The political backlash against environmental, social and governance investing has sent much of financial industry into retreat. But new research from a fellow at the Stanford Rock Center for Corporate Governance finds that the red-blue gap in attitudes toward ESG can be narrowed when investment choices are presented in better ways.
ESG investing has become a flashpoint in American politics, reflecting the broader ideological polarization gripping the country, writes Omar Vásquez Duque. While Republican-led states have enacted laws banning or restricting ESG considerations in public pension funds, Democratic-led states have embraced ESG as a tool to promote social and environmental goals.
“This contentious landscape raises a critical question: Are these legislative actions and corporate decisions reflective of the actual preferences of pension beneficiaries?” he asks. “My research reveals that despite political polarization, there is more consensus on social sustainability than commonly believed—if we present it in the right way.”
The study is based on two survey experiments with representative samples of the United States population with respect to gender and age. The first survey essentially asked people how much they would be willing to pay for a product. The second presented people with different options that ideally resemble real-world trade-offs.
To measure participants’ preferences for ESG investing, the study used a series of decision tasks where respondents chose between two hypothetical pension fund options. Each option included an expected annual pension amount and several investment restrictions, such as avoiding companies tied to fossil fuels or gambling.
Each participant made 12 such decisions. The first experiment involved 2,120 participants and included fairly detailed descriptions of investment restrictions—e.g., fund A only invests in firms with a compliance program to minimize the risk of having children working within their supply chain. The second experiment, with 1,086 participants, used broader categories of restrictions—e.g., fund A does not invest in companies that do not abide by the United Nations labor rights standards.
“The results challenge the idea that ESG investing is inherently partisan. While Democrats broadly supported social and environmental objectives, Republicans also showed strong preferences for some social goals,” Duque wrote.
The phrasing was key. Abstract concepts like “labor rights,” which some may associate with a political agenda, led conservative respondents to prioritize profitability over social goals. Yet, when social causes were presented in more detail—such as “guaranteeing living wages”—support grew across the political spectrum.
Three ESG investment restrictions drew significant bipartisan support:
- Excluded companies that may employ children
- Supported companies that advocate for equal pay between men and women
- Favored companies ensuring their workers earn enough to avoid poverty.
“People may well have a strong preference for some social goals but dislike environmental restrictions. The term ESG lumps together diverse objectives—environmental, social and governance—into a single concept. This one-size-fits-all approach prevents many individuals from aligning their investments with their values and fuels misconceptions about what ESG entails,” Duque said.
“Many participants—even conservatives and those who in principle oppose ESG investing—are willing to accept lower returns to support specific social objectives,” Duque said in an article on the Promarket website from the University of Chicago’s Booth School.
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