Investor interest in ESG criteria is declining amidst ongoing global sustainability challenges.
- Introduced by the United Nations in 2004, ESG (Environmental, Social, Governance) linked sustainability with profitability.
- The Association of Investment Companies reports a decrease in investor engagement with ESG factors for a third consecutive year.
- Transparency in ESG is critical for many investors, yet performance concerns are diminishing enthusiasm.
- Notable figures express concerns about the potential “weaponisation” of ESG investing, impacting its future appeal.
Investor interest in ESG criteria is experiencing a downward trend as global sustainability challenges persist. The term ESG, denoting Environmental, Social, and Governance factors, became prominent in 2004 following a United Nations report which highlighted its connection to profitability. Although businesses thrived by adopting ESG practices in the past, recent reports highlight a significant shift in investor prioritisation.
In 2024, the Association of Investment Companies (AIC) tracks a declining trend for the third consecutive year in the engagement with ESG criteria among investors. A survey involving 400 investors and 202 intermediaries showed a notable decrease from 66% in 2021 considering ESG factors down to 48% in 2024. Concerns over performance, particularly regarding returns, are central to this decline. As one investor aptly remarked, “I want to do good, but it has to be a balance between that and getting returns.” This sentiment illustrates the conflict investors face between ethical aspirations and fiscal expectations.
Nick Britton, research director of the AIC, provides insights into this evolving trend. He metaphorically describes the ‘love affair’ with ESG as cooling, suggesting selective investment in ESG aspects. Despite this cooling trend, governance issues in ESG have caught up with environmental concerns, both considered important by 37% of investors, while social aspects lag. Transparency and disclosure now top the list of critical considerations, as evidenced by 60% of respondents valuing them most when investing.
The role of ESG investing continues to spark debate. The notion of ESG as part of ‘woke’ culture is a point of contention, with figures like Larry Fink, BlackRock’s CEO, criticising its evolution. Fink warns of the “weaponisation” of ESG terminology, reflecting broader scepticism about its effectiveness or purpose. Meanwhile, Anita Roddick’s assertion that “the business of business should not be about money, it should be about responsibility” continues to resonate as companies navigate these ideological divides.
The divergence in ESG investing trends reflects a complex interplay of ethical and financial considerations, challenging future sustainability efforts.
