'Woke' or not, many Americans ignore ESG in investing, despite political tug-of-war

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Despite disagreements between politicians, finance leaders and corporate boards over adopting environmental, social and governance framework in investing, termed ESG, Americans don’t care, a new poll shows. 

Most Americans aren’t very familiar with ESG or have an opinion of whether ESG should be incorporated into business and finance decisions, according to a Gallup poll, taken April 3-25. 

Overall, 22% of Americans are “not too familiar,” while 40% are “not familiar at all” with ESG, the survey said. Only 37% said they’re “very” or “somewhat familiar” with ESG, which is essentially unchanged from 36% in 2021.  

When it comes to business and investing, 59% have no opinion on whether ESG should be factors. The remaining people are near split with 22% viewing ESG as positive in business and investing and 19% negative. 

“Many may simply not be cognizant of the public discussions and debate about ESG, as much of this is reported in the financial rather than front page news,” said Lydia Saad, Gallup’s director of U.S. social research. ESG ‘s also “not an intuitive subject that’s easily understood from the acronym, or relatable in the context of most Americans’ daily lives.” 

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What is the controversy with ESG investing?

ESG principles are promoted by the Biden administration, United Nations and other global organizations to minimize investment risk while promoting social goods. They believe socially responsible investing would pay off because it helps companies avoid material financial risks from climate change, labor disputes, human rights concerns in a company’s supply chains and poor corporate governance and related litigation.

However, the political right says ESG is simply an avenue to achieve progressive goals at the expense of shareholders. They say it’s hard to clearly define what a socially responsible company is. They argue that these measures aren’t quantifiable, and its potential to change the economy and capitalism for good is exaggerated.  In the end, they only create more costs and red tape for companies and unfairly target some like those in oil and gas. Some states have passed anti-ESG state legislation or threatened large money managers like BlackRock that they would lose government investment monies to oversee.

ESG may divide politicians, but not Americans 

Though politicians and media portray ESG as a Republican (against) and Democratic (pro) difference of opinion, Gallup says that’s not the case. 

Both Democrats and Republicans are about equally unfamiliar with ESG. Less than 40% in each group say they’re very or somewhat familiar with it and an equal proportion are not at all familiar, the poll shows. 

Despite constant discussions among politicians and media, awareness also hasn’t increased much among either group since 2021, when 33% of Republicans and 38% of Democrats said they were very or somewhat familiar with it, it said. 

Even among the minority familiar with ESG, Americans were evenly split with 36% viewing ESG positively and 35% negatively, Gallup said.  

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“Only when asked to choose between two modes of investing − with or without taking ESG criteria into account − do majorities of Republicans and Democrats take opposing sides,” Saad said.  

Sixty-four percent of Republicans think fund managers should only consider financial factors when choosing investments, while 59% of Democrats think they should include ESG. 

However, the most overriding factor for all investors is returns. “ESG considerations are secondary,” Saad said in February when a Gallup poll taken in November showed 78% of investors think a lot about the expected rate of return when choosing which companies or funds to invest in, compared to about 40% who consider ESG. 

When market volatility rose in the first three months of the year, forcing people to refocus on protecting their money, ESG exchange-traded funds saw an outflow of $6.46 billion, compared to $3.32 billion of inflows a year earlier, FactSet data showed. Meanwhile, non-ESG equity ETFs recorded inflows. 

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Does ESG investing lead to lower returns?

Some studies have said yes, citing the higher fees fund managers charge as well as weak returns. Professors at Columbia University and London School of Economics found in a study ESG funds had worse compliance records for both labor and environmental rules than non-ESG counterparts, charged higher fees and underperformed financially.

And though one period doesn’t define an investment, the average large-cap stock ESG fund had lost nearly 20% in 2022 through Dec. 21, according to Morningstar. That was about 2.4 percentage points worse than the drop in the S&P 500 Index, including dividends. S&P Dow Jones Indices said then its S&P 500 ESG Index was down 18.5%, also including dividends.

Is ESG investing dead? 

Republican states like Texas, Florida and Kentucky hope so. Many have threatened or introduced bills to stop government agencies from considering ESG when making investment decisions or insurance companies when setting rates. President Joe Biden earlier this year also vetoed an anti-ESG bill

Others still see a future in it. Even though investing based on values may not be top priority now, 63% of investors say they’re likely to buy stocks or funds that align with their values and 68% would avoid any that contradict their values, Gallup said. 

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Will ESG investing ultimately come down to returns? 

Maybe, but researchers from the National Bureau of Economic Research suggested returns are not the most important thing for some ESG investors, and the higher fees that ESG funds carry aren’t a big problem. Their top priority appears to be the sense of satisfaction they get out of investing in ESG funds, it said. 

Yet, a poll of 602 registered voters who invest in stocks, conducted by Pennsylvania State University and public-affairs firm Rokk Solutions, showed just 39% of Democrats and 23% of Republicans would be willing to risk a financial hit by investing in firms with strong ESG principles. 

Medora Lee is a money, markets, and personal finance reporter at USA TODAY. You can reach her at mjlee@usatoday.com and subscribe to our free Daily Money newsletter for personal finance tips and business news every Monday through Friday morning.