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What Advice Might Bob Dylan Give Today's Institutional Investors?
American folk-rock singer-songwriter Bob Dylan performing at BBC TV Centre, London, 1st June 1965. ... More (Photo by Val Wilmer/Redferns)
Iconic American musician and Nobel Laureate in Literature Bob Dylan's words from 1964 apply to today's markets: 'the times they are a-changin.' As political misalignment in the United States emerges as a material investment risk, investors and companies are increasingly risking their long-term sustainability by downplaying it. Let's examine the hidden cost of downplaying sustainability and why many are underestimating Times Are A-Changin, and Investors Must Change With Them
What matters to investors changes over time. This concept of dynamic materiality, first demonstrated by TrueValue Labs (now part of FactSet), can be seen in both cyclical trends and acute shifts. For example, during expansions, when there are tighter labor markets, strong employee relations reduce new issue bond yields, perhaps because strong employee relations help with recruiting and retaining top talent. There is also no relationship between corporate social responsibility (CSR) activities as a proxy for social capital and bond spreads. By contrast, during recessions, employee relations scores are insignificant, and high-CSR firms are able to raise more debt at lower spreads, better credit ratings, and longer maturities. These effects are stronger for firms with higher expected costs of debt.
In addition to these cyclical trends, there are also acute shifts in materiality, caused by exogenous shocks like COVID-19, which increased the materiality of the following COVID-19 related social issues between January and June 2020: access and affordability, customer privacy, data security, employee health and safety, labor practices, product quality and safety.
Today's acute shift in materiality is caused by rapid legal and regulatory change. As of June 22, 2025, President Trump signed 165 executive orders so far this year—the most in a first year of office since President Franklin D. Roosevelt signed 568 executive orders in 1933. The 83 anti-DEI and 56 anti-ESG (ex-DEI) lawsuits only amplify the abrupt legal and regulatory Emergence of Political Misalignment as a Material Risk. Since 2023, anti-DEI and anti-ESG lawsuits have generated hundreds of millions of dollars in legal and settlement costs. This tangible cost is in addition to the intangible cost of management distraction during lawsuits. As a result, political misalignment in the United States is emerging as a material investment risk, and investors and companies are adjusting their public-facing language to minimize the perception of misalignment.
Since adjusting language is easier than reversing initiatives or changing values, many investors and companies are more sustainable than their disclosure suggests. This phenomenon is so new that green-hushing, red-washing, and MAGA-washing are all contenders to describe it with no clear frontrunner. Sustainable investing legal expert and New York University Professor Deborah Burand is one of the first academics to research the harm this creates.
Pinocchio with leaf.
The Case Against Greenwashing Applies to the Case Against Green-Hushing. The sustainable finance industry long advocated against greenwashing (overstating the environmental benefits of an investment or company) and its analogs. This makes sense: transparency and disclosure are material to investing. And the Biden Administration rightly pursued enforcement actions against investors and companies for false and misleading claims, vague language, or failing to disclose material information about negative social or environmental impacts.
Admit That the Waters Around You Have Grown
CLARKSVILLE, TENNESSEE - FEBRUARY 16: In this handout provided by the Clarksville Fire Rescue, ... More Clarksville Fire Rescue members perform water rescues to evacuate trapped people during flooding on February 16, 2025 in Clarksville, Tennessee. Severe winter storms brought torrential rains causing intense flooding in Tennessee and parts of Florida and Georgia. (Photo by Clarksville Fire Rescue via Getty Images)
Sustainable investors and companies must strike a fine balance. Organizations can mitigate the risk of legal and regulatory challenges from the Trump administration and its supporters—with their headlines, legal expenses, and management distraction—by green-hushing. Avoiding scrutiny may feel safer in this environment. At the same time, this green-hushing can obscure accountability, disperse management and board focus, prevent sharing best practices and lessons learned, and diminish the ability of other organizations to be transparent about their values.
Research from Arshia Farzamfar, Pouyan Foroughi, Lilian Ng, and Linyang Yu shows that firms pressured to improve environmental performance do so at the expense of social status, committing more compliance violations related to employment, healthcare, workplace safety, and consumer protection. It is too early for peer-reviewed research linking pressure to reduce political misalignment with committing more violations of fiduciary duty or duty to the mission. Particularly for investors and companies where sustainability drives long-term value creation or aligns with the mission or stakeholder values, this remains a space to watch.
Downplaying sustainability can also diminish trust with employees, investors, and other clients who struggle to understand how investors and companies who publicly touted their commitment to sustainability in 2021, 2022, and even 2023 can reverse course so quickly. For example, at least twelve lawyers resigned from law firms that made deals with the Trump administration; Danish pension fund Akademiker terminated an over $400 million 20-year relationship with State Street due to sustainability concerns; and several companies faced boycotts after rolling back diversity, equity, and inclusion (DEI) initiatives. Losing talent, assets, and revenues can slow long-term value creation.
These harms extend beyond the organizations choosing to downplay sustainability. Law firms settling with the Trump administration weakened fundamental protections. And when the Gates Foundation extricated itself from the fire by pivoting a scholarship originally for racial and ethnic minorities to Pell Grants (which are based on income and primarily benefit minorities), it became more difficult for other investors and companies to pursue Alternative: Building Resilience And Building Communities
A long line of concrete blocks stretches across the sandy beach, creating a visible boundary on the ... More shore.
Before deciding to downplay their sustainability, investors and companies may instead consider how to build the resilience to withstand the legal and regulatory risks of preserving their narrative on sustainability. They may wish to form communities of practice to share best practices and lessons learned with similar institutions. Or they simply may wish to dedicate more time to comparing notes with peers one-on-one.
Perhaps it's time for these investors and companies to take inspiration from Bob Dylan and 'admit that the waters…have grown…and start swimmin.'
