Over recent years, attention to environmental, social, and corporate governance, commonly known as ESG issues, has witnessed a notable increase among companies across the globe. This concept, initially adopted mostly within financial circles, has been increasingly introduced to wider audiences, including people with no finance background. This can partly be attributed to politicians such as Ron DeSantis and Vivek Ramaswamy, who have notably criticized ESG as a form of ‘woke investing’ or ‘woke capitalism.’
Your opinions notwithstanding, it’s unclear whom these politicians are aiming their punches at. Even as they attack, many investors, regardless of political spectrum, are significantly supportive of ESG goals. According to a recent survey by
U.S. Bank, majority of investors across all age groups wouldn’t mind underperforming the market to invest in companies that align with their belief systems. Over 80% of Gen Z and millennials are willing to accept less return than the 10-year average of the S&P 500 companies for the cause. The percentage drops only slightly among older investors, with 73% of Gen X and 65% of boomers on board.
The survey, however, found a disparity in investor behavior. Notably, less than a third of boomer investors are actively investing in socially conscious companies despite expressing passive support for lower returns in line with ESG goals, compared to 45% of Gen X, 59% of millennials, and close to two-thirds of Gen Z investors.
This changing investor behavior might be partly attributed to the influence of ESG on company performance. Strive Asset Management, founded by Republican primary candidate Vivek Ramaswamy to oppose ‘woke capitalism’, has lagged behind the S&P 500 ESG index,
underperforming by nearly 19% year-to-date.
In addition to impacting investment choices, ESG metrics are starting to influence executive compensation. A review of corporate filings shows that
20% of the metrics in executive pay plans were linked to ESG outcomes in the last year – a marked growth from previous years. This trend is set to continue, suggesting increased adoption and weighting of ESG objectives in corporate accountability.
Against GOP claims of ESG undermining profitability, evidence points to the contrary. Investors have increasingly demanded more than just high returns from companies they support. As younger and more politically-conscious investors dominate the market, ESG considerations are likely to drive future investment decisions.