Wall Street’s largest asset managers, private equity firms and brokers have warned that a backlash against sustainable investing is now a material risk, in filings that show how acrimony over ESG principles has become a perceived threat to profits.

A dozen big US financial companies including BlackRock, Blackstone, KKR and T Rowe Price added language to annual reports filed in the past month cautioning that pressures such as “divergent views” or “competing demands” on environmental, social and governance (ESG) investing could hurt financial performance.

The statements come in response to a campaign against what opponents describe as “woke capitalism” that has drawn support from such high-profile Republican politicians as US Senate minority leader Mitch McConnell and Florida governor Ron DeSantis.Officials in Republican-led US states have launched investigations into BlackRock and State Street over their votes on shareholder proposals. State legislators are considering or have passed laws requiring government pension funds to divest from money managers who consider climate or racial equity concerns in their investing.Blackstone, the world’s largest private equity firm, disclosed that states’ scrutiny over potential “boycotts” of the fossil fuel industry could affect fundraising and revenues, according to the 2022 annual report it filed with the US Securities and Exchange Commission last week. Divergent views on ESG increase the risk that action or inaction “will be perceived negatively by at least some stakeholders and adversely impact our reputation and business”, Blackstone said.

Anti-ESG sentiment has “gained momentum” across the US, the private equity firms Carlyle, TPG and Ares all said in annual reports as they cautioned that anti-ESG legislation could impede fundraising.

Wall Street titans confront ESG backlash as new financial risk | Financial Times