Amid ESG backlash, responsible investors are holding on to their commitments

New research from Cerulli Associates reveals that despite increasing political pressures, many institutional investors and asset managers in the US remain committed to responsible investing, though some are adjusting their approach to avoid political scrutiny.

The study, US Responsible Investing 2024, highlights how political backlash against environmental, social, and governance considerations has influenced industry behavior.

The report shows that while some institutional investors are reconsidering their stance on ESG, most are standing firm. About one in 10 asset owners have scaled back their integration of ESG factors due to the heated political climate. One-third of institutions (34 percent) were motivated by concerns about the cost and time involved in responding to political pushback, while others acted out of fear of litigation (24 percent) and stakeholder pressure (14 percent).

In contrast, asset managers remain largely undeterred. Not one of those surveyed indicated they were giving up on responsible investing altogether, although 42 percent expressed caution about how they communicate their ESG-related activities, and another 4 percent said they would no longer offer specific responsible investment products.

Michele Giuditta, director at Cerulli, acknowledged that political opposition is influencing some decisions, but the data doesn't support the idea of any fundamental weakening in large investors' RI commitments.

“Despite headwinds from political opponents, commitment to responsible investing remains solid,” she said in a statement Thursday.

Giuditta said just over a third (35 percent) of asset managers expect the anti-ESG movement to have a moderate impact on their assets under management. Still, many are incorporating ESG factors into their investment strategies, including 81 percent who use the data for risk mitigation, 63 percent who believe it's part of their fiduciary duty, and 54 percent who cite enhanced returns.

Among institutional investors continuing with ESG practices, many are adapting by watching their language; all in all, 20 percent of asset managers and asset owners Cerulli surveyed admitted that they've stopped using the ESG acronym. Rather than using the acronym, 50 percent of those institutional investors now prefer the term “sustainable investing,” while others are going with “responsible investing” (33 percent) or “stewardship” (20 percent).

Looking ahead, Cerulli advises asset managers to emphasize the role of ESG data in managing risk and enhancing value. That will be critical if the industry wants to fight a continuing hesitance to embrace ESG within the retail space: by Cerulli's count, two-thirds of advisors (65 percent) are not engaging in ESG or sustainable investing discussions with clients, including 63 percent who say there's a lack of investor demand and 57 percent saying ESG is seen as a political agenda.

“Investment professionals should elaborate on how they are identifying those organizations with sustainable business practices,” Giuditta emphasized.