What is the backlash of ESG funds? (2024)

What is the backlash of ESG funds?

It comes at a time when environmentally conscious investments have become a politically polarized issue in the Western world, particularly in the United States. Republican lawmakers have decried ESG as a form of "woke capitalism" that seeks to prioritize liberal goals over investment returns.

Why is there a backlash against ESG?

With accusations of “greenhushing,” “greenwashing,” and “woke capitalism,” the three letters “ESG” have become synonymous with backlash. The rhetoric is simple if one wishes to undermine economic decisions that encourage ethical behavior as a primary concern.

What are the major ESG controversies?

In 2023, governance issues, particularly tax evasion and bribery, significantly impacted the ESG landscape, challenging corporate integrity and highlighting the importance of strong ethical standards.

What is the negative impact of ESG on companies?

The researchers' findings indicate that when companies focus on nonmaterial ESG factors in their quarterly financial updates, investors interpret it as a negative sign, signaling potential issues like higher costs, inefficient resource use, and distracted management.

Why are companies moving away from ESG?

Hartzmark says companies will still pay attention to the environment, social and governance issues but maybe call it something else or focus on one category more than another. Many firms have been under pressure from Republicans to back away from ESG goals, especially on climate issues.

Why not to invest in ESG funds?

The very popularity of ESG makes it unlikely that the market is underappreciating the risks. The rush of money into firms like Vestas, whose stock hit a price-to-earnings ratio of 534 in 2022, illustrates the risk that shares with high sustainability scores can get too expensive, leading to lower returns.

Why are people against ESG investing?

Critics of ESG — such as a group of Republican states that banned Blackrock and other “ESG friendly” asset managers from their state pension plans — argue that considering environmental and social factors violates the fiduciary duty that asset managers have towards their clients.

Who is pushing ESG investing?

Larry Fink is caught in the middle of the heated climate change debate. The CEO of BlackRock, the world's largest asset manager, has become a lightning rod for criticism from conservatives due to his push for environmental, social, and corporate governance (ESG) investing over the past few years.

Who is behind ESG?

The term ESG first came to prominence in a 2004 report titled "Who Cares Wins", which was a joint initiative of financial institutions at the invitation of the United Nations (UN).

What is the criticism about ESG?

It's overcomplicated and too difficult to achieve

For some organisations (and investment strategies), the biggest priorities that require the most attention will differ, and ESG measures that benefit one area, e.g. society, could potentially have a negative impact on another.

What is the Johnson and Johnson ESG scandal?

Examples of ESG scandals. Johnson and Johnson failed to disclose Neutrogena and Aveeno sunscreens contain the carcinogen benzene, a cancer-causing chemical (Downs et al., 2021).

Do ESG funds perform poorly?

Yet Performance Was a Drag. Investors yanked a record $13 billion from U.S. sustainable funds in 2023, stung by mediocre performance and the continuing backlash against environmental, social, and governance investing.

Which industry is most affected by ESG?

Manufacturing is one of the industries with the greatest impact on the environment, society, and governance. Significant ESG concerns threaten its long-term viability and competitiveness.

What investment company does not use ESG?

For example, the largest anti-ESG ETF, Strive U.S. Energy ETF (DRLL), has similar holdings as a typical energy sector ETF, but its differentiating factor is that the fund has an anti-ESG proxy-voting policy, which means it votes against ESG proposals at shareholder meetings.

Is ESG on the way out?

Data collected as recently as October 2023 confirms that ESG is not going anywhere. While some companies are softly retreating to terminology like “corporate responsibility” or “sustainability,” the substance that makes up the components of their ESG programs and goals is sticking because stakeholders demand it.

Why is ESG an issue?

ESG issues in business (in a nutshell)

It includes concerns like resource usage, waste handling, carbon emissions, and efforts to combat climate change. Regarding financial materiality, companies need to identify which environmental risks impact the conduct of their business.

What is the real purpose of ESG?

Environmental, social, and governance (ESG) investing is used to screen investments based on corporate policies and to encourage companies to act responsibly. Many brokerage firms offer investment products that employ ESG principles.

Do investors really care about ESG?

Investors increasingly believe companies that perform well on ESG are less risky, better positioned for the long term and better prepared for uncertainty. Companies that realign to the stakeholder capitalism agenda may have a competitive advantage over those that try to return to business as usual.

Is ESG in decline?

As ESG flow momentum declines globally, regions like Europe and Australia have still been able to maintain positive numbers. In Australia, over $760 million flowed into ESG ETFs in 2023. However, other nations, including the US, have been shunning ESG ETFs, leading to billions of dollars in net outflows in 2023.

What is the Republican stance on ESG?

Republican politicians have criticized ESG because they say they consider it an effort to use financial tools for the purpose of advancing liberal political goals.

Does ESG include LGBTQ?

ESG initiatives. And as they do, Out Leadership is here to help them realize even stronger profits by explicitly including LGBTQ+ equality initiatives in ESG strategies.

Is ESG greenwashing?

In its basic form, greenwashing uses manipulation and misinformation to garner consumer confidence around a company's environmental, social or governance (ESG) claims.

Does Biden support ESG?

President Biden used his very first veto to squash a bipartisan resolution that would effectively ban using environmental, social and governance (ESG) guidelines when investing retirement funds. He knew overriding both houses of Congress on the issue was unpopular, so he lied about it.

Is BlackRock an ESG company?

“BlackRock has been the biggest contributor of inflows into ESG funds over the past five years, including the past couple of years,” said Hortense Bioy, Morningstar's global director of sustainability research. And that's “despite the ESG backlash in the US.”

Is Vanguard doing ESG?

Every product Vanguard offers, including our ESG investments, must meet our rigorous standards and align with our time-tested investment philosophy. We currently offer seven ESG products: four exclusionary index funds and three active funds.