The Backlash Didn't Kill Green Investing

In fact, it's booming

Ever since Wall Street veteran Larry Fink’s face began showing up on the?sides of trucks ?across New York City, a story has been making the rounds in Washington and Brussels that says that the tide is turning on responsible investing. That story has been told loudly and often enough to create an echo chamber, in which we hear repeatedly that environmental, social, and governance funding is in terminal decline. Proof, we are told, that so-called "woke capitalism" is a losing strategy for companies and their financial backers.

There’s one problem: The story bears little resemblance to the truth. Far from being dead, responsible investing is not even dented, despite the noise. Morgan Stanley data?shows ?that, in 2023, sustainable funds continued to outperform their peers. The market grew 15% last year, reaching a high of $3.4 trillion. Over 50% of investors?plan to boost ?sustainable investments in 2024, and when asked if they are interested in this as an investment strategy, 77% give a resounding yes.

This isn’t limited to financial professionals. A?new survey ?of 1,000 U.S. affluent and high-net-worth individual investors shows that, regardless of their political affiliation, American investors favour responsible and climate-responsive investing. Four out of five want financial services companies to invest in things like energy efficiency and reducing carbon emissions. A large majority, including 69% of Republican investors, believe companies’ financial performance improves if they avoid environmentally risky investments. We see?similar trends ?in Europe, too. No wonder almost three-quarters of wealth managers?expect ?their clients’ appetite for sustainable investments to continue or increase over the next year, with nearly half expecting a rise over the coming months.

And what about the wider public? We’re told that citizens on both sides of the Atlantic are increasingly weary of businesses pursuing social and environmental agendas. Except, again, this isn’t backed up by the evidence. Just a few months ago,?polling ?across six European countries showed the green agenda is still popular with European voters, with 68% agreeing with EU climate policies or wishing to see them strengthened. In the U.S., a majority of people see?tackling global warming ?as a priority for the next president and Congress, while 82% of Americans, including 66% of Republicans, want companies to take a public stance on climate change, according to?separate research . Far from seeing a backlash against green policies, we are seeing sustainability well and truly finding its place in the mainstream, and crossing political divides. In the U.S., the anti-ESG movement is faltering. This year of the 161 anti-ESG bills proposed at state level through September, only?6 have passed .

The backlash narrative is heavily embellished by the polluting industries it serves, and their political allies. While they shout about victories for anti-green lobbies in Europe, and anti-ESG agitators in the U.S., under the radar, responsible investment is booming.

A new?Accenture survey ?of chief financial officers from 730 of the world’s biggest companies revealed that these key decision-makers are confident they can make sustainable changes that will help their bottom line. Importantly, they also believe sustainability aligns with the interests of their shareholders—exactly the opposite of what anti-green campaigners have been claiming.

Green regulation plays an important role in giving companies and investors the certainty and guidance they need. They are getting it from the U.S. Inflation Reduction Act, which helped unlock a record-shattering?$303.3 billion ?in clean energy investments last year and has created over 300,000 new jobs, including in red states and disadvantaged communities. Historic investment in clean and affordable energy through the IRA is projected to create more than 9 million new?jobs by 2030 .

Robust regulation has made Europe a global leader in responsible investing, with 90% of sustainable funds worldwide now housed there, according to?new data ?from think tank Zero Carbon Analytics, and European sustainable funds?continuing ?to grow. Europe’s regulations have also helped create healthy consumer demand for?green products , which has given European companies the certainty they need to make long-term green investments.

None of this is to pretend that the green transition is smooth. Change of this scale is always messy and takes time. Attempts by vested interests to block the transition were always to be expected. The louder and angrier they become, the more likely it is they see the writing on the wall.

This article first appeared on Barrons.com