ESG Popularity Solid Amid Backlash, Survey Says

ESG's importance among ETF providers hasn’t withered despite a political backlash, a survey from independent investment management firm Sage Advisory Services found.  

Seven out of 11 exchange-traded fund providers said that ESG was still a first or second priority growth category for them, the survey found. It also said that 40% of recent ETFs had themes such as low carbon emission, clean energy transition and biodiversity. The Austin-based firm said it queried five of the top 10 asset managers in the U.S.  

In addition, 79% of providers said that ESG factors influence their voting behavior, 89% said they have a climate strategy, and 95% have diversity and inclusion plans in their companies to establish equity.  

While ESG funds saw a boom over recent years as investors sought ways to integrate environmental, social and governance metrics into their portfolio, conservative government officials across the U.S. have pushed back and forced pensions they oversee to abandon such funds.  

"There is potentially less fear of political backlash if the funds are more thematically focused on a specific issue, rather than a broad stroke ESG focused ETF," explained Emma Harper, a senior research analyst at Sage in an interview. 

ETF Providers Lacking Transparency 

Another finding of Sage’s survey, which included answers from asset managers that oversaw collectively more than $28 trillion under management, was that issuers gave the survey more muddled answers to what were  simple questions that they answered directly on previous surveys.  

Some companies neglected to answer basic questions about their membership of organizations like Net Zero Asset Management Initiative (NZAM). Other survey questions that received muddied or unsatisfying answers included issues of disclosure of kinds of Sustainable Finance Disclosure Regulation (SFDR), according to the survey. 

“We attribute this decline in transparency to the punitive political environment, confusion over regulatory guidance, and concern over adverse business outcomes,” said Harper in a statement. “While all are certainly real concerns, none exempt an ETF provider from its stewardship responsibilities.” 

As transparency among asset managers has grown cloudy, so has firms’ voting practices. Fewer firms are providing proxy voting services to investors, according to Sage. Some involved in the survey failed to provide any voting records. Passive ETF managers are deferring voting decisions to proxy advisors at a higher rate, according to Sage.  

"It should be easy to see how [providers] voted on certain issues," said Harper. "Now, some providers weren't as forthcoming with providing their actual voting responses and some said, 'actually, it's confidential, clients  are the only ones that can see or that kind of thing,' which was shocking to me," she added. 

Harper added that the lack of transparency on voting, and the tendency for passive managers to defer their voting power, should be a concern for ETF issuers. 

Contact Lucy Brewster at [email protected] or on Twitter/X at @lucyrbrewster.