Asset managers tune out anti-ESG noise

Asset managers are tuning out political opposition to ESG when it comes to selecting investments but are being more careful in how they talk about ESG, according to a report from Cerulli Associates.

Political pressure related to the use of environmental, social and governance factors in investing has been mounting. Capitol Hill Republicans have blasted ESG proposals from the Securities and Exchange Commission, and Republicans in several states have advanced legislation and regulations to curb the use of ESG by public pension funds.

Opponents assert that an ESG orientation places environmental and social policy goals ahead of investment returns. Supporters counter that a focus on ESG can increase returns and that ESG has a material impact on business performance.

Even though political controversy is swirling, asset managers are maintaining a commitment to ESG, according to the new Cerulli report.

“No participants surveyed plan to stop incorporating ESG considerations into investment decisions or expect to stop offering ESG/sustainable investment products,” Cerulli said in a statement. “Yet, nearly one-third (30%) of asset managers will be more cautious about messaging around ESG-related activities through websites, marketing materials, prospectuses and other formal investment documents.”

The Cerulli findings echoed what US SIF: the Sustainable Investment Forum has heard from its members.

“Asset managers understand that considering ESG factors helps them make better investment decisions,” said Bryan McGannon, managing director at U.S. SIF. “Politically motivated ESG attacks don’t change these underlying factors.”

Investor demand for the “E” — environment — in ESG appears to have been sustained despite political controversies.

“Energy transition and environmental investing are not slowing down,” said Michael Cerasoli, portfolio manager for True Shares Eagle Global Renewable Energy Income ETF. “It’s about impact investing. People want their money to impact the world in a positive way and also make [returns].”

With major storms wracking parts of the United States on a regular basis, climate issues can have a direct effect on business operations and also catalyze interest in sustainability among grassroots investors, said Jim Ross, co-head of equities and market structure at GIX, the Green Impact Exchange.

“At the end of the day, we all see the effects and the impacts of climate change,” Ross said. “The institutions and the listed companies are all recognizing that they need to start to factor sustainability into their investment strategies.”

The geography of renewable energy is helping dilute the political acidity associated with sustainable investing, Cerasoli said. For instance, wind farms are prevalent in Plains states, while solar operations are abundant in the South — two regions that tend to be Republican.

“The concept of energy transition is an increasingly less polarized issue,” Cerasoli said.