Is ESG the Controversial Term in Asset Management?

The article, “It’s not just ‘woke.’ These are the most polarizing words in America,” highlights how certain words have become divisive in business, with terms like “DEI” and “ESG” causing a significant partisan split. The term “toxic wordle” is coined to describe the most damaging current business words and phrases. Despite the polarization around these terms, there appears to be a softening of stances around DEI and ESG in asset management since a Supreme Court ruling in June 2023.

Morningstar reports that 2023 was the worst year for sustainable investing in over a decade, with investors pulling over $13 billion from sustainable funds. Demand for sustainable investing remains weak, with mediocre investment performance and political scrutiny cited as contributing factors. ASC Advisors looked at the top 50 hedge funds in 2023 and found that 44 percent are signatories to the United Nations Principles for Responsible Investment, indicating a strong focus on ESG.

Goldman Sachs released a survey on private markets and sustainable investing, noting that sustainability is a focus but more work needs to be done. Sustainable investing is more widely embraced in the EMEA region compared to the Americas, where 24 percent of limited partners reported it was not a focus. The report highlights the importance of aligning sustainability with financial and stakeholder focus for successful implementation.

The Quality Shareholders Group reports a decrease in support for progressive social proposals in shareholder meetings, possibly signaling a shift away from politicization of business. Shareholder proposals asking for internal audits of civil rights have gained little support, while conservative proposals are also seeing limited backing. This indicates a growing trend towards focusing on business performance rather than social or political agendas in shareholder meetings.

In politically charged times, businesses face the challenge of effectively communicating their intentions and concepts. Loose use of acronyms and labels can cloud clarity around topics like ESG and sustainability. Clarifying definitions and specifying intentions is crucial for clear communication. The article contrasts industry ambiguity with examples of concept and fact clarity from Morningstar, ASC Advisors, Goldman Sachs, and the Quality Shareholders Group, illustrating the importance of clear communication in the business world.