The investment industry — especially in the US — has, since 2022, experienced building pushback against environmental, social, and governance (ESG) investment standards as a “woke” and political approach to asset management.
This anti-ESG sentiment was one of the issues discussed at one of the world's largest conferences on responsible investment, the United Nations’ Principles for Responsible Investment (PRI) in Person 2023, which ran from October 3 to 5.
While the ESG backlash does cause some concerns and challenges, the view at PRI in Person was also that the anti-ESG movement has a positive aspect that strengthens the ESG movement, as it promotes better reporting and higher data quality to underscore impact as well as performance.
According to Takeshi Kimura, special advisor to the board at Nippon Life Insurance, this positive aspect resonated with many investors present.
“Even as sustainability issues become increasingly broad and complex, the key is to always put fiduciary duty first. Investors shared the view that a fiduciary duty perspective is fundamental even in dealing with anti-ESG issues,” Kimura told AsianInvestor.
The insurance giant, with around ¥70 trillion ($520 billion) in assets under management (AUM), was the main sponsor of the event. Kimura is also the insurer’s representative on the board of directors at the UN PRI, elected by asset owner peers.
Kimura mentioned that a PRI in Person panellist from an unnamed US public pension fund said that "the anti-ESG backlash is really dividing those who do the work, and those who do not, and that's not necessarily a negative." This particular asset owner noted that anti-ESG sentiments have not impacted its investment decisions.
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Ann-Louise Winther, senior ESG manager at Denmark’s Industriens Pension, also participated in PRI in Person.
The conference made it clear to her that the pushback against ESG investing in the US makes up a huge challenge for investors and makes it more difficult to make progress in the US.
“A positive aspect that was mentioned at the conference was that the movement in the US makes reporting and transparency even more important. This means that the focus is increasingly on the actual evidence of your true actions as investor, as opposed to assigning a fluffy ‘ESG’ label to your investments without truly committing to actions,” Winther told AsianInvestor.
With a total portfolio valued at DKK219 billion ($31 billion) as of September 30, 2023, Industriens Pension administrates the labour market pension scheme for employees under the Collective Bargaining Agreement for Industrial Employees.
The Danish labour market pension scheme is a compulsory scheme. Industriens Pension has currently around 400,000 members in approximately 8,000 companies.
The pushback on ESG investing was discussed in different ways across the conference, including at a very well-attended session on the topic, highlighting how much of an issue this has become.
The general consensus at the PRI in Person was that the pushback is still mostly isolated to the US, and even then it tends to be concentrated in politically rightwing states, according to Danielle Welsh-Rose, head of sustainability investment specialists and Asia-Pacific sustainability at abrdn.
“This inherently political nature of much of the pushback was a hot topic, but there was also some discussion on how the pushback is helping to sharpen the business case around ESG — a silver lining, perhaps,” Welsh Rose told AsianInvestor.
“At the end of the day, the pushback doesn’t change the fact that the fundamental basis of ESG investing is about investment risk and opportunity. It is not a values-based concept,” she added.
Opposition to ESG investments has gained tailwind in conservative states in the US, especially in cases of divestment of fossil fuel-related assets, which have been performing relatively well in the wake of the Russia-Ukraine war.
This anti-ESG sentiment — strongest in key conservative states such as Texas and Florida, and also Oklahoma — is beginning to influence public pension funds and is also trickling down to the general asset management industry.
In May of this year, three New York City pension funds were sued for allegedly breaching their fiduciary duty by selling billions of dollars of fossil-fuel assets.
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Republican lawmakers in Indiana and Kansas had approved measures preventing state pension funds from considering ESG factors, but these already were narrowed down from initial proposals amid concerns that the changes could cause losses to public retirement systems.
Legislators in the Republican-controlled statehouses of Wyoming and North Dakota have either killed or significantly diluted bills that would limit ESG-investing practices or force governments to sever business relationships with asset managers that back the policies.
In Indiana, an anti-ESG bill was dialled back in February after the state’s pension operator estimated it would cost retirees almost $7 billion over the next decade. In Kansas, the chief of its state pension fund said in March that a proposal initially under consideration would reduce returns by $3.6 billion.