7 reasons why ESG investing is here to stay (regardless of politics)
In this note, Shiva Rajgopal writes how investors want ESG to be a factor in their decisionmaking regardless of what politicians say:
I am on two panels this week and next discussing the topic of ESG backlash from the red states in the US. In my latest in Forbes, I summarize my views on the backlash. I argue that regardless of your political orientation, the capital market, the product market, and the labor market have perhaps already decided that ESG investing is here to stay in the long run. Why? I posit seven reasons:
1. The majority of public opinion in the US across many surveys is concerned that the government is not doing much about climate change. Younger Republicans outnumber older Republicans by two to one in expressing such concern.
2. Vast inter generational wealth transfers are set to occur over the next 20 years and if our students are any indication, the new investor cares about investing in funds that reflects their values as long as these funds seem authentic and rigorous in applying said values even if that comes at the cost of a few bps in returns.
3. A lot of new venture money is chasing climate related startups.
4. The Inflation Reduction Act, perhaps inappropriately named, is the biggest climate stimulus enacted in the US. Ironically the red states have benefited most from the IRA although their politicians voted en masse against the bill.
5. Concrete new frameworks on how to pick stocks that do well (in a cash flow sense) and do good are emerging. These frameworks go far beyond ESG ratings and negative industry screening. The word on the street is that these two individuals and one fund are the ones to watch for leadership in coming up with such frameworks: Thomas Kamei, Katherine Collins and Generation Investment Management
6. Human capital in America increasingly pushes CEOs to talk about values
7. Anti woke funds are going nowhere in terms of assets under management (AUM) and expense ratios.