ESG label falters, but climate and social risks remain

At a Climate Week panel on Sept. 24, two governance experts and a moderator discussed how fiduciaries should handle climate and social risks amid the political backlash against the ESG label. The session was titled “Fiduciary Duty has a Conscience: Building Climate and Social Justice into Fund Governance” and featured Julianne Zimmerman, a board advisor and stewardship strategist, and Osahon Okundaye, founder of Okundaye Legal. Emad Ansari moderated the discussion.

Panel participants said the term “ESG” has become politically charged, but trustees, asset managers and advisors still face a practical task: identify which climate and social risks matter to their clients and incorporate those risks into fund governance. Zimmerman emphasized focusing on client outcomes rather than labels, asking, “The question isn’t, ‘What’s your impact objective?’ The question is, ‘What are you investing for?'” She framed investment choices as purchases of future outcomes that should match beneficiaries’ preferences.

Zimmerman reviewed her early career in clean energy and recounted skepticism that clean tech could be profitable. She said founders are often driven by both purpose and profit and that many investors reward entrepreneurs who commit to their business ideas. The panel rejected the claim that social or environmental goals are necessarily at odds with financial returns.

Okundaye described how his work in structured finance led him to view markets in a broader social context. He noted that since the Trump administration, cultural and political debates have reached capital markets, influencing how some parties view considerations such as justice, diversity and climate. He argued that treating those considerations as taboo in investment decisions misses how social issues can affect long-term financial outcomes.

The panel disputed the narrow view that fiduciary duty requires focusing only on short-term returns. Zimmerman used the term “universal owner” to explain that very large, broadly diversified investors effectively hold slices of the whole market and therefore absorb systemic costs from corporate actions. She warned that some harms cannot be offset by financial gains and stated, “You cannot name a number big enough. There’s not a number big enough in existence to compensate you for the death of two family members,” adding that community pollution and social breakdown are not things that profits can simply replace.

Speakers noted that the pandemic-era surge in ESG interest has cooled and that several U.S. states have adopted laws restricting consideration of environmental or social goals in some public investments. They said the political debate over the label has grown while the underlying risks remain. The panel urged fiduciaries to identify which risks matter to the people they serve and to build those considerations into governance structures.

Panelists recommended practical approaches for different client types. Conversations with limited partners, who operate within a fund’s fixed life, differ from discussions with public-market clients, whose horizons are open-ended. Zimmerman asked managers to align investment strategies with the specific futures clients want to purchase and to set governance processes that track progress toward those outcomes.

The panel also placed current debates in historical context, noting that socially responsible investing emerged in the 1970s and 1980s and that contemporary ESG frameworks developed in the mid-2000s. A 2004 United Nations report argued that environmental, social and governance factors can affect investment returns, a point the panel quoted as part of the argument that the risks under discussion predate current political disputes.

Zimmerman closed by repeating the core client question: “You’re purchasing a future, so what is the future that you want to buy?” The panel left the task framed as a governance decision: determine which risks matter to beneficiaries and set investment practices and oversight to reflect those choices.