In the investment arena, a growing movement against environmental, social and governance (ESG) principles is raising concerns about the potential impact on wealth, according to Nigel Green, CEO of financial advisory firm deVere Group.
This concern has been sparked by recent developments such as the IEA's World Energy Outlook for 2023, which predicts that demand for oil, coal and natural gas will peak by 2030. In addition, a report in Nature Communications shows that the global climate crisis has cost $391 million per day over the past two decades.
The global energy landscape is undergoing a significant transformation, with clean energy technologies such as wind, solar, heat pumps, and electric cars expected to play a central role after 2030. However, despite the evidence pointing to the future importance of clean energy, an anti-ESG movement is gaining momentum.
A survey by The Conference Board of more than 100 large U.S. companies shows that nearly half have experienced an ESG backlash, with 61% expecting the trend to continue or intensify over the next two years. This backlash, particularly against the financial industry and large asset managers, raises concerns about a potential repositioning of investments away from ESG.
Green argues that dismissing ESG as a passing trend is a mistake, citing a shift in market dynamics and consumer preferences. Ignoring these shifts, he suggests, could have a detrimental impact on stock performance and, by extension, investments.
The anti-ESG movement, fueled by the belief that ESG investing is a passing trend, could lead investors to miss out on profitable opportunities. Studies consistently show that companies with strong ESG performance often outperform their peers, and ignoring this data could result in missed opportunities for portfolio growth.
ESG investing is not just about profit; it is also about risk mitigation. Companies that excel at ESG tend to be better prepared for challenges ranging from environmental disasters to social controversies. Ignoring these considerations can leave investment portfolios vulnerable to unforeseen risks and financial losses.
Governments and regulators are increasingly recognizing the importance of ESG factors. Disregarding ESG criteria exposes companies and their investors to regulatory risks, including fines and legal liabilities associated with non-compliance with evolving ESG regulations.
In conclusion, while the anti-ESG movement is gaining traction, it is failing to see the broader, longer-term picture. Green expresses concern that succumbing to this narrow perspective could cause individuals to miss significant opportunities that could impact their ability to grow and protect their wealth. As investors navigate this evolving landscape, understanding and incorporating ESG principles may prove critical to long-term success.
