Rising 'Anti-ESG' Sentiment in US Is Impacting Funds, HSBC Says

The backlash against investing strategies that factor in environmental, social and governance issues is rising in the US and is impacting the way managers are thinking about integrating such considerations into their funds, according to a survey by HSBC Holdings Plc.

The London-based lender polled 310 professionals across the globe in roles related to ESG decision making from May 31, 2023 to June 24, 2023. These respondents represented $8.9 trillion in assets under management across 292 institutions, HSBC's global research team led by Wai-Shin Chan and Anushua Chowdhury wrote in a note published this month.

"There is undoubtedly a rise in anti-ESG sentiment in the US," wrote the analysts. "In our view, this falls along mostly political lines and is isolated to the US."

The effects of the pushback are evident in the US. For example, in North America, there has been a decline in those saying that sustainability is a fund objective. Nearly a quarter of respondents in North America this year said sustainability is a primary or secondary objective, compared to 37% who said the same last year. 

Additionally, about 44% of North American respondents also said that their reasons for having an ESG strategy have become weaker over the past twelve months, the survey found. 

Political Backlash

In the fixed income market, there is a notable shift in the way investors are integrating ESG considerations into their portfolios, according to the survey. The proportion of respondents citing use of ESG integration and labeled bonds increased "quite sharply" compared to last year's survey and the long-term trend. 

"Both negative screening and use of ESG ratings declined as the primary method of implementing ESG, indicating, in our view, further progress on the part of investors to developing more bespoke forms of ESG analysis," wrote the analysts.

However, backlash and scrutiny is hurting US sales of bonds designed to help companies do good as pressure from investors and Republican politicians mounts.

The acronym ESG was coined almost two decades ago with the idea that investors should take into account environmental, social and governance risks in their financial calculations. But Republicans in recent years have blasted ESG financial practices and increased their scrutiny of what they call "woke capitalism." 

One of their main complaints is that environmental, social and governance investing is part of a broader Democratic effort to prioritize climate change and other societal issues to the detriment of the fossil-fuel industry.

Last year, HSBC suspended Stuart Kirk, who was head of responsible investing for the bank's asset management unit, after he used a conference speech to criticize the finance industry for spending too much time worrying about climate change, slamming what he said was the sector's environmental "hyperbole." Kirk subsequently resigned from the firm. 

HSBC distanced itself from Kirk's comments following his speech, with Chief Executive Officer Noel Quinn saying his views were "inconsistent" with the bank's strategy. 

Kirk didn't immediately respond to a request for comment. 

HSBC's ESG survey attempts to understand where investors are now on specific ESG issues, where the momentum is and what the future intentions are, according to the analysts.

With assistance from Saijel Kishan.