Debunking ESG myths and Trump 2.0

1. Is ESG ‘woke capitalism’ harming businesses in the name of social benefits?

ESG is fundamentally about risk management. Just as no investor would fund a beachfront hotel without considering rising sea levels, responsible investors assess ESG (environmental, social and governance) factors to understand and manage financial risks and identify opportunities.

Institutional investors (superannuation funds and fund managers) have a fiduciary duty to consider long-term risks, including climate change and biodiversity loss. Ignoring these risks would be poor financial management.

Likewise, regulations on financial advice emphasise long-term client interests. In Australia, advisers are required to consider their clients’ broader long-term interests. In New Zealand, advisers must consider the clients’ views along with ensuring the advice given is suitable for the client given their needs and goals.

2. Is it downhill for sustainable funds now, especially with Trump 2.0?

Good investors think long term, well beyond a four-year presidency. A 20-year-old opening their first superannuation account today will retire after 2065. Long-term thinking allows portfolios to consider long-term trends, benefit from compound interest, ride out short-term volatility, and avoid reactionary decision-making. Regardless of who is in the White House, the global transition to a low-carbon economy continues, and investors remain focused on managing risks and opportunities that will shape the decades ahead.

Morningstar’s 2024 Q4 research (released on 30 January 2025) reveals global sustainable fund assets reached an all-time high of US$3.2 trillion by the end of 2024, an 8% increase from the previous year and over four times the 2018 figure. Despite a decline in inflows during the year due to factors like some underperformance of ESG strategies, greenwashing concerns and anti-ESG sentiment, sustainable funds saw a strong rebound in Q4, with inflows rising to US$16 billion from US$9.2 billion in Q3.

3. Some investors are withdrawing from climate and DEI initiatives – is this proof that ESG is failing?

The political environment in the US has made it tricky for some. While some investment managers or banks may withdraw from specific initiatives due to political or economic pressures, they’re still working to address long-term climate risks in other ways.

Organisations may be changing the way they talk about their sustainability goals, but they are not walking back from their fiduciary duty (i.e. legal obligation) to act in the best financial interests of clients; today, this requires considering the impact of ESG factors on investment decision-making. In fact, 93% of all professionally managed funds in Australia are now managed by investors with a public commitment to responsible investment and almost all investment managers (81% in Australia, 87% in New Zealand) already implement ESG integration within their investment strategies.

4. Are ‘green’ funds underperforming?

All funds face challenges due to geopolitical risks, for many reasons not just the US election. Wars, invasions, natural disasters and changing global power dynamics pose risks to businesses and assets across the board. This impacts many funds and many investments (particularly those focused on short term returns). Unfortunately, despite these risks also affecting the performance of ‘non-green’ funds, ‘green’ funds are often singled out for scrutiny, notwithstanding the myriad of benefits provided by ‘green’ funds. The reality is, overall, the funds doing responsible investment well continue to deliver positive returns.

Funds certified by RIAA as responsible investment products generally perform on par with or better than the rest of the market. According to ISS Market Intelligence, RIAA certified responsible investment products outperformed across 1-, 5- and 10-year periods as of September 2024.

5. Is consumer interest in ESG a fading fad?

Consumer interest in sustainable investing isn’t a passing trend. People with superannuation accounts or investment portfolios have immense power. With substantial amounts of money invested – such as the AU$4 trillion in Australia’s superannuation funds (the 5th largest pool of pension assets in the world) and NZ$112 billion in KiwiSaver (over 27% of the NZ GDP), consumers are in the driver’s seat when it comes to how and where this money is allocated.

RIAA’s research shows that 88% of Australians expect their super and banking to be invested responsibly and ethically. Similarly in Aotearoa New Zealand, 74% expect responsible and ethical management of their investments, and 59% are willing to move their funds if their investments do not align with their values. Globally, more than three quarters of individual investors are interested in investing in companies or funds that aim to achieve financial returns while also considering positive social and/or environmental impact.

6. Does Trump 2.0 prevent progress on impact investing?

While pollical shifts may influence policies, the momentum behind impact investing is largely driven by investor demand, regulatory trends and the long term need for sustainable economic growth. Investment approaches exist on a spectrum balancing financial returns with social and environmental outcomes. While traditional investing often ignores ESG factors, responsible investment integrates them through approaches like ESG integration, screening, stewardship and thematic investment to manage risks and enhance returns. Impact investing goes further, aiming for measurable positive change alongside financial performance. Unlike philanthropy, which expects no financial return, impact investing seeks both impact and returns. See here for RIAA’s Responsible and Ethical Investment Spectrum mapping out the various approaches.

This article was originally produced by Estelle Parker and Dean Hegarty, the Co-CEOs of RIAA. You can read the full article here.

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