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Can ESG survive the backlash?

Sustainable investing is suffering a backlash against oversimplification, unintended consequences and even ‘woke-ism’. Artemis CIO Paras Anand examines the criticisms of ESG and explains why pragmatism will win out.

Many sustainable funds have fared poorly during the turmoil triggered by Russia’s invasion of Ukraine and the consequent sanctions. Excluding sectors like oil, gas and defence from portfolios has suddenly proven costly.

So has owning shares in new-technology industries long favoured by the sector. With interest rates rising, many companies – formerly known as "growth stocks" – no longer trade on heady multiples and their share prices have plunged.

And so the backlash against sustainable investing has begun. Last month the pioneer of modern electric car manufacturing, Elon Musk, labelled ESG a scam after Tesla was removed from S&P's ESG index. HSBC Asset Management's head of responsible investment caused a furore when he suggested climate change did not pose a financial risk to investors. And in the US, Republicans are applying pressure on investment houses that boycott fossil fuel companies, threatening to restrict their opportunities to manage billions of dollars in public pension funds. ESG investing has earned the moniker 'woke capitalism'.

Can it survive?

In defence of sustainability

Criticism of ESG is nothing new. For some time, the investment industry has been accused of over-simplifying the way it categorises and evaluates the sustainability of companies and issuers. It has also been criticised for poorly defining and understanding sustainable investing strategies.

To be fair, similar complaints can be levelled at investing more broadly. There is, for example, a persistent tendency to use short cuts, rough indicators and broad terminology when referring to areas such as valuation, the economics of a business or the industry that it sits in. Is it surprising then, as sustainability has gone mainstream, that some of the same simplistic behaviours have crept in?

A particular area of criticism has been how different providers rate individual companies. There is little correlation between the ratings accorded. Lack of uniform data is often cited as the main reason for the differences, but it is more likely because assessing how a business is managed with respect to its broader stakeholders is an enhanced form of company analysis –broad in scope and full of nuance. 

Sustainable investing is hard to do well without a thorough understanding of the company and what the drivers of capital allocation at any point in time might be. And the output cannot be summed up - at least not usefully - in a simple ratings score. If you are looking for a Hogwarts sorting hat to decide whether a business or fund is sustainable or not, you are heading for disappointment.

ESG assessments should enhance the value of investment analysis. Simply that. They should lead to informed pragmatism. This includes looking at a company's trajectory and taking into consideration the starting point of different industries, different geographies as well as macroeconomic and geopolitical backdrops.

Unintended consequences

More recently sustainable investors have been questioned about the outcomes of their strategies and potential unintended consequences. Was it wise to attempt to decarbonise the global economy by reducing productivity of oil and gas before having alternative renewable energy sources in place?

We have to acknowledge these tensions. The energy crisis cannot be pinned on ESG investors, but sustainable investing needs to meet the world where it is today, in addition to where it would like it to be, if we are to reduce the risk of unintended consequences.

Marketing social benefits

Much of the recent marketing of ESG products has left investors thinking sustainable investing will reduce risk and help maximise returns. There needs to be greater clarity on the social (and environmental) as well as financial returns that a fund or strategy is targeting. Looking at these outcomes separately, with the help of the appropriate supplemental information and benchmarks, will help customers secure a clearer understanding of what good looks like and how that aligns with their aims. Investors may be prepared to risk foregoing some financial return in certain periods in favour of an investment that delivers social benefits. They need the choice.

We may be some way off from a commonly used framework for this type of reporting; but every fund manager should aim to do this as best they can.


Finally, it is crucial that investment organisations apply the same principles by which they judge investee companies to themselves and live by their own values. Doing so would help to reinforce a commitment to greater disclosure and targets on their own environmental and societal impacts, including issues like remuneration, diversity, equality and inclusion. This should support a drive to positive real-world outcomes and partnerships with like-minded organisations.

Partnerships and alignment of thinking are areas that have improved significantly over recent years. There is much greater collaboration between firms, industry bodies, regulators and NGOs resulting in coalitions like the Net Zero Asset Management Initiative to address key issues from diversity to biodiversity and valuing natural capital.

There is still a long way to go in terms of the power of collaboration across different industries and sectors of the economy: we have only scratched the surface of what is possible.

ESG is not going anywhere. It still has a lot to offer investors who are looking to behave responsibly and sustainably. It gives investors an analytical edge in a changing world and it has a crucial part to play in those changes. We need to be more realistic in our expectations of what ESG investing can achieve over shorter timeframes, and many of the criticisms are deserved. But I believe it will evolve and emerge from this current period stronger.

Investment in a fund concerns the acquisition of units/shares in the fund and not in the underlying assets of the fund.

Reference to specific shares or companies should not be taken as advice or a recommendation to invest in them.

For information on sustainability-related aspects of a fund, visit the relevant fund page on this website.

For information about Artemis’ fund structures and registration status, visit

Any research and analysis in this communication has been obtained by Artemis for its own use. Although this communication is based on sources of information that Artemis believes to be reliable, no guarantee is given as to its accuracy or completeness.

Any forward-looking statements are based on Artemis’ current expectations and projections and are subject to change without notice.

Third parties (including FTSE and Morningstar) whose data may be included in this document do not accept any liability for errors or omissions. For information, visit

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