What's happening to ESG?

Cracking under pressure in the US and fracturing in Europe, is ESG investing likely to suffer the same fate in Australia?

- ANNETTE SAMPSON

It is hard to miss the fact that ‘woke’ - which used to mean something you did first thing in the morning - has become an insult in recent years.

But who would have thought the anti-woke trend could affect superannuation and other investments?

The installation of Trump 2.0 as US president has seen an outflow of money from ESG investments - which look at the environmental, social and governance performance of investments. In the first three months of this year, global investors pulled a record $US8.1 billion from so-called sustainable funds. An anti-woke agenda of the Trump administration has fuelled uncertainty about ESG investing with some US states actively discouraging ESG considerations. Since December, six US banks have withdrawn from the UN-sponsored net-zero banking alliance and we have seen leading fund managers rebadge their sustainable investment funds to remove any mention of ESG or sustainability.

The sentiment is spreading

While money has been flowing out of US sustainable funds since 2022, Dugald Higgins, head of responsible investment and real assets at Zenith, says the anti-ESG sentiment now appears to be spreading to Europe and other regions.

“This the classic VUCA - volatility, uncertainty, complexity and ambiguity,” says Higgins. “Markets hate this. Anti-ESG and diversity, equity and inclusion policy measures make US asset managers more cautious, but these effects don’t stop at US borders. The US accounts for most of the world’s funds management assets and many of these managers have global operations. It’s logical that caution flows through to other regions.”

Responsible Investment Association Australasia (RIAA) co-CEO Estelle Parker says the political environment in the US has made ESG investing trickier because of the negative view on things such as climate change and a push to greater deregulation.