A new poll by UK banking giant HSBC has found a rising number of managers are reconsidering how they integrate environmental, social, and governance (ESG) issues into their investment strategies.
The findings come from the London-based lender’s survey of 310 professionals across the globe in roles related to ESG decision-making. The poll was conducted May 31–June 24, 2023.
Respondents in the survey represented $8.9 trillion in assets under management across 292 institutions, according to HSBC’s global research team, which conducted the poll.
Analysts found that there is growing pushback against investment strategies that factor in ESG considerations among managers based in the United States.
Specifically, the survey found that in North America, the number of managers who believe sustainability is a primary fund objective has declined over the past year, with nearly a quarter of respondents stating sustainability is a primary or secondary objective in 2023 compared to 37 percent who said the same last year.
Roughly 44 percent of the North American respondents also said they now have “weaker” reasons for incorporating an ESG investment strategy over the past 12 months, according to the survey.
“There is undoubtedly a rise in anti-ESG sentiment in the U.S.,” HSBC analysts wrote. “In our view, this falls along mostly political lines and is isolated to the U.S.”
Companies Under Fire
“Both negative screening and use of ESG ratings declined as the primary method of implementing ESG, indicating, in our view, further progress on the part of investors to developing more bespoke forms of ESG analysis,” they added.ESG policies—originally developed at the United Nations Environmental Programme Financial Initiative 20 years ago—are used by some companies as a way of assessing their business practices and performance as they relate to environmental, social, and governance issues.
A string of companies have embraced such policies in recent years, including asset manager BlackRock—which owns large stakes in firms such as Apple, Microsoft, and Amazon—as well as Pepsi, Exxon Mobil, and more.
However, Republican lawmakers and investors have repeatedly condemned such policies for prioritizing what they believe to be a more liberal agenda. They also fear such policies may harm U.S. companies and possibly have drastic implications on wider economic growth.
Amid the backlash, the desire for ESG strategies among shareholders appears to be waning, data from the Sustainable Investments Institute published in June show.
According to that data, proposals to compel corporations to act against climate change won approval from an average of 23 percent of shareholders in 2023, compared to 36.6 percent in 2022 and about 50 percent in 2021.
Support for proposals on social justice causes also dipped this year by about 10 percentage points, the data show.
Meanwhile, Republican lawmakers continue to warn companies that their ESG efforts, including their decarbonization and net-zero emissions targets, may violate U.S. antitrust law.
Republicans Probing ESG Policies
Last week, House Judiciary chairman Jim Jordan (R-Ohio), Rep. Dan Bishop (R-N.C.), and Rep. Thomas Massie (R-Ky.) sent letters to heads of Glasgow Financial Alliance for Net Zero (GFANZ) and its Net Zero Asset Managers (NZAM) initiative—a sector-specific group of international asset managers within GFANZ that supports net-zero greenhouse gas emissions by 2050, warning of the possible violations.Mr. Jordan and the other lawmakers called on the companies to provide an array of documents detailing their ESG policies, including how they developed their decarbonization and net-zero emissions targets and commitments and how they developed such goals.
They also accused both GFANZ and NZAM of entering into collusive agreements to decarbonize assets under management and reduce emissions to net zero by 2050.
The GOP lawmakers also sent similar letters to Vanguard, State Street, and BlackRock, the latter of which has seen millions of dollars in investments pulled by Republican states, including Louisiana, South Carolina, and Utah, in recent months.
Trade Group Condemns SEC Rules
On Monday, the National Association of Manufacturers, a trade group representing some 14,000 small and large manufacturers, called on Congress to rein in ESG rules implemented by the Securities and Exchange Commission (SEC) and protect companies from ESG activists, warning that the rules will “dramatically increase costs for manufacturers while providing minimal benefit for investors.”The trade group specifically took aim at the influence proxy voting firms have on investors in terms of recommendations and advice and called for increased oversight of such firms. It further criticized the SEC for granting ESG activists special privileges in its rules.
“These proposals almost invariably seek to advance environmental, social, and governance agendas unrelated to the business’s long-term prospects. Furthering these distracting and costly proposals are so-called ‘proxy advisory firms,’ which influence or control large swaths of the shareholder vote yet operate with minimal transparency and significant conflicts of interest.” Mr. Timmons said.
Mr. Timmons concluded that the mission of the SEC is to “maintain efficient capital markets while also protecting investors and supporting capital formation,” but stated that “several of the SEC’s recent actions run counter to these goals.”
It is not yet clear if lawmakers will intervene and limit proxy advisory firms’ influence on a string of companies.
The SEC did not respond to a request for comment.
