by Michael Maslansky and Will Howard
In February, a group of major financial services companies withdrew from Climate Action 100+, an investor coalition that encourages companies to reduce their carbon emissions.
This was just the latest reaction to the conservative backlash against corporate environmental, social and governance (ESG) policies. In a year that has seen billions of dollars in net outflows from ESG-related investments, more than 100 attempts to pass anti-ESG bills across the United States (most of which failed), and countless articles writing premature obituaries for ESG, a new warning about ESG may have seemed like a reasonable response.
However, many of these organizations overlooked a key question: “What do investors want?”
Do investors care about whether financial services companies take climate-related actions such as reducing their climate impact, mitigating climate risks, or investing in clean energy opportunities? Does clean energy represent a significant growth opportunity for asset managers? Is climate risk material in evaluating investments?
The answer to these questions is a resounding yes.. A recent survey of high net worth and high net worth individual investors suggests that while financial services companies and asset managers should be mindful that certain actions, and the particular language used to communicate those actions, carry risks of partisan backlash, they must not allow these risks to cloud investors’ clear expectations around climate action and the potential of clean energy. The survey found:
• Investors believe that publicly traded financial services companies have a responsibility to take a range of climate-related measures.
• They believe that investments related to the clean energy transition will perform better than most other sectors and benefit investors in both the short and long term.
• We recognise that climate risk is a significant business risk, which, if ignored, could adversely affect the financial performance of our company and our investment portfolio.
Partisan differences, general agreement
Investors across party lines agree that companies should stay away from politics and focus on business.
A recent survey of 1,000 wealthy and highly-net-worth individuals in the United States found that two in three investors (the same percentage as the general population) believe it is inappropriate for companies to “take a stance on political issues,” and half of investors believe that financial services companies “taking action on climate issues” is, in effect, “taking a political stance.”
Of course, the line between what is political and what is not depends on your political views.
We tested 34 different climate-related actions that financial services companies may take, including efforts to reduce environmental impact, improving financial performance through climate-related investments, and mitigating business risks from climate change. Republicans are significantly less likely than Democrats (by an average of 30 percentage points) to expect financial services companies to take action, to believe that climate-related investments will outperform other investments, and to view climate risks as significant.
But these differences mask a larger reality: Regardless of party affiliation, investors believe companies that focus on climate and clean energy will be more successful.
Across these 34 climate-related activities, investors favored the climate camp by an average ratio of 4:1 (60% vs. 15%). Even among Republican investors, the average response favored the climate camp by a ratio of 5:3 (45% vs. 27%). Every activity we looked at had more supporters than opponents.
To be sure, climate issues can be politicized and there are partisan divides, but it’s clear that most investors link climate action and the transition to clean energy more closely to business performance than to political advocacy.
Three investor perspectives on climate
1. Investors believe that green business is good business.
Many critics of ESG and sustainable investing argue that investors must choose between performance and impact. The overwhelming majority of investors reject this conclusion.
Nearly all investors (88%) believe that companies that are considered “responsible businesses” are perceived to be more environmentally conscious and more likely to be financially successful than other businesses. And importantly, three in four investors (77%) (including 61% of Republicans) clearly believe that “environmentally responsible businesses are more likely to be financially successful.”
2. Investors see the clean energy transition as a growth opportunity.
Environmental responsibility is increasingly being linked to positive financial returns: our research shows that 70% of investors believe there are significant benefits to be gained from the transition to clean energy.
Nearly 65% of investors expect “clean energy technologies” to outperform the market over the next 12 months, and believe they are more likely to outperform the market over the next decade than any other sector except artificial intelligence.
For investors, the future is clean: Nearly 80% believe that “publicly traded financial services companies that invest in the clean energy transition are more likely to succeed financially.”
3. Investors see climate risk as a business risk.
Investors also recognise that climate change poses significant risks to their business and investment performance.
According to the survey, 60% of investors believe that climate change could affect the performance of publicly traded financial services companies, and 82%, including 69% of Republicans, believe that “publicly traded financial services companies that better anticipate environmental risks are more likely to succeed financially.”
Climate Investment “ROR”
As many companies evaluate their climate initiatives and communications, they should keep in mind the investor perspective. Despite partisan divides, investors agree that clean energy technologies and mitigating climate risks are good for business. Despite negative headlines, investor consensus is strongly supportive of companies willing to lead the clean energy transition.
Companies can avoid political risks by adhering to the ROR. Person in Charge Business, Growth opportunity Clean Energy Transition and Climate Specifics risk It can impact business performance.
Learn more from maslansky+partners about how investors view climate action.
Michael Maslansky is CEO of language strategy consultancy Maslansky + Partners. of Words of Trust: Selling Ideas in a World of Skeptics.
Will Howard is a senior vice president at Maslansky & Partners.
Methodology: The survey was conducted online among a representative sample of 1,000 investors across the U.S. All participants had more than $150,000 in investable assets outside their primary residence. 55% had more than $500,000 in assets, and 25% had more than $1 million in investable assets..
