Anti-ESG fight has come to retail investors

Some view it as political, but demand is strong, and asset managers appear undeterred


Emile Hallez

The war on ESG is trickling down to individual investors, many of whom are telling their financial advisers they feel sustainable investing is politically motivated.

Nearly half of US advisers say those views are now a major impediment in how receptive their clients are to ESG, with another quarter calling it at least a moderate challenge, a new Cerulli report found. The 46% of advisers saying it is a major challenge is up from just 16% who last year cited political concerns as a client issue, according to the research firm’s publication released Tuesday.

Asset managers expressed a similar level of pushback from clients, with 23% calling it a major challenge and 52% saying it is a moderate problem. By comparison, 46% of asset managers last year cited political characterizations of ESG as an issue at all with clients, according to Cerulli.

Further, 19% of institutional investors cited it as a major problem, and another 43% said it was a moderate concern.

The report is based on responses from 49 asset managers Cerulli surveyed during the second quarter of 2022, as well as 200 institutional asset owners surveyed during the third quarter. It also included information from a survey of more than 2,000 advisers and a separate survey of 12,000 affluent households.

The road ahead

The findings come as numerous Republican-leaning states have put pressure on banks and asset managers to essentially disavow ESG considerations or lose business from them. BlackRock has taken the brunt of that trend, losing a handful of mandates in pension plans and being blacklisted in Texas.

Some conservative state leaders have made ESG a campaign issue, going as far as alleging that some of the biggest investors in the oil and gas business are in essence boycotting fossil fuels because of their overall stances on ESG. That effort has drawn more attention to sustainable investing, making it more of a household term that, given the Cerulli survey’s findings, in some cases is not well regarded.

Even so, the financial services world appears undeterred in applying ESG more widely. According to the report, 96% of asset managers incorporate ESG into their investment practices to identify risks and opportunities, with another 2% saying they plan to do so.

Additionally, 44% of asset managers now have a formal net-zero goal, up from 31% that had such commitments in 2021, Cerulli found.

Wider concerns

Even as some investors see ESG as a political issue, climate change is now regarded globally as the biggest risk facing the world, according to a separate report issued Monday by Axa.

Among 20,000 people the insurer surveyed globally, as well as 4,500 professionals who evaluate risk, climate change was cited as the top concern in each of the 58 countries from which it solicited responses.
That marked the first occasion that US risk professionals ranked climate as the leading risk, as they last year had cited cybersecurity as the top concern, according to Axa.

Behind climate, professionals pointed to geopolitical risk as the second-leading worry, the survey found.

Eighty percent of the lay population respondents to the survey said they feel more vulnerable than they did five years ago, a trend driven in part by climate and energy concerns, the firm noted.

More interest

More than half of US financial advisers said they discuss sustainable investing with clients, although 77% said they wait for those clients to broach the subject. However, 48% of retail investors said they want to invest in stocks of companies that strive for social or environmental impact, according to Cerulli.

That sentiment is more common among younger investors, with 75% of those younger than 40 agreeing, as well as 61% of people 40 to 49, the survey found.

Among the 44% of advisers who said they do not recommend sustainable investments to clients, the top reasons they cited for not doing so were feeling that the benefits of ESG are still unproven and that they generally don’t believe in it.

Latest Stories