Martin Lipton is a founding partner of Wachtell, Lipton, Rosen & Katz, specializing in mergers and acquisitions and matters affecting corporate policy and strategy. This post is based on a Wachtell Lipton memorandum by Mr. Lipton, Adam O. Emmerich, Kevin S. Schwartz, Sabastian V. Niles, Carmen X. W. Lu, and Anna M. D’Ginto. Related research from the Program on Corporate Governance includes The Illusory Promise of Stakeholder Governance (discussed on the Forum here) by Lucian A. Bebchuk and Roberto Tallarita; For Whom Corporate Leaders Bargain (discussed on the Forum here) and Stakeholder Capitalism in the Time of COVID (discussed on the Forum here) both by Lucian Bebchuk, Kobi Kastiel, and Roberto Tallarita: and Restoration: The Role Stakeholder Governance Must Play in Recreating a Fair and Sustainable American Economy—A Reply to Professor Rock (discussed on the Forum here) by Leo E. Strine, Jr.
We previously described (most recently here, here, and here) the growing politicization of the consideration of environmental, social, and governance (ESG) factors in decision-making by asset managers, financial institutions and public companies, among others. In particular, a key target of political attention has been investment managers’ and pension fund fiduciaries’ consideration of ESG factors in their investment-related decisions. A prime example is a recent paper arguing that public pension trustees are prohibited by law from considering ESG factors in their investment decisions (or allocating capital to asset managers who engage in such practices) and, separately, that registered investment advisers may place client capital in investments promoting ESG objectives only after obtaining informed, express client consent. Notably, the paper defines ESG as a set of “loosely-defined but highly influential non-pecuniary criteria that purport to assess the extent to which companies are achieving certain social and political objectives with which many citizens disagree.” This critique, which regards ESG as a matter of ideology rather than economics, has also found voice among conservative state treasurers and attorneys general and among certain presidential aspirants who are building anti-“woke” campaigns targeting ESG.