A 2023 report by the Council of Foundations and the Commonfund Institute found that nonprofits are abandoning environmental, social and governance (ESG) policies at an alarming rate.
The percentage of community foundations that plan to adopt ESG policies in the next 12 months fell from 34% in 2022 to 16% in 2023, while private foundations fell from 10% to 7% over the same period, the research firm reported. ReportESG policies have become less popular amid scrutiny from conservatives and investors pulling funding out of them.
The report also found that the percentage of private foundations planning to invest in companies with “diverse management teams” (defined as those with “diverse leadership”) has decreased from 22% in 2022 to 19% in 2023. The percentage of community foundations planning such investments has increased from 23% to 24%.
According to the report, the percentage of private foundations seeking ESG investments will grow to 27% in 2023, up from 28% last year, while the number of community foundations seeking investments remained steady at 26%. “Impact investing,” which aims to allocate funds to purposes that align with the “mission of the organization,” will increase to 24% for private foundations and 23% for community foundations in 2023, both up 2 percentage points from 2022. (Related: Exclusive: Report finds asset managers used Republican state pension funds to support “racial equity” and climate change efforts)
Rachel Hodgdon, president and CEO of the International WELL Building Institute, speaks during a talk titled “Putting the 'H' in ESG” presented by the Humanity 2.0 Foundation and the International WELL Building Institute at the NASDAQ Marketsite in New York City on February 28, 2022. (Photo by Eugene Gologulsky/Getty Images via courtesy of Humanity 2.0 Foundation)
Companies use ESG criteria to guide investments towards activities that are “socially conscious” with regard to the environment, social issues and government. According to To the Corporate Governance Institute.
In June, House Oversight Committee Chairman James Comer launched an investigation into the Internal Revenue Service (IRS) over possible ESG activities by retirement plan administrators that could violate tax laws. Republican Tennessee Attorney General Jonathan Scrummetti sued private equity firm BlackRock in December 2023, alleging that the company's ESG promotion had a negative impact on financial products marketed as non-ESG funds.
In Nevada, asset managers including BlackRock used the state's pension funds to support ESG shareholder resolutions on a range of issues related to race, gender and climate.
ESG has also struggled in the private sector in recent years, with sustainability-focused investment funds losing $2.7 billion in the third quarter of 2023. According to To Morning Star.
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