ESG Investing Evolves Amid Political Backlash

ESG Investing Evolves Amid Political Backlash

But Haleh Moddasser sees the potential of targeted ESG themes.

Reviewed by: Staff
Edited by: Ron Day

Haleh Moddasser headshotHaleh Moddasser is managing partner at Stearns Financial Group, a $1.9 billion dollar wealth management firm serving high-net-worth individuals. As a senior wealth advisor in the firm’s Chapel Hill, North Carolina office, Haleh also heads the firm’s women’s practice, focusing primarily on issues relevant to boomer women. 

Moddasser is the author of two books: Women on Top: Women, Wealth & Social Change (2020) and Gray Divorce, Silver Linings: A Woman’s Guide to Divorce After 50 (2nd Edition released in 2022). 

Jeff Benjamin: Where is the appeal for ESG (Environmental, Social and Governance) these days? 

Haleh Moddasser: That’s a great question, Jeff, given the political backlash we’re seeing around ESG investing. However, I think the critique, painful as it may be, will be a good thing in the long run. In hindsight, I believe ESG was perhaps trying to be all things to all people, and that many players entered the space to attract ESG investors without really focusing on efficacy or impact. 

The greenwashing that occurred was real, and at the same time, many times these funds were also more expensive.   

None of this, however, changes the fact that demand for impact still exists. In fact, in one study conducted by Morgan Stanley’s Institute for Sustainable Investing, 99% of millennials said they were interested in sustainable investing. So, it’s really a matter of how, not if, the space will evolve.  

What I’m seeing now is a move away from funds that claim to do everything for everyone, to more thematic funds that specialize in different parts of ESG. For example, funds that invest only in clean energy. 

We’re also seeing the emergence of private impact funds, both debt and equity. For example, funds that invest in women-led companies, or those that invest in windmills. These funds allow investors to focus on a more targeted area of interest. 

JB: What kind of investors are looking for ESG, and how have you seen that evolve? 

HM: I would say that most ESG interest is coming from those with politically progressive inclinations, though we also have clients who want to express more conservative points of view. Interestingly, for all the talk about millennials and women driving interest in sustainable investing, I have several male clients who are also very interested in this space. 

Among my client base, it’s primarily boomer men and women who want to invest their assets in alignment with their values. 

JB: Are you finding enough ESG exposure in the ETF space? 

HM: The space is evolving and there is a lot of reshuffling occurring. Some funds have dropped the ESG tag line altogether, others have shut down. Generic ESG funds are making way for more thematic funds that allow investors to choose specific areas of interest. Is it diversity? Is it climate? As Tesla has shown us, it’s hard to be all things to all people. 

JB: To what do you attribute the growing resistance of ESG? 

HM: This past year, in the United States, we’ve seen significant outflows from ESG funds due in some cases to lower performance, and in other cases to the politicization of ESG as a concept. 

Several states have banned the use of ESG criteria when making investment decisions and the mere mention of the term has become taboo in some conservative circles. Even (BlackRock CEO) Larry Fink has stopped using the term ESG, claiming it has become weaponized. 

 As I said earlier, however, I think some of the backlash is justified, and that it will lead to better, more targeted ways to invest in alignment with one’s values. 

JB: Are investors staying loyal to ESG despite politics and weaker performance? 

HM: In short, yes. We started our ESG platform in 2020 and quickly amassed around $55 million in portfolio assets. 

I was worried when the price of oil soared and our ESG portfolios underperformed, as they generally have less exposure to oil. Then the politicization happened, and I expected some backlash, maybe even a mass exodus from my clients. 

However, to my knowledge, we’ve had zero defections on our platform. In fact, we continue to have new clients entering the space, though often in more surgical ways, through thematic funds or custom portfolios. 

I’m certain that sustainable investing is here to stay because the demand is there. In the words of Bryan Moynihan, CEO of Bank of America, we need simply to “align capitalism with what society wants from it.”  

Contact Jeff Benjamin at [email protected] and find him on X at @BenjiWriter        

Advisor Views is a bi-weekly Q&A-style series that features voices from across the financial planning industry sharing insights on investment strategy and portfolio management as it relates to the current economic environment.

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