Environmental, social, and governance (ESG) investing is heading for a resurgence among younger generations, despite the best efforts of the growing anti-ESG movement.
By considering ESG factors in financial decisions, ESG investing aims to protect investors from the risks associated with unsustainable business practices. Simultaneously, ESG investing has been promoted as a way to achieve socially beneficial outcomes for all.
However; some US states, like Florida and Texas, are seeking to ban ESG investing, citing fiduciary duty and anti-boycott laws. But despite this shift, sentiment towards ESG remains strong among younger generations. These youthful investors recognise the long-term viability of these practices and desire the positive social outcomes they promise.
At its core, ESG investing is simply integrating environmental, social, and governance considerations into financial decision-making. Asset managers and pension funds will analyse companies’ ESG credentials—such as climate resilience, diversity, equity, and inclusion (DEI) policies, and transparent accounting processes—to determine the long-term feasibility of an asset.
There are two intended outcomes: funds are protected from the risks generated by unsustainable or socially irresponsible investments, and environmentally and socially ‘good’ outcomes are achieved for everyone to enjoy.
ESG investing has faced massive challenges over the last few years, particularly from the anti-ESG movement. This is a coalition of actors that oppose ESG investments, regulations, and company policies for various reasons, including ideological differences and vested interests in traditional industries.
Right-wing lawmakers in the US are the driving force behind anti-ESG pressure. One way that they exert pressure is by attempting to ban pension funds and asset managers from considering ESG concerns. These politicians argue that, by aiming to produce socially good outcomes for everyone, ESG investors are not acting in the best interest of their clients, meaning that they are failing in their fiduciary duty. They also accuse ESG investors of violating antitrust and anti-boycott laws by allegedly conspiring against fossil fuel companies.
Some lawsuits based on fiduciary duty and anti-boycott rules have been successful. Several US states, including Florida and Texas, have made moves towards banning ESG investing. This represents a significant hurdle for the sustainability and progressive value in financial services, potentially derailing the investment strategies of public funds and asset managers.
