ESG 'backlash' emerges as fresh challenge for investors

Global investors are facing up to a harsher political and social landscape, adding to the stresses of managing global portfolios in troubled times.
ESG 'backlash' emerges as fresh challenge for investors

In an indication that ESG is now a mainstream consideration, investors are increasingly concerned about a backlash against climate action and diversity.

As growing populism fuels a reaction to what some see as unnecessarily "woke" shifts in society, some investors fear the movement could threaten the progress already made on issues of diversity, climate action and alternative energy.

Australian investing institutions have a broadly progressive attitude to ESG issues, but they  acknowledge that increasing societal strains are likely to lead to a revolt against perceived ‘woke’ shifts.

Chris Trevillyan, director of investment strategy at Australian asset consultant Frontier Advisers, attributes the growing politicisation of ESG to the increase in inequality across societies.

“Inequality can lead to political upheaval and - as we have seen with the rise in populism - that can include promotion of an anti-woke agenda," Trevillyan told AsianInvestor.

Efforts to improve gender and ethnic diversity are also facing a backlash, notes Vision Super chief investment officer, Michael Wyrsch.

“The increasing strain societies are coming under is likely to mean harsher political and social landscapes. In my personal view, we are likely to see social progress slow and then recede,” said Wyrsch.

Gordon Noble, an advisor to Australian asset owners on sustainability, told AsianInvestor the backlash against ESG is an indication that ESG is now mainstream and not a niche consideration.

“Responsible investors should expect to be challenged. This is not a bad thing. It will drive professional standards."


The shifting of attitudes is not confined to the 'woke' backlash, however. In Sweden, one of the country’s largest pension funds, AP7, has reiterated its commitment to investing and engaging with high-emitting companies in the energy, steel, cement, and transport sectors, helping them transition to more sustainable practices.

This reflects their concern about growing pressure on investors to sell their holdings in these companies.

“What is lacking are sustainable investors who are prepared to roll up their sleeves and get involved as owners,” said AP7’s chief executive officer Richard Gröttheim, in a Swedish newspaper report.

The Australian perspective varies. Trevillyan said: “One of the key points in our advice is that, for actual reductions in carbon emissions to occur, it requires more than simply divesting and reducing the carbon exposure of an individual portfolio. It requires real change in the economy and businesses.”

Therefore, investors will need to invest in high emitters, he said. “But with a clear plan and direct actions to reduce the emissions in those businesses," he adds.

This approach is also noted in the Net Zero Investment Consultants Initiative, of which Frontier is a foundation signatory, which includes a commitment to "prioritise real economy emissions reductions over reducing emissions in investment portfolios".

This is not the only approach being adopted for ESG investing, though.

A superannuation fund like Unisuper, for example, takes the view that good companies with established good corporate behaviour make for better investments, according to CIO John Pearce.

Unisuper offers scheme members three specialist sustainable and environmental investment options with no fossil fuel exposure.

“We use our influence and proxy voting to engage closely with our top Australian investments on ESG issues,” said Pearce.  

“There will be funds that take a different approach with less consideration of ESG principles. These funds may be more inclined to invest in high emitting companies and, by extension, less inclined to influence company practices,” he told AsianInvestor.

However, irrespective of personal beliefs, investors believe the transition to a lower carbon emission economy will be a major secular trend for decades.

“It will be a critical factor in the global economy and investments,” said Trevillyan. “All investors need to identify, assess, and manage risks, as well as capture opportunities arising from climate change transition.”

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