01 Mar 2023

US Investment Giants Warn Against Negative Effects of ESG Backlash

Sustainable investing has gained significant momentum in recent years as environmental, social, and governance (ESG) principles rose to the top of the corporate agenda.  However, there has recently been growing backlash to ESG investing from multiple stakeholders, including politicians and industries, particularly in the US.  This anti-ESG sentiment has become a significant performance risk for many investment firms on Wall Street.

Heavyweights, such as BlackRock, Blackstone, KKR, and T Rowe Price, have cautioned in their annual reports that divergent views on ESG investing could hurt their financial performance.  These warnings follow pressure caused by an accelerated campaign supported by top-ranking Republican politicians, leading to investigations into BlackRock and State Street over their shareholder voting policies.

State legislators are also introducing legislation calling for government pension funds to cut ties with investment firms that consider climate or racial equity concerns in their portfolio management.  This has further fueled the fight against ESG, which is now moving to the federal level, as Republicans seek to stop the Biden administration from allowing retirement plans to consider ESG standards.

The backlash concerns asset managers and banks in the US, who have enjoyed increased interest in sustainable investment for several years.  These companies are now cautioning about failing to meet the demand for ESG-friendly products due to the anti-ESG backlash.

The sentiment against ESG in the US is a setback for sustainable investing, at least at this juncture, and its effects are likely to trickle down into the global financial markets.  However, globally, investors and companies increasingly recognize the importance of ESG principles in creating long-term value.  The demand for sustainable investment products is following suit.  In the long term, this trend will likely continue, despite the current changing climate in the US.