The enemies of the GOP of ESG investing say it puts politics above profits. Yet most investors don’t see it that way.
As the heads of financial regulatory agencies walked to the White House on Monday to discuss the environment and the financial system, they discussed one of the biggest political battles that is causing waves in Washington and the private sector – the obligation of standard disclosure of companies on environmental, social and governance factors.
At the center of the debate: is it good financial practice, rather than political, for investment firms to have information on ESG factors, in particular on the firm’s efforts to solve environmental problems? While many players in the financial sector argue that ESG is a growing industry that enjoys broad support from retail investors, Republicans argue that it is a way for Democrats and political activists to influence environmental policies while bypassing Congress.
Overall, US investors like what they see in ESG: 69% of frequent investors say ESG investing is “very” or “somewhat” profitable, according to a recent Morning Consult survey, while 15% say that sustainable investing is ânot too profitableâ or ânot profitable at allâ. Frequent investors are defined as those who reported investing very or fairly frequently in stocks, mutual funds, investment funds, cryptocurrencies, exchange-traded funds, bonds, commodities, real estate flip or unstructured products.
Their responses compare to 53% of all American adults who say they believe ESG investments are profitable and 11% who say they are not.
Frequent investors aren’t granola-loving hippies, either. They are also more likely to say that it is important for investors to make profitable investments (54 percent), according to the survey, than to say that it is more important for them to make socially responsible investments (35 percent).
There are large generational differences in the perceived profitability of ESG. Millennials are much more likely to say ESG investments are 65% profitable, compared to their older peers: 51% of Gen Xers and 42% of Baby Boomers.
Political trends also seem to have an impact on ESG views: 63% of Democrats said these types of investments pay off, while 47% of independents and 44% of Republicans said the same.
Still, more Republicans said sustainable investing paid off (15%). The survey was conducted May 17-19 among 2,200 American adults and has a margin of error of 2 percentage points.
As far as the financial sector is concerned, the reaction to ESG investments has been mixed, although some of the largest investment firms, including BlackRock Inc. and Blackstone Group Inc., have made significant commitments in these investments.
The Investment Company Institute, the lobby group representing regulated funds, argues that the information the Securities and Exchange Commission assesses would help investors make more profitable decisions.
âFrom a financial perspective, it is increasingly recognized that ESG, be it climate or diversity, really affects the value of companies,â said Eric Pan, Managing Director of institutes. âIt’s only natural that they want their investment portfolio to take these factors into account. So, for our members, there is a fundamental responsibility towards investors.
Rebecca Fender, who leads the Future of Finance initiative at the CFA Institute and was previously vice president of BlackRock, said these strong views on the profitability of ESG investments represent a “fundamental shift” in the way people think about business. risk and ESG.
âIt’s a lot more common to think about how things like the environment are going to affect a business on a systemic level, and I don’t think it’s going to go away,â she said.
Certainly there is research this shows that ESG funds are not necessarily more profitable. And, as the GOP’s adult data reflects, many Republican lawmakers argue that these investments are driven by political considerations rather than profit.
There is a tiny fraction of the American public who thinks in the same direction: among those who had an opinion on ESG investing, 2 percent said companies shouldn’t weigh in on political issues, often citing “awakening” or “socialism,” according to a previous Morning Consult analysis of open responses.
“If a business thinks its owners need or want financially irrelevant information on global warming, political spending, or any other ESG-related topic, they are free to disclose it,” said Senator Pat Toomey ( R-Pa.), A rank member of the Senate Banking Committee, said via email. “But the SEC should not abuse its authority to force publicly traded companies to disclose non-material information just because politically motivated investors demand it.”
He argued that there was “little to no evidence” showing that ESG investments produce higher returns and that a government mandate for such disclosures “will end up harming investors both by discouraging companies from investing. becoming public and compromising the quality and reliability of the SEC’s disclosure framework â.