The world is writing about the passing of Queen Elizabeth II, and indirectly so am I. What does her death have to do with ESG? I’ll answer that question in a moment, but here’s a clue: it has to do with policy and direct and indirect influence on corporate behavior.

First, let’s set the stage. A couple of recent surveys highlight disparities in ESG performance metrics among US companies and between US companies and the world, indicating that particularly US companies still have room to improve.

A 2021 study by Navex indicated strong ESG adoption across public and private companies, with 81% of participants saying their company had ESG programs in place while 63% of companies had increased focus and spending on ESG over 2020. But when asked to evaluate the effectiveness of corporate programs by focus, the results dropped precipitously. Only 50% of participants rated their corporate programs as very effective in the environmental arena, 39% highly effective in governance, and 37% effective in social matters. Despite these results (or perhaps due to them), 87% said their brand reputation was or is impacted by the company’s ESG performance.

European companies, however, are out-performing US counterparts both in voluntarily initiated ESG programs and in formal program implementation with 86% of French and German companies scoring well, 82% of UK companies and only 74% of US companies.

In additional to the operational level, European companies also lead in providing strategic guidance on ESG by forming dedicated Board committees to oversee policies and operations. Although the UK’s governance code, for instance, requires FTSE 100 companies to have audit, remuneration and nomination committees, there is no such stipulation for environmental, social and governance practices. Nonetheless, according to a recent Bloomberg article, 54% of FTSE 100 companies voluntarily have structured Board committees on ESG, while (according to Deloitte) only 13% of S&P 500 companies have done so. What this suggests is that European companies have embraced the strategic importance of ESG much more fulsomely than have US counterparts.

Or, as Maria Hughes, director at UK-based Mattison Public Relations said: “If you are a FTSE 100 company without an ESG committee at board level, then you are now in a shrinking minority.”

So, with all that said, what about the passing of Queen Elizabeth II and the accession to the throne of King Charles III? Well, as Prince of Wales, Charles was ahead of the global wave supporting and advocating for sustainable development and ESG principles. For over 50 years he developed and launched several important international initiatives, often in cooperation with organizations such as the United Nations. One such group, the Sustainable Market Initiative, has had broad but relatively shallow corporate support. According to their website 500+ CEOs pledged support for the so-called Terra Carta (a Bill of Rights for the Earth); 15+ CEO-led Task Forces have been established with 150+ global CEO members, and 47 global organizations have been awarded the Terra Carta Seal. Sadly, so far no mining companies are on that list.

Now that Charles is King, he is likely to redouble his efforts to advance sustainability and ESG, using one of the most important bully pits in the world – the British monarchy. And now that he is King, those efforts might attract broader and deeper support including – hopefully – from the global mining industry.

As for the US, companies have been improving but have a way to go. Particularly given new incentives from the USG and increasing scrutiny from investors and the public, US companies may rise to the challenge.

So, Florida Governor Ron DeSantis announced last week that he was, via executive fiat through the State Board of Administration, ordering that “social, political or ideological interests” be banned from consideration when making decisions for the State’s pension fund. Now, this is noteworthy for several reasons, but before I get to those, let me just quote the astonishing insight behind this decision. Here it is:

“Corporate power has increasingly been utilized to impose an ideological agenda on the American people through the perversion of financial investment priorities under the euphemistic banners of environmental, social and corporate governance and diversity, inclusion and equity.” 

Some might say that other institutions, such as the Supreme Court, are doing a much more direct and vigorous job of imposing an ideological agenda on the American people than corporations – but, laying that aside, let’s take a look into a couple of aspects here.

At least the Governor knows his enemy, correctly spelling out what ESG and DEI stand for. But does he know what they represent?

E is for Environment. Increasingly fragile in the Southern Coastal States, where rising oceans, more deadly hurricanes and more prolonged and destructive rainfall are imposing billions of dollars in actual costs and threatening to create a tide of “climate refugees” forced to relocate from formerly prime real estate. Seems like a responsible political leader would laud corporate efforts to reduce the climate impact of operations, especially if your state has 1,350 miles of coastline.

S is for Social, i.e., people (otherwise known as voters or constituents, in this context). To save time, and because they flow together, let’s also discuss diversity, inclusivity and equity (DEI) in this space. Aside from the human impacts mentioned above under environment, all these elements taken together represent important decisions by businesses to try, within reasonable constraints, to ensure that their workforces more closely resemble the faces seen in America – and other countries – in all their varied skin hues, genders and philosophies. In other words, to value and respect each human individual for what they contribute to advancing the business. Funny – seems like a politician or a political leader should be very interested in a bigger tent filled with more – and more diverse – supporters.

G is for governance. Following laws, doing the right thing, having clear procedures, and being bound by ethics and morality… seems like those all are good things. Or maybe not, for some.

If nothing else, however, Governor DeSantis also may be threatening the well-being of State retirees with this decision, by reducing the return on the State’s investment portfolio. Why? Studies have shown a positive relationship between ESG and financial performance. In other words, ESG-conscious companies earn more returns for investors.

One such study, conducted in 2021 by the NYU Stern Center for Sustainable Business and Rockefeller Asset Management, looked at performance metrics from 2015-2020 and found a 58% positive relationship between ESG and financial performance. This study also notes: “In addition, in a recent study by Rockefeller, top quintile ESG improvers (based on Rockefellers’ proprietary ESG Improvers Score) outperformed bottom quintile ESG decliners by 3.8% annualized from 2010 to 2020.”

Large institutional investment houses such as Schwab also recently have developed ESG investment portfolio recommendations for their clients, as well as establishing its own ESG ETF. This is unlikely to happen unless ESG investing is at least potentially profitable and provides individual as well as institutional investors the option of allocating investments in a way aligned with their personal or corporate values. Nothing about that seems to smack of “corporate imposition” to me.

But then, what can you expect from a man who has gone to war with Mickey Mouse?