INVESTING, KIPLINGER ESG 20 UPDATE PUT YOUR MONEY WHERE YOUR VALUES ARE

Some of our picks with an environmental, social or governance focus have been bitten by the bear market, but the stocks and funds on our list remain solid choices.

- NELLIE S. HUANG

It was only a matter of time.

ESG investing, which favors companies that ably meet vital environmental, social and corporate governance challenges, has received a lot of positive attention in recent years— and money. U.S. sustainable funds pulled in a record $70 billion in new money in 2021, a 35% increase from 2020, according to investment research firm Morningstar. But recently, some attention has been negative.

An ESG investing backlash has arrived. In August, the attorneys general from 19 states, including Arizona, Georgia and Kansas, wrote to asset manager BlackRock, an early advocate of sustainable investing, questioning whether the firm was putting a partisan agenda above clients’ investment returns. BlackRock responded, saying it is “deeply committed to helping its clients achieve their investment objectives” and that “taking a forward-looking position with respect to climate risk and its implication for the energy transition will generate better long-term financial outcomes.”

Meanwhile, shareholder proposals have now become a skirmish line between pro- and anti-ESG groups. In recent years, two groups often described as conservative have filed several proposals that appear to push for more disclosure on ESG-friendly categories—including diversity or charitable giving—but in fact are designed to undermine ESG efforts. One such proposal asks the Johnson & Johnson board to commission a racial-equity audit but questions whether “anti-racism” programs are themselves discriminatory against “non diverse” employees. “All Americans have civil rights,” the proposal says, not merely “the ones that many companies label ‘diverse.’ ”