Can a Business Be Too Green for a Red State? The Politicization of Sustainability

As “ESG” has become politically charged, companies face competing pressures: comply with expanding environmental requirements in some jurisdictions, avoid legal exposure associated with collective sustainability initiatives, and continue managing physical and operational risks that exist regardless of politics. Understanding how the term rose — and why it became contested — can help businesses separate those questions.

How Three Letters Took Over the Corporate World

ESG stands for environmental, social, and governance. But the history of the term is more interesting than the acronym suggests.

Its modern origins are commonly traced to the 2004 Who Cares Wins report. That report grew from an initiative in which United Nations Secretary General Kofi Annan invited major financial institutions to develop recommendations for integrating environmental, social, and corporate governance considerations into financial analysis and decision making. Twenty financial institutions from nine countries, representing more than $6 trillion in assets under management, participated.

ESG thus began in a financial context, focused significantly on incorporating ESG considerations into investment analysis. Only later did it become a broader synonym for corporate virtue. But what exactly counted as ESG, and what ESG was supposed to accomplish, remained unsettled. Professor Elizabeth Pollman traces that history in The Making and Meaning of ESG, describing a term whose usages have ranged from factors incorporated into investment analysis and risk management to broader ideas about corporate social responsibility, sustainability and, eventually, political or ideological preferences.

That flexibility helped ESG travel, but it also blurred important distinctions. Assessing environmental risks, making a public commitment, complying with an emissions rule, and joining competitors in an industry initiative are different activities with different objectives and legal consequences. Once all were placed under the ESG umbrella, opposition to one could readily spill over into opposition to the others. Eventually, the acronym became the argument.

When Sustainability Becomes Political

That fight now carries legal consequences. Some states have restricted the consideration of ESG factors in public investment, contracting, and financial activities, while others have encouraged or required climate-related consideration or disclosure.

The same divide appears in extended producer responsibility laws, which increasingly shift end-of-life responsibility for packaging and other products from governments and consumers to producers. California’s packaging law, for example, requires covered producers to participate in a system designed to fund waste management, improve recyclability, and reduce certain single-use plastic packaging. Whatever the label — ESG, circularity, product stewardship, or compliance — the law can affect packaging design, data collection, supplier relationships, and cost.

Voluntary collaboration on the same subjects, however, can raise different legal questions — including under antitrust law.

In February, a coalition of 10-state attorneys general led by Florida sent warning letters to nearly 80 businesses associated with the U.S. Plastics Pact, Consumer Goods Forum, and Sustainable Packaging Coalition, characterizing aspects of the organizations’ initiatives as potentially anticompetitive collective action. The letters also raised consumer-protection concerns. No court has determined that participation in those organizations violates antitrust law.

Other matters show the breadth of the issue. In August 2025, the Federal Trade Commission (FTC) closed an investigation into four heavy-truck manufacturers and their trade association over the Clean Truck Partnership with the California Air Resources Board after receiving written commitments concerning independent conduct and future agreements. FTC Chairman Andrew Ferguson stated that “there is no ESG exemption from the antitrust laws.”

State attorneys general also sued BlackRock, Vanguard, and State Street, alleging that the asset managers used their holdings and climate-related commitments to pressure coal producers to constrain output. A federal court permitted most of those claims to survive dismissal in August 2025. That procedural ruling did not determine that the defendants violated antitrust law. Vanguard later settled the claims against it without admitting wrongdoing; BlackRock and State Street continue to dispute the allegations.

Antitrust theories have appeared on the other side of environmental debates too. In January, Michigan Attorney General Dana Nessel sued major oil companies and the American Petroleum Institute, alleging a conspiracy to impede competition from renewable energy. A federal court dismissed that case in September, principally because Michigan had not adequately connected the alleged conduct to the antitrust injury for which it sought relief. The court did not determine whether the alleged conspiracy actually occurred.

Together, these matters suggest something broader than a single anti-ESG campaign: antitrust has become another legal framework through which government officials on different sides of environmental debates may challenge coordinated industry conduct. 

That creates an important distinction for businesses. Calling an initiative “sustainable” does not immunize an agreement that restricts competition. But calling voluntary industry action “collective” does not by itself establish unlawful collusion either. Section 1 of the Sherman Act requires both concerted action and an unreasonable restraint of trade, and questions such as participant independence, competitive effects, exclusion, and exchanges of competitively sensitive information can matter significantly. Companies should distinguish the environmental objective from the legal mechanism chosen to pursue it. (For more, see our discussion of sustainability collaborations and antitrust risk.)

Do Not Let Politics Drive Risk Management

There is another danger, however: over-correction. Companies reconsidering collective sustainability commitments should not become reluctant to examine environmental conditions affecting their own operations.

There is nothing inherently partisan about asking whether flooding could interrupt production, extreme heat could impair operations, water will remain available for an industrial process, or severe weather could disrupt a critical supplier. Those are questions about facilities, supply chains, insurance, business continuity, and money — not political identity. (For more, see our discussion of operational resilience.)

A company contemplating a long-lived investment should use the best reasonably available information about conditions that could affect it. Reliable evidence of flood exposure, water constraints, or extreme heat matters because it can affect equipment, production, workers, and electrical reliability — not because considering it implies a position in the climate debate.

Marsh’s 2026 Climate Adaptation Survey, covering more than 120 organizations across eight regions, found that 60% of respondents were confronting multiple perils, with flooding, extreme heat, and water stress identified as the leading risks. Only 57% of respondents were conducting forward-looking assessments. Among those conducting assessments, 77% incorporated quantitative methods.

Companies routinely model uncertain futures, forecasting demand, commodity prices, interest rates, electricity costs, and regulatory developments. Management evaluates the quality of the information, potential consequences, and mitigation costs. Physical risks should not be treated differently merely because some relevant information is associated with climate. The goal is not to make a political statement, but to avoid bad investments caused by disregarding relevant information.

Dropping ‘ESG’ Does Not Eliminate the Questions

One obvious response to ESG’s politicization is to change the vocabulary. Companies can retire the acronym, reconsider participation in collective initiatives, or describe individual business considerations in less politically charged terms. An industry-wide commitment involving competitors presents different legal questions from a company’s independent decision to protect a facility against flooding.

Changing the label does not eliminate the underlying questions. Manufacturers still must make energy decisions; companies must understand supply-chain vulnerabilities, assess environmental liabilities, comply with environmental laws, respond to customers, and evaluate physical risks. Nor does new terminology alter disclosure obligations. California illustrates the point: SB 253 requires covered companies doing business in the state to report greenhouse-gas emissions, while SB 261 addresses climate-related financial-risk reporting, although its enforcement is presently enjoined. (For more, see our California reporting update.) Companies subject to applicable reporting regimes must still prepare and any environmental claims they make must remain accurate and substantiated. A company can stop calling these questions ESG; it cannot stop answering them.

Unpacking ESG

Three questions may help unpack sustainability-related decisions.

What must we do? Start with applicable law. Environmental permits, emissions limits, producer-responsibility requirements, disclosure obligations, and government-contracting conditions bind regardless of label. The question is what the law requires, not what political rhetoric suggests companies should do.

What may we do? Then consider the legal constraints on voluntary activity. Depending on the conduct, antitrust, securities, consumer-protection, contracting, or fiduciary rules may matter. Structure matters. A company’s unilateral investment decision presents different legal questions from an agreement among competitors concerning output, purchasing, or other dimensions of competition.

What serves the company’s objectives? Finally, separate legal requirements from business judgment. Test the decision using ordinary business criteria: expected return, cost, operational resilience, resource availability, stakeholder expectations, supply-chain exposure, reputational consequences, and legal durability. Ethical-sourcing, emissions-reduction, and other commitments may also reflect legitimate corporate values even when their benefits are difficult to quantify.

None of that means every sustainability initiative is appropriate for every company. Businesses should understand the objectives a significant commitment serves, identify the stakeholders it affects, and test it for legal, operational, and reputational durability. Can the company explain and substantiate the decision? Does it preserve independent business judgment? Will it remain workable if regulation, markets, or political conditions change? Most simply, would the company still understand and defend the decision if, five years from now, nobody calls it ESG? (For more, see our discussion of durable decision making.)

Sustainability Is Green, Not Red or Blue

There is an irony in ESG’s ebbs and flows as a label. The acronym succeeded in part because it could accommodate an extraordinary range of objectives. That same breadth made it difficult to say precisely what ESG meant and increasingly easy to imbue it with political significance.

But the underlying business issues did not arrive with the acronym, and they will not disappear with it. Companies will still consume energy and water. They will still build facilities and manage supply chains. They will still operate in communities. They will still face environmental liabilities, physical risks, customer demands, and changing regulations.

The answer to politicization is to separate the questions bundled under ESG and evaluate each on its merits. Durable sustainability is neither red nor blue. It is a decision the company can defend and substantiate in familiar terms: law, cost, risk, resilience, stakeholder expectations, and long-term value.