News analysis
Anti-ESG movement in America is losing investors
The anti-ESG movement in America apears to be in retreat as investors and investment funds lose interest in its divisive agenda.
When it comes to ESG (environment, social and governance), we should always keep an eye on the United States, and this is one reason why.
Far from the simple “emerging trend” that ESG has become in other regions, the concept became a focal point of partisan politics in America.
Fiscal conservative politicians pledge to do away with it as far as possible.
Some, such as Florida Governor Ron DeSantis, are making it a key issue in upcoming election campaigns.
In other words, there’s really no end in sight for the debate in Washington.
On the market side, the fight may be settled more rapidly.
What’s going on?
Financial services firm Morningstar Inc. has released new data showing the success of anti-ESG funds falling dramatically from a peak in the third quarter of last year.
This peak was sudden; net flows into anti-ESG funds barely broke zero in the years up till this point.
The sudden increase coincided with a rapid rise in anti-ESG political rhetoric in America.
Now, though, the party is ending already.
From a high of US$377 million between July and September 2022, net flows fell to $188 million in Q4.
In Q1 2023, the figure again slumped to around $90 million.
The accompanying report from Morningstar summed it up with the headline, “anti-ESG might be over before it even got going.”
What are anti-ESG funds?
They are funds with more or less the opposite investment practices as those of funds which support ESG. Where pro-ESG will invest in greener, socially inclusive initiatives that focus on good governance, anti-ESG firms’ goals aim the other way.
This may or may not be intentional; it depends on the fund.
Why are they anti-ESG?
It really does depend. Morningstar itself has admitted that it has taken a “broad approach” to this definition and that some of the studied funds “may not think they are opponents of ESG,” even though they behave as such in Morningstar’s eyes.
Based on the reports categories, reasons for being anti-ESG include:
- They are passive entities pledged to proxy-vote against ESG policies (this makes up the vast majority of 2022’s monetary spike – around $345 million)
- They want to target companies they feel have been “penalised” by pro-ESG investment policies.
- They dismiss ESG as a “woke, liberal agenda”, – echoing the sentiments of prominent American conservative politicians.
- They previously had pro-ESG policies in place, but for fear of reputational risk, these policies were dropped.
- They openly make their business investing in industries considered “socially harmful”, such as guns, alcohol, tobacco and gambling. In other words, they never had a chance to appeal to the pro-ESG lobby, so why bother?
So, anti-ESG in America is fading?
It looks that way.
It’s a tricky trend to call with total confidence, as the rhetoric against ESG is certainly not dying away, especially not in America.
Ultimately, and although many proponents of ESG maintain the concept was never meant to be political, we will need to keep an eye on politics to see where this will go. Conservative dominance after 2024 means more support for the anti-ESG movement.
One thing is for sure, though:
The value of anti-ESG investing and pro-ESG investing tell two completely different stories.
So far, the anti-ESG side has experienced one spike and a rapid drop. Pro-ESG investing has increased year on year.
Ultimately, when it comes to ESG, it’s all about the tide – something opponents may simply be unable to push against for long.