March 2, 2023

ESG: Will a Recession Cure Our Fatigue?

I blogged yesterday that recent proxy contests have continued to focus on traditional fundamentals. Although it’s still too early to write off the possibility that non-traditional activists will leverage universal proxy card rules to frame campaigns around “ESG” issues, the world has changed since Engine No. 1’s success at Exxon a couple of years ago – and so has the stock market. A new memo from SquareWell Partners (available for download) looks at whether ESG issues will remain high within investors’ decision-making processes as financial returns become more elusive. If there’s any silver lining to a recession, this might be it:

We see this as an opportunity to overcome “ESG” fatigue where investors and companies alike will be forced to re-evaluate their priorities and focus only on the most material non-financial issues rather than trying to complete an ever-growing checklist of stakeholder demands.

SquareWell analyzes lessons from past recessions – while also acknowledging that the specter of climate change feels more intense than in earlier downturns, and shareholder voting mechanics are changing. For companies that are able to maintain – and demonstrate – a long-term focus that integrates financial & non-financial risk management, SquareWell predicts that opportunities will arise. For those who don’t, evolutions in shareholder activism and M&A may increase their vulnerability.

SquareWell offers these predictions for 2023 (and delves into each of them in the memo):

– Financial and Extra-Financial Risk Management Will be Forced to Coalesce

– Capital Allocation Scrutiny Will Rise

– M&A Rationales Will Require Increased “ESG” Involvement

– Activism Will be Pulled in Opposing Directions

– Boards and Managements Will (Have to) Show Action

– Executive Pay Will Need to be Aligned

This means that ESG materiality assessments & disclosures will actually become more important. But hopefully, the work will also become more productive & worthwhile, as it becomes more clear what to focus on. These are exactly the type of thorny issues we’ll be discussing at our Conferences this fall – and Lawrence Heim and team continue to deliver practical guidance every day on If you aren’t already subscribed to that free blog, sign up today – and become a member of that site for access to the full suite of checklists, filtered subject matter content, podcasts, and more.

Liz Dunshee