The ESG “backlash” emerges as a new challenge for investors | Asset owners

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

As rising populism fuels a backlash to what some see as unnecessarily “woke” changes in society, some investors fear the movement could threaten progress already made on issues of diversity, climate action and energy. alternative.

Australian investment institutions have an overall progressive attitude towards ESG issues, but they recognize that increasing societal tensions are likely to lead to a revolt against changes perceived as “woke”.

Chris Trevillyan, director of investment strategy at Australian asset consultancy Frontier Advisers, attributes the growing politicization of ESG to rising inequalities in societies.

“Inequality can lead to political upheaval and — as we’ve seen with the rise of populism — that can include pushing an anti-reawakening agenda,” Trevillyan said. Asian investor.

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

“The increasing pressure societies are under will likely mean harsher political and social landscapes. In my view, we will likely see social progress slow down and then reverse,” Wyrsch said.

Gordon Noble, Advisor to Australian Asset Owners on Sustainability, said Asian investor the backlash against ESG is an indication that ESG is now mainstream and not a niche consideration.

“Responsible investors should expect to be challenged. That’s not a bad thing. This will lead to professional standards.”

CLIMATE COMMITMENT

However, the change in attitude is not limited to the “woke” backlash. In Sweden, one of the country’s largest pension funds, AP7, has reiterated its commitment to investing and collaborating with high-emission companies in the energy, steel, cement and transport sectors. , helping them shift to more sustainable practices.

This reflects their concern over growing pressure on investors to sell their stakes in these companies.

“What’s missing are sustainable investors who are willing to roll up their sleeves and get involved as owners,” AP7 chief executive Richard Gröttheim said in a Swedish newspaper article.

The Australian perspective varies. Trevillyan said: “A key point of our advice is that for real carbon reductions to occur, it takes more than just giving in and reducing an individual portfolio’s carbon exposure. This requires real change in the economy and businesses.

Therefore, investors will have to invest in large issuers, he said. “But with a clear plan and direct actions to reduce emissions in these companies,” he adds.

This approach is also noted in the Net Zero Investment Consultants initiative, of which Frontier is a founding signatory, which includes a commitment to “prioritize real economy emissions reductions over emissions reductions in investment portfolios.

However, this is not the only approach adopted for ESG investing.

A superannuation fund like Unisuper, for example, believes that good companies with established good corporate behavior make better investments, according to CIO John Pearce.

Unisuper offers plan members three specialized sustainable and environmental investment options with no exposure to fossil fuels.

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

“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 corporate practices,” he said. Asian investor.

However, regardless of their personal beliefs, investors believe that the transition to a low-carbon economy will be a major secular trend for decades to come.

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

¬ Haymarket Media Limited. All rights reserved.

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