Political pushback dampening institutional ESG investing – Callan survey

Political pushback against ESG investing has put a chill on the number of institutional investors incorporating ESG factors into their investment decisions, according to a preview of Callan's 2022 ESG survey to be released in two weeks.

In a webinar teasing the upcoming survey results, Thomas H. Shingler, a senior vice president and Callan's ESG practice leader, said the survey showed that 35% of institutional investors considered ESG factors in their investment decisions, down from 49% in 2021 and down from every year since 2016.

While there's never been more interest in ESG, there's also a backlash in some circles against ESG incorporation, Mr. Shingler said during the webinar, referring to anti-ESG policies enacted in different states.

Curiously, 6% of the 109 institutional investors surveyed said they did not know whether they incorporated ESG factors, a reflection of the "overall debate about ESG that we see in the United States," Mr. Shingler said.

Institutional investors unsure about whether they incorporated ESG factors may not have made decisions to document a policy about ESG integration in their investment policies or they may not have made decisions about how they wish to implement it by asset class, Mr. Shingler said.

The survey found that among respondents that had not incorporated ESG into their investment decisions, 20% were considering doing so, down from 40% in 2021 and 33% in 2020.

Half of the investors that incorporated ESG cited fiduciary responsibility as a top reason, saying ESG incorporation can either reduce risk and/or enhance returns. Almost half of those that did not incorporate ESG, 47%, took the opposite view, saying the benefits of ESG incorporation were unproven or unclear. One-quarter of the non-ESG adopters feared that ESG incorporation would result in a breach of their fiduciary duty.

"There is this dichotomy between those that are saying we don't incorporate ESG and those that are saying that they do," Mr. Shingler said. "This does create conflict between different portions of the client base for asset managers."

Mr. Shingler said the diverging views on ESG, the lack of regulatory clarity from the Department of Labor and the onslaught of conflicting and increasingly polarized ESG policies at state and municipal levels have fostered an atmosphere of confusion among institutional investors.

"There's also what are being called anti-ESG bills that have been produced in Congress. If we were to have a Republican Congress coming out of this set of midterm elections, that could also continue to heighten the confusion on the regulatory front," he said.

The survey was conducted in May and June with 109 institutional investors drawn from public and corporate retirement plans as well as foundations and endowments. The institutional investors surveyed included Callan clients as well as non-Callan clients.