Rethinking Environmental, social, and governance (ESG)
Having a corporate ESG strategy was viewed as an essential best practice given funds using one or more sustainable investing strategies controlled well over $13 trillion AUM. An outcome of the 2024 U.S. presidential election was a reversal in policy and transparency. Most companies and NGOs have significantly scaled back ESG programs and how they present ESG-related information both internally and externally, with many deciding to cancel programs or reduce visibility, while emphasizing a more data-driven, performance-based approach.
“Companies with high ESG ratings (environmental, social and governance) tend to outperform. Companies with rising ESG ratings do even better. ESG allows investors to focus capital on less risky companies, which if done consistently, can help those funds to outperform over the long-run. ”
Increased backlash
The recent decline in the prominence of ESG programs and content on public company websites can be attributed to several factors, including, Regulatory Scrutiny and Backlash; Evolving Focus of Investors; Focus on Financial Performance Amid Economic Volatility; Change in Public Perception and Political Climate; Market Saturation; and Increased Complexity of ESG Reporting. ESG factors can still be important when investing in a stock, but whether it is crucial depends on the investor's goals, values, and investment strategy.
“There’s a common perception among investors that putting money into companies that promote sustainability on issues like climate change or corporate governance is ‘the right thing to do.’ Research from the International Monetary Fund (IMF) suggests these investments can also pay off.”