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Considering environmental, social, and governance issues when investing money is nothing new. For almost as long as capitalism has existed, some investors have refused to bet their resources on potentially profitable ventures because of broader ethical considerations.
Long before ESG became a buzzword, morally conscious investors were offloading tobacco company stocks. Well before that, good portions of American businessmen (and it was pretty much only men running businesses at that time) refused to participate in the slave trade.
Calling it ESG, though, and corporate executives specifically focusing attention on well-defined repercussions external to the company itself, are relatively new phenomena. The term “ESG” was reportedly coined in a 2005 study.
Since that 2005 study, ESG has gone fully mainstream. There is hardly a boardroom in America in which ESG is not discussed. Investors have also become robust ESG participants: 2021 saw a record $51 billion flow into U.S. sustainable-designated funds.
A subset of Republican lawmakers has been working to change this. In 2022, a small group of politicians declared the ESG movement to be “woke investing” — apparently that being a bad thing. When Republicans captured a slim House majority going into 2023, certain newly elected representatives vowed to crack down on corporate ESG decision making.
At first, with a few notable exceptions, major corporations and players in the finance industry refused to cave in to this new form of political intrusion into private enterprise. It was business as usual, and most corporate leaders had already determined that ESG was good for business.
Investors, too, initially pay little heed to the crowing of a few House Republicans. A survey last year of 4,000 current and aspiring investors found strong support for ESG goals across age groups: More than 80 percent of Gen Z and millennial respondents, 73 percent of Generation X respondents, and 65 percent of baby boomers said they would accept returns lower than those of the S&P 500 if it meant investing in accordance with their belief systems.
Now, however, more recent survey results show that ESG critics may finally be getting a toehold. This latest survey polled only 993 investors, but it saw significant drops in support year-over-year for ESG initiatives among young people. In just one year, the percentage of those ages 18 to 41 who said they were “very concerned about environmental issues” plummeted from 70 percent to 49 percent. Among Gen Z and millennial respondents, who had the previous year registered 82 percent support for fund managers using their influence to shape the social policies or practices of companies, only 62 percent now deemed this “very” or “extremely” important.
Among baby boomers (defined in this survey as those 58 or older) responses remained relatively consistent year to year — consistently low in support for ESG, that is. Baby boomer investors didn’t really care that much about ESG in the previous survey, and they still didn’t in this one.
A strong majority of younger investors continue to have a favorable view of ESG related policies, and one survey with a relatively small sample size is no reason to rethink one’s entire worldview. That being said, if there is indeed plunging support for ESG, and no quick recovery, it will represent a remarkably stark reversal in the attitudes of the younger investing public.
Maybe those anti-“woke investing” evangelists were onto something after all with their political strategy. If nothing else, you have to give them credit for staying on message. Though I’d hate to see us return to a world in which nothing whatsoever beyond the profit motive matters for corporate decisions. We tried that once with the East India Company and it didn’t work out so well for a whole subcontinent.
Jonathan Wolf is a civil litigator and author of Your Debt-Free JD (affiliate link). He has taught legal writing, written for a wide variety of publications, and made it both his business and his pleasure to be financially and scientifically literate. Any views he expresses are probably pure gold, but are nonetheless solely his own and should not be attributed to any organization with which he is affiliated. He wouldn’t want to share the credit anyway. He can be reached at jon_wolf@hotmail.com.
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