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The Debate Surrounding DEI and ESG in Asset Management

The CEO of the Harris Poll and vice chair of Stagwell shed light on how certain words like “DEI” and “ESG” have become polarizing in America, with a 31 percent partisan split for DEI and 27 percent for ESG. The term “toxic wordle” was even coined to describe the most damaging current business words and phrases. Despite this, there seems to be a softening of stances around DEI and ESG in asset management following the Supreme Court’s affirmative action ruling. However, confusion still exists around the actual meaning of terms like ESG and sustainability.

Morningstar’s report highlighted the underperformance of sustainable investing in 2023, with investors pulling over $13 billion from sustainable funds, particularly in equity funds. Demand for sustainable investing remains weak. ASC Advisors looked at the top 50 hedge funds in 2023 and observed interesting trends, with 44 percent being signatories to the United Nations Principles for Responsible Investment. While this number is slightly down from 2022, hedge funds continue to focus on ESG and diversity.

Goldman Sachs released a report on sustainable investing in private markets, noting that while sustainability is a focus, there is still more work to be done. Sustainable investing is more adopted in EMEA regions compared to the Americas, where 24 percent of LPs reported it was not a focus. However, those embracing sustainability see it as a combination of financial and stakeholder focus. Quality Shareholders Group highlighted the politicization of ESG proposals, with support for progressive social proposals falling and a rising number of conservative proposals gaining little support.

The challenge for businesses in politically charged times is to clearly communicate their intentions and meanings associated with terms like ESG and sustainability. Loose use of acronyms and labels only adds to the confusion surrounding these concepts. To provide clarity, four representative sources were mentioned in the article, each illustrating strong examples of concept and fact clarity around ESG and sustainability topics. It is important for businesses to specify what they mean when using such terms to avoid misunderstandings and polarization.

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