The responsible investment market is at a crossroads, with some institutional investors doubling down on incorporating environmental, social, and governance (ESG) considerations and others pivoting away. Political backlash has led some asset managers and institutional investors to distance themselves from use of the ESG acronym, even though they are not changing what they are doing, according to The Cerulli Report—U.S. Responsible Investing 2024.

Cerulli’s research shows that political pressure is having some impact on institutional investors’ commitment to responsible investing, deterring about one in 10 asset owners from continuing to incorporate ESG considerations into investment decisions. These institutions find responding to the backlash time-consuming and costly (34%), fear litigation (24%), and feel pressure from stakeholders (14%). Comparatively, no asset managers polled are backing away from responsible investing, but 42% will be cautious about messaging around responsible investment-related activities and 4% will no longer offer responsible investment products.

Anti-ESG pushback has also led some asset managers (20%) and asset owners (20%) to stop using the term ESG. Institutional investors that are no longer using the ESG acronym have replaced the phrase with sustainable investing (50%), responsible investing (33%), and stewardship (20%).

For those institutional investors that remain committed, more than (56%) have an ESG integration process and evaluate material ESG risks and opportunities. Exactly two-thirds have a distinct allocation dedicated to responsible investment products, up from 41% in 2023. Climate change, renewable energy, and water are among the top themes addressed when investing.

Meanwhile, asset managers are focusing on risk mitigation and value-enhancing benefits to investment returns and stakeholders—81% of asset managers say they are embracing ESG information to mitigate risk and 54% cite enhancing returns.

“Despite headwinds from political opponents, commitment to responsible investing remains solid,” says Michele Giuditta, director. “While asset managers may feel the pressure of the anti-ESG movement—35% state they believe the anti-ESG movement will have at least a moderate impact on their firm’s assets under management—they are still actively incorporating ESG considerations into investment decisions.”

As ESG issues remain a hot-button topic, Cerulli recommends that asset managers continue proactively discussing how material ESG data is used in their firms’ investment processes to avoid risk, create value, and protect returns. “Investment professionals should elaborate on how they are identifying those organizations with sustainable business practices that will better position their portfolios to achieve competitive long-term investment performance,” concludes Giuditta.