credible as any voluntary industry body could be. Few are rushing to join its successor, the Forum for Insurance Transition to Net Zero.
Banks may be next on the Anti-ESG list
The asset management industry has already had a taste of this, with many US states moving their public pension assets out of managers like BlackRock that were encouraging portfolio companies to disclose information regarding their company’s climate action. Vanguard, one of the world’s largest asset managers, left the Net Zero Asset Managers Initiative, but the group managed to avoid the kind of exodus seen by the NZIA.
The anti-ESG movement has not yet paid too much attention to banks or their group, the Net Zero Banking Alliance, but it is only a matter of time before banks face the same dilemma: give up on climate cooperation and weaken commitments, or risk losing business in some states and having to face lawsuits.
The most likely aspect of banks’ commitments to attract anti-ESG attention will be their targets for financed emissions, which are the emissions generated by the companies they lend to. Many major US banks including JP Morgan, Goldman Sachs, and Citi have set targets for their financed emissions. There are three ways banks can achieve these targets. They can do it by helping companies cut emissions, by increasing lending to low-carbon companies, or by restricting lending to high-carbon companies. If banks pursue their targets too rigorously, they may find themselves receiving similar legal threats to those faced by insurers.
Other sectors are at risk
The finance sector is the canary in the coal mine for other sectors. As more companies try to reduce their Scope 3 emissions, the emissions created by their value chain, they too will sign up to industry groups that seek to influence their suppliers or other parts of their supply chains. However, if suppliers do not make good progress on cutting emissions, those suppliers could end up being dropped. This can lead to political pushback of the kind seen in the US.
Such exclusions are a key issue that will attract attacks from the anti-ESG movement. To mitigate this risk companies can do a few things. They should try to avoid such exclusions for as long as possible, favouring continued efforts at persuasion and engagement instead. They also need to read the small print of industry groups they sign up, to check for any strict exclusions that may be set for a near-term date. But even then, companies that try to influence the behaviour of other companies will still face some anti-ESG criticism. Trying to execute a successful sustainability strategy without attracting negative public and political pressure is going to be a fine balancing act for many companies, especially those in the US.
