Financial advisers are not optimistic about the future of including environmental, social and governance attributes to investing, in part due to growing political tension around the subject, according to a Cogent Syndicated report from Escalent.
In 2022, 58% of advisers used ESG investments, down 10 percentage-points from 2020, according to the Livonia, Michigan-based firms survey of over 500 financial advisers in September. Meanwhile, only 15% of advisers who used ESG agree with its importance or expansion, and the majority of advisers don’t think ESG investing is a growing trend nor a significant factor in attracting new clients.
“In the past six months, the topic of ESG investing has become even more divisive as political tensions rise,” Linda York, a senior vice president in the financial services research division of Escalent, said in the report. “With firms suffering public backlash from using what many call ‘woke’ investment strategies, many advisers are waiting for clarity from regulators before using ESG investments. Increased supervision from federal or state legislature with added qualifications and reporting can only help in terms of ESG becoming more popular among advisers and investors alike.”
The situation may not get any less tense ahead of the 2024 elections. This week, anti-ESG fund manager Vivek Ramaswamy announced his bid for the presidency, with his campaign message including policy recommendations that would curb the use of ESG investing.
In 2022 Ramaswamy launched Strive Asset Management, which urges companies to abandon their ESG goals. In a tweet synced to his presidential run-on February 21 he wrote: “End affirmative action. Abandon climate religion. 8-year sunset clauses for bureaucrats. Make political expression a civil right. Ban addictive social media under age 16. Declare independence from CCP. Embrace fossil fuels & nuclear. Decimate drug cartels.”
To run for president, Ramaswamy will step down as executive chairman of Strive Asset Management, which raised more than $650 million from investors in less than six months, according to the firm. He rose to prominence in 2021 for his book “Woke Inc: Inside Corporate America’s Social Justice Scam.”
Ramaswamy launched his campaign the same week a conservative law firm filed a complaint seeking to revoke the Department of Labor’s recent rule allowing for ESG investing in retirement plans. The Wisconsin Institute for Law and Liberty told the District Court for the Eastern District of Wisconsin that the DOL’s rule is “jeopardizing the retirement income of over 140 million Americans.”
The DOL, for its part, has argued that allowing for ESG-focused investing in retirement plans will be beneficial in protecting investors from downside concerns including climate-related financial risk. And Democratic policymakers are fighting back on the anti-ESG movement, with their own legislation calling for the Employee Retirement Income Security Act of 1974 to permit the consideration of ESG factors in retirement plan investing.
Young Advisers Drawn to ESG
According to Escalent, 38% of investors expressed interest in socially responsible initiatives, but in reality, only 3% used ESG investments. Investors who did use ESG investments directed an average of 37% of their assets to the category. They expected a modest two percentage point increase in allocation in the next two years.
In examining the reasons for the growing tension surrounding ESG investing, Escalent said advisers were concerned by the inconsistent definitions and perceived negative public sentiment of ESG. Advisers above the age of 55 were worried about unclear government guidance, more so than younger advisers.
“Young … ESG users and investors report strong interest in using a robo-advisor for ESG investing,” York said. “If traditional advice providers continue to overlook the needs of younger investors, the use of financial advisors may fizzle out, or on the other hand, the category of ESG investing could dissipate.”