Opposition to environmental, social and governance investing by Red State politicians is not yet slowing the expansion of many wealth managers into strategies that have been some of the most popular in recent years.
There is no doubt that the anti-ESG movement is gaining traction and could disrupt the industry. Most recently, Florida Gov. Ron DeSantis passed a resolution barring the Florida State Board of Administration from considering ESG factors in its investment process. Other Republican-led states such as West Virginia, Utah, Minnesota, Louisiana and Arizona have proposed anti-ESG legislation that could prevent or outright ban state institutions from working with managers who use ESG-related factors in their investment processes.
But for many global managers targeting investors in the US, it was business as usual.
BNP Paribas Asset Management, a $500 billion firm with 65 percent of its assets under management in Europe and 10 percent in the Americas, continues to target institutional clients who want sustainable investments, which is a core tenet of the company’s strategy it says not giving up in the midst of regulatory upheaval.
Instead, Sandro Pierri, chief executive officer of BNP Paribas Asset Management, said the company would wait for guidance and adapt to it. Pierri said the company is already faced with the complexities of different ESG rules in different countries and regions. “It will be impossible to see a global one [regulatory] Convergence,” said Pierri. “We will adapt.”
BNP Paribas takes a pragmatic view of the growing influence of ESG critics. When asked how the company would approach existing or potential customers in states that may have ESG bans in place, Pierri said, “We’re not for everyone.”
Not surprisingly, Brent Newcomb, president of Ecofin, which focuses solely on sustainable investing, said his firm would not bow to political pressure.
He believes competitors are also sticking to the plan. Newcomb said there is “not much confusion” for wealth managers with “longstanding” and “robust” commitments to ESG and sustainable investing. [about] what their strategy is now.” Asset manager Harding Loevner is unimpressed by politics. Apurva Schwartz, portfolio specialist, said the company does not need to reconsider ESG as it has been a critical aspect of the company’s approach since its inception in 1989.
Officials from some of the largest wealth managers in the US who spoke to II about the background said the pressure from the red states was dismaying, but they are going ahead anyway. They say their research shows there is significant demand from both institutional and retail investors.
However, the political and regulatory environment has prompted managers to step back and seriously review their ESG commitments. Sam Iles, director and co-head of sales at Alpha FMC, a wealth management consultant, said the debate is an “industry heartbeat right now.” While wealth managers do not abandon established ESG initiatives, their loyalty depends on the manager’s legacy.
Companies that focus solely on ESG and companies that offer both ESG and traditional strategies may make different choices.
“[The debate] forces them to stop and think about the right path,” he said.
Newcomb, like Pierri, said the bigger issues for managers are pending regulations around the world and changing standards for what qualifies as ESG funds.
In August, 700 ESG funds in the European Union were downgraded under new rules. Some wealth managers expect US regulators to require similar transparency from managers who claim to use ESG factors in their investment process.
Schwartz said the increased attention to ESG highlights the need for wealth managers “to do what they say they do,” with clearer definitions and more transparency. “It’s not enough to put the word ‘sustainable’ in your strategy and call it ESG,” Schwartz said.