ESG remains politicized, but majority hold moderate perspectives
July 8, 2023
In our fourth annual Sustainable Investment Survey, we heard from private market investors about their feelings on ESG and Impact investment topics. Given the pervasiveness of polarized headlines, some may be surprised to learn that most respondents expressed moderate views on the subjects. While our responses included a cohort of individuals vigorously supporting or doubting the merits of ESG, the vast majority of our global audience believes there is at least some benefit to considering environmental, social, and governance elements as part of their overall investment process.
As someone who has spent her 30-year career in the investment world, I believe that any tool that could contribute to an investment analysis is worth considering. When debating the topic, I have found that taking the time to explain some uses of ESG can lead to common ground. For example, many investors think it is good practice to examine a company's governance structure to ensure that management is being held accountable for their actions. While Enron was one early example of governance gone wrong, the collapse of FTX shows that vigilance on this topic is still vital. This analysis would be part of the governance toolkit of ESG.
Other investors have noted that improving the employee experience can have a meritorious effect on hiring and turnover, decreasing costs and leading to efficiency improvements as longer-tenured employees get better at their jobs over time. Such policies fall into the social bucket. By considering the E, S, and G aspects of a company and identifying risks and opportunities to decrease the incidence of negative events, some investors feel they are performing their fiduciary duty and improving the risk and return profile of their portfolios.
My understanding of ESG is one of risk mitigation and opportunity identification. In my experience, a more extensive due diligence process leads to better investment decision making. Which is why I believe that the politicization of the topic has led some to hold a one-dimensional understanding of ESG, when in fact elements of their investment process fit neatly within the framework.
Our survey does show more polarization in the sustainable investment landscape, but the respondents largely lie in the middle, expressing that returns and sustainable investment principles may not be mutually exclusive. The survey, which slices the investment analysis across respondent types (LPs, GPs, both, and other), GP types (VC and non-VC), and region, provides a view into the wide spectrum of perspectives on sustainable investing.
To see the full survey data and our analysis, click to download our 2023 Sustainable Investment Survey.
As someone who has spent her 30-year career in the investment world, I believe that any tool that could contribute to an investment analysis is worth considering. When debating the topic, I have found that taking the time to explain some uses of ESG can lead to common ground. For example, many investors think it is good practice to examine a company's governance structure to ensure that management is being held accountable for their actions. While Enron was one early example of governance gone wrong, the collapse of FTX shows that vigilance on this topic is still vital. This analysis would be part of the governance toolkit of ESG.
Other investors have noted that improving the employee experience can have a meritorious effect on hiring and turnover, decreasing costs and leading to efficiency improvements as longer-tenured employees get better at their jobs over time. Such policies fall into the social bucket. By considering the E, S, and G aspects of a company and identifying risks and opportunities to decrease the incidence of negative events, some investors feel they are performing their fiduciary duty and improving the risk and return profile of their portfolios.
My understanding of ESG is one of risk mitigation and opportunity identification. In my experience, a more extensive due diligence process leads to better investment decision making. Which is why I believe that the politicization of the topic has led some to hold a one-dimensional understanding of ESG, when in fact elements of their investment process fit neatly within the framework.
Our survey does show more polarization in the sustainable investment landscape, but the respondents largely lie in the middle, expressing that returns and sustainable investment principles may not be mutually exclusive. The survey, which slices the investment analysis across respondent types (LPs, GPs, both, and other), GP types (VC and non-VC), and region, provides a view into the wide spectrum of perspectives on sustainable investing.
To see the full survey data and our analysis, click to download our 2023 Sustainable Investment Survey.
Hilary Wiek, CFA, CAIA
Senior Strategist, Fund Strategies & Sustainable Investing
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