Asset managers and institutional investors generally remain focused on environmental, social, and governance (ESG) initiatives, even as political efforts to reverse progress are underway. New findings from The Cerulli Report—U.S. Environmental, Social, and Governance Investing 2023: Regulation and Legislation: Regulation and Legislation show that only a small percentage of institutions may be backtracking on their commitment to ESG.

Despite challenges created, the anti-ESG movement has not dissuaded any asset managers polled by Cerulli from moving forward with responsible investing. No participants surveyed plan to stop incorporating ESG considerations into investment decisions or expect to stop offering ESG/sustainable investment products. Yet, nearly one-third (30%) of asset managers will be more cautious about messaging around their ESG-related activities through websites, marketing materials, prospectuses, and other formal investment documents.

For institutional investors, ESG backlash has generally not hindered progress made on ESG objectives, but it has deterred a small percentage. 4% say that they will no longer invest in ESG, sustainable, and/or impact investment product and funds and 3% said that they will stop incorporating ESG considerations into investment decisions. Top reasons cited are that they no longer believe in the merits of ESG and that responding to the anti-ESG backlash is time-consuming and costly.

“The political backlash and negative press have left some institutional investors skeptical about the merits of ESG,” says Michele Giuditta, director. “Anti-ESG bills are often based on the assumption that asset managers are sacrificing investment returns to address nonfinancial considerations.” To help alleviate concerns, many asset managers are adapting or enhancing their client and prospect messaging to be more explicit. According to the research, nearly two-thirds (73%) are having discussions with clients and more than half (57%) of firms are creating communication pieces to address the misconceptions of ESG.

Cerulli recommends that asset managers bring ESG subject matter experts to board and investment committee meetings to help decision makers gain a stronger grasp of how and why managers are considering ESG information. “Being explicit about how relevant ESG data helps investors better evaluate the risk/return profile of investments to drive long-term economic value should help managers keep ahead of the negative repercussions,” concludes Giuditta.