ESG backlash fails to deter investors, research finds

The anti-ESG movement has failed in its bid to push asset managers away from responsible investment goals, according to new research.  

None of the asset managers polled for a Cerulli survey say they are moving away from a responsible investing remit. Equally, no participants surveyed plan to stop incorporating ESG considerations into their own investment decisions or expect to stop offering ESG/sustainable investment products.  

They are, however, taking a more careful approach, finds Cerulli in its new report titled US environmental, social and governance investing 2023: Regulation and legislation.  

Three in 10 asset managers say they will be more cautious in their messaging around ESG activities, filtering through their websites, marketing materials, prospectuses and other formal investment documents.   

In the first half of 2023, 156 bills targeting ESG investing or contracting were introduced in 37 states and the US Congress, according to research from Plural. There has also been a growing number of anti-ESG shareholder proposals filed at US companies in the last two years, although on average they have attracted low levels of support.

TIME-CONSUMING AND COSTLY 

When it comes to institutional investors, a small proportion (4 percent) say they will no longer invest in ESG, sustainable and/or impact investment products and funds, and 3 percent say they will stop incorporating ESG considerations into their investment decisions.  

These decisions are not solely driven by the anti-ESG movement, though dealing with that backlash is pointed to as a key factor. Top reasons cited by institutional investors are that they no longer believe in the merits of ESG and that responding to the anti-ESG backlash is time-consuming and costly.  

Almost two thirds (73 percent) of respondents to the survey are having discussions with clients around ESG misconceptions, while more than half (57 percent) are creating specific communication pieces to address such misconceptions.  

RISK-RETURN ANALYSIS  

‘The political backlash and negative press have left some institutional investors skeptical about the merits of ESG,’ Michele Giuditta, Cerulli director, says in a press statement, adding that ‘anti-ESG bills are often based on the assumption that asset managers are sacrificing investment returns to address non-financial considerations.’ 

Giuditta advises institutional investors and asset managers to talk about the specific, financial benefits an ESG focus can bring. ‘Being explicit about how relevant ESG data helps investors better evaluate the risk/return profile of investments to drive long-term economic value should help managers keep ahead of the negative repercussions,’ she says.