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Nov 04, 2022

US retail investors buck ESG backlash trend

Anti-ESG sentiments not deterring retail investors and asset managers from committing to ethical investments

Considerations around ESG practices and integration when choosing investment funds have been the subject of hot debate, particularly in the US political environment.

Republicans have been getting media attention for ramping up their criticism of ESG investing and for threatening to investigate Wall Street’s climate views if they take back power in the upcoming US mid-term elections, while Democrats heavily back ESG principles as a substantial part of investment decisions.

midterm electionsBut as mid-term elections loom, new research from Cerulli Associates finds that almost half of US retail investors surveyed prefer to invest in companies committed to having a positive impact on the environment and society.

The report also reveals that preference for ESG investing among retail investors inversely correlates with age, remaining higher among those under 40 years old (75 percent) and decreasing among those aged 40-49 (61 percent).

The data shows that when engaging with investors, 77 percent of financial advisers do not discuss ESG investing with clients, instead waiting for them to inquire about ESG practices first.

Among advisers’ reasons for this are that the benefits of focusing on sustainability have not been proven (44 percent) or they do not believe in ESG investing (41 percent). Two thirds of advisers also call for standardization around ESG rules, and 60 percent believe ESG boundaries are not clear.

Addressing the push for new rule-making in different jurisdictions at the IR Magazine Think Tank – West Coast II, Katie Schmitz Eulitt, director of investor relationships at the IFRS, said: ‘There is tremendous momentum across markets for regulatory policymaking activity.

‘It’s really important that just as these voluntary standards and frameworks are coalescing, rationalizing and simmering down into fewer letters in the alphabet soup, we try to avoid regulatory fragmentation.’

Asset managers’ persistence

Beyond retail investors, Cerulli Associates’ research suggests that the anti-ESG movement and political pressures have not hit asset managers and owners, who continue to intend committing to responsible investing plans.

investors In fact, 96 percent of asset managers have or plan to have an ESG integration approach and are using ESG-related data when evaluating investment, to manage risks and identify opportunities. More than 80 percent of asset managers consider climate change a top priority for new product development, and 71 percent address it as a top theme when allocating to responsible investment strategies.

But the report also points out that 75 percent of asset managers have reported challenges due to an increasing number of clients believing ESG is a ‘politically motivated’ movement. Even institutional investors struggle with the perception that ESG is a politically motivated practice, with 62 percent of them considering it at least a moderate challenge to tackle.

‘Cerulli believes asset managers need to discuss the merits of ESG and sustainable investing with their clients and reinforce how and why they are using relevant ESG data to drive long-term economic value,’ says the firm in a statement. ‘Transparency and reporting that validates how ESG information is additive will also be key.’