Advocates of ESG investing haven't had everything their own way in recent months. Falling markets jolted a number of states in the US to take legal action over mandates that they say harm returns. This study examines how seriously firms regard the situation and what they intend to do about it.

The majority (61 per cent) of US companies surveyed by the Conference Board – a nonprofit think tank and business membership organization – expect a “backlash” against ESG to continue or increase over the next two years.

To handle the disquiet, and downright hostility, to parts of the ESG agenda, the report recommends that corporate boards and management view the backlash as an opportunity to clarify their ESG strategy and communications.

Of the firms affected by pushback against ESG, only 11 per cent are changing the substance of their ESG programs, while most are focusing on the link between ESG and core business strategy. And nearly half are changing terminology to use terms such as "sustainability."

The report is a sign of how the seemingly inexorable rise of environmental, social and governance-themed investing, with its focus on divesting from fossil fuels, for example, has become politically-sensitive. In 2022, investors pulled more money from funds marketed as "sustainable" than they added for the first time in more than a decade. ESG approaches were hit by fallout from the Ukraine war and falling financial markets.

In May, a group of Republican-led US states asked a federal judge in Texas to strike down a Biden administration rule allowing socially-conscious investing by retirement plans, saying it would imperil retirement savings. The legal fight has added to debate over whether ESG investment detracts from returns or boosts them.

"ESG backlash is an umbrella term that encompasses a range of positions from healthy skepticism to philosophical opposition to various forms of opportunism," Paul Washington, executive director of The Conference Board ESG Center, said. "While backlash is often fueled by people's emotions, companies should respond objectively. The most effective response is to ensure the company's ESG positions align with company's core business strategy, are supported by empirical data, and serve the long-term welfare of the company, its stakeholders, and society."

In other findings, the Conference Board report said that 43 per cent of those surveyed expect the level of ESG backlash two years from now to be greater, while 18 per cent expect it to remain about the same. Some 55 per cent of companies are concerned about ESG backlash from federal and state officials and candidates over the next two years.

Elsewhere, the report said that 34 per cent of companies are concerned about backlash from the media, 27 per cent from employees, 21 per cent from institutional investors, 21 per cent from business partners, and 17 per cent from consumers over the next two years.

The report said that more than a quarter (27 per cent) of companies have responded to the backlash by reducing their level of external communication. Only a minority of companies have directly engaged with policymakers, media, employees, or others who oppose their ESG positions.