Dive Brief:
- Roughly half of investors (48%) oppose the use of environmental, social and governance criteria in the selection of retirement fund investments, Gallup said Monday, as U.S. companies by some accounts face a record level of ESG-focused investor activism.
- Approximately 41% of investors believe asset managers should consider sustainability in decision-making, Gallup said, noting a partisan split between the opponents and supporters of such an approach. Sixty-four percent of Republicans believe fund managers should only consider financial factors when choosing investments, while 59% of Democrats believe they should include ESG.
- Current “public opinion reflects little of this political battle, with most Republicans and Democrats largely unfamiliar with ESG,” Gallup said.
Dive Insight:
By one measure CFOs and their C-suite colleagues in 2023 face more pressure than ever to improve their ESG performance. Proponents for change on sustainability filed 542 shareholder resolutions, many of which were slated to be brought up for a vote during the height of the proxy season from mid-April until mid-June, according to Proxy Preview 2023.
At the same time, a backlash against ESG has helped slow investment in sustainable funds in the U.S. and worldwide, pushing down net new capital inflows during the first quarter to $29 billion from $38 billion during the fourth quarter of 2022, according to Morningstar.
In the U.S., sustainable funds during the first quarter faced their third quarter of outflows in a year, Morningstar said.
Also, officials in conservative states have directed capital away from asset management firms that promote sustainable investing. Florida, Oklahoma, Texas, West Virginia and several other GOP-controlled states have said some asset managers are pushing an ESG agenda at the expense of investor returns.
State officials say ESG principles are not relevant to investment decisions and have barred BlackRock and other asset managers that use ESG benchmarks from handling state pension funds.
“We are concerned that taxpayers’ best long-term economic interests might have become subordinated to environmental, social and political interests often divorced from shareholder value — and often pushed through shareholder proposals,” 18 state CFOs said in May 15 letters to several asset managers.
The sharpest criticism of corporate efforts at sustainability often originates from the states.
“When it comes to ESG in the United States, among the most dramatic developments is an ideological battle unfolding at the state level, pitting liberal-leaning state governments that have embraced ESG-focused investing against conservative-led states that would seek to exclude it,” according to attorneys at Simpson Thacher & Bartlett writing in the Harvard Law School Forum on Corporate Governance.
“States are moving in opposite directions, while ESG is also becoming a political fight at the federal level,” they said. “This puts companies and investment managers in the difficult position of navigating business and politics while seeking to protect their interests and investments.”
The controversy over ESG goals in business and investment has yet to flare at the grass roots, Gallup found in its April 3-25 survey of 1,013 adults in all 50 states.
“At least for now, the issue does not seem highly politicized among the American public,” Gallup said.
