With the US Presidential Election approaching in less than three weeks, major corporate leaders, including investment managers are remaining cautious about expressing views on controversial issues like DEI/ESG initiatives, immigration policy, geopolitics, and more. This caution largely stems from the ongoing backlash against American companies taking stances in favor of, or even pouring significant investments into addressing complex social issues, particularly in the wake of the George Floyd protests that shook the nation four years ago.
As these social impact initiatives have become increasingly politicized in the public sphere, even Democrats who typically support these endeavors, have adopted more moderate positions to appeal to a broader voter base. Like their political counterparts, asset management executives must carefully weigh political sentiment against their fiduciary duty to investors, especially when these two may conflict and lead to further PR and reputational challenges.
The Politicization of ESG and DEI
This year alone, 161 bills across 28 states sought to restrict companies from using ESG criteria in investment decisions, though only 6 passed. Texas led the charge in 2021 with a bill that effectively barred major financial institutions from municipal contracts due to their ESG policies. Meanwhile, DEI initiatives face mounting challenges, particularly after the Supreme Court’s overturning of affirmative action last year, and a growing Republican narrative that the American left is exploiting race for political gain. Even technological advancements like AI have become politicized, with the 2024 Edelman Trust Barometer highlighting public distrust in institutions and the potential for rapid innovation to exacerbate societal instability and political polarization.
Source: Edelman
Risks for Investment Managers
US investment managers, with their fiduciary duty to both institutional and retail investors, face considerable risks. Institutional investors typically prioritize long-term investing, focusing on fundamentals, while retail investors are seen as more unpredictable. With regard to ESG, Morningstar data reveals that US sustainable funds experienced their seventh consecutive quarter of outflows in the second quarter of 2024. Even prominent ESG advocates like BlackRock’s Larry Fink have scaled back their support for environmental and social shareholder proposals.
Key Communication Considerations for Asset Managers
- Inaction Speaks Volumes: Silence on controversial issues can lead to negative press and assumptions about a firm’s stance.
- Clarity and Proactiveness: If not taking a proactive stance, firms should clearly articulate their position and take control of their narrative.
- Investor Perspectives Matter: Asset managers serving both institutional and retail clients must consider the diverse viewpoints within their investor base.
- Brand Differentiation: Taking a public stand carries risks, but it can also set a firm apart in a time of market uncertainty and political division.
Navigating Political Issues
Particularly in a potentially consequential election cycle, asset managers must grapple with various political issues with direct implications for their industry, including tax policy, regulatory changes, trade, fiscal policy, and market reactions to the election outcome. While missteps in communication can alienate political and regulatory stakeholders, effective communication can solidify a firm’s reputation as a responsible and mission-driven organization.
Key Strategies for Asset Managers
- Prepare for Uncertainty and Difficult Conversations: Investment managers may face questions about their market predictions and stances on fiscal or geopolitical issues. Maintaining a neutral perspective and avoiding political discussions is crucial.
- Value Employee Opinions: Ignoring employee sentiment and taking a political stance that contradicts their views can damage the firm’s reputation and executive leadership.
- Emphasize Mission and Investment Philosophy: When pressed to share political opinions, reiterate the firm’s commitment to its mission and investors.
- Prepare for Election Results: Asset managers should have well-crafted messaging and communication plans in place to address any election outcome, especially in this polarized climate.
Conclusion
Navigating communications in this election season is undoubtedly challenging for asset managers, but if effectively used, it can be a tool to quash skepticism and questions from investors, media, and others. By balancing public and shareholder sentiment with their core mission and proactively addressing key considerations, they can strategically manage this turbulent period.
Reach out to our team of experts today to learn how we can help protect and elevate your reputation.
