Earnings Calls Include Fewer ESG Mentions, but Talk of AI Is Rising

Touting corporate ESG bona fides used to be the “in” thing during earnings calls. But following powerful backlash from Republican politicians, mentions of companies’ environmental, social and governance efforts has dwindled.

What’s the new favorite? Artificial intelligence.

That was the conclusion from FactSet Research Systems Inc., drawn from scanned transcripts of the earnings calls of all S&P 500 corporations that conducted them from March 15 through June 9. ESG mentions peaked in 2021’s fourth quarter, at 156, and have dwindled through four of the past five quarters, per FactSet. In calls for the just-completed Q1 2023, the count dipped to 74, its lowest level since Q2 2020 (57), which was before trumpeting ESG gained popularity—and before the GOP in red-led states cracked down on it.

Artificial intelligence has been a staple of mainly tech-company calls for years. That has accelerated with advances in the area, according to FactSet. For S&P 500 companies in earnings calls going back to 2010, AI mentions hit a record in Q1 2023, totaling 110. The previous record was 78, in the prior quarter. That tally far eclipses the five-year average of 57 and the 10-year average of 34.

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AI does not face the political problems ESG does. ESG principles are under fire in GOP-controlled states (where the party runs the legislature and holds the governor’s office), and companies have found that proclaiming dedication to climate control is a liability.

In May, Florida’s Republican governor, Ron DeSantis, who is running for president, signed a bill that forbids ESG factors in the state’s investment decisions. He reasons that an ESG focus, particularly on environmental issues, comes at the expense of managements’ fiduciary duties, as that focus could slight money-making opportunities in favor of green ideology.

It is a common notion among Republican politicians, as seen by 25 states joining in a January suit, Utah v. Walsh, against the Department of Labor’s new rule permitting ESG analysis in retirement plans. Many Democrats strongly disagree. Senate Majority Leader Chuck Schumer, D-New York, for instance, has defended the DOL rule, saying, “It’s about looking at the biggest picture possible for investors to minimize risk and maximize returns.”

Although there is scant evidence that companies are reversing their ESG efforts, the downshift on mentioning the concept at annual shareholder meetings is noticeable. The reticence is known as “green hushing,” which the Corporate Governance Institute defines as “steps to stay quiet about … climate strategies.” A report on the subject by the organization added: “If somebody asks about their climate goals, they decline to answer. If nobody asks, they don’t do anything.”

The iShares Global Clean Energy exchange-traded fund is down 5.2% this year, while the S&P 500 is up 13.8%.

Investments in AI, on the other hand, have not upset anybody (although controversy bubbles about the possibility of AI applications endangering humanity). The Wall Street consensus is that will turbocharge the economy and stocks. Small wonder that more and more earnings calls feature mentions of AI. The Global X Robotics & Artificial Intelligence ETF is ahead 42.6% in 2023.