ESG: Investors focus on climate despite Republican attack on NPR

Low water levels stranded barges along the Mississippi River in October, raising shipping costs and threatening crop exports and fertilizer shipments. Scientists at the University of Memphis expect more dramatic swings in river water levels due to climate change.

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Low water levels stranded barges along the Mississippi River in October, raising shipping costs and threatening crop exports and fertilizer shipments. Scientists at the University of Memphis expect more dramatic swings in river water levels due to climate change.

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Republicans plan to use their control of the House of Representatives in 2023 to intensify attacks on companies responsible for climate-related risks when they make investment decisions.

GOP officials in Washington and More than a dozen states Say they are focusing on companies that are using their financial power to advance a so-called woke political agenda, rather than trying to maximize profits. As part of the campaign, Florida, Louisiana And Missouri Collectively the investment firms consider pulling more than $3 billion from BlackRock Environmental, Social and Governance (ESG) issues. Facing a political backlash, Vanguard, another large asset manager, said this decided to withdraw from a group of investors It is working towards zero greenhouse gas emissions by mid-century.

Republicans say they are fighting a concerted effort by big investors to impose progressive policies. threatens capitalism himself

Rep. Andy Barr, a Republican from Kentucky and a senior member of the House Financial Services Committee, said ESG investing aims to “politicize capital allocation and actively discriminate against fossil energy.”

ESG is “a cancer in our capital markets that must be eradicated,” Barr said in a statement to NPR.

The Republican offensive may discourage some investors from promoting what they are doing to address climate threats, such as sea level rise and worsening drought. But financial experts say that doesn’t shake a belief that has spread among many investors that global warming is creating risks to the bottom line that must be considered.

“ESG is not particularly controversial within the investment sector or among public companies,” said John Hale, head of sustainability research at Morningstar, a financial services firm. “To asset managers who run [investment funds] And for the public companies they invest in, things like climate change are real and a real threat to many businesses.”

Larry Fink, CEO of BlackRock, the world’s largest asset manager, has become a favorite target of Republicans attacking investors who consider environmental, social and governance issues when making investment decisions.

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Larry Fink, CEO of BlackRock, the world’s largest asset manager, has become a favorite target of Republicans attacking investors who consider environmental, social and governance issues when making investment decisions.

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ESG goes mainstream, invites attack

Many investors had a bad year in 2022 Through November, investors pulled more than $250 billion from U.S. mutual funds as stock prices fell, inflation rose and the threat of a recession grew. According to Morningstar. However, funds that made ESG central to their investment strategy fared better, earning nearly $3 billion over the same period and “painting a much brighter picture than the overall US fund market,” the firm said.

Sustainable investors “tend to be more connected to their investments,” says Hale. “They’re more long-term oriented. And so when things go south, I think we’re seeing sustainable investors stay the course more than aggregate investors.”

Now, the kind of considerations at the heart of ESG investing are showing up across the worlds of business and finance, he says. Most large companies and investment fund managers have set their own ESG initiatives or consider these types of issues when making investment decisions, Hale says, even if sustainability isn’t their main focus.

Mindy Luber, CEO of Ceres, a nonprofit organization focused on sustainability, said the fact that ESG has become a more common concern across businesses helps explain why it’s under attack.

A December hearing that Texas lawmakers held on ESG investing could be a preview of things to come in Congress. Texas lawmakers say the practice of analyzing climate risks to make investment decisions threatens the state’s fossil fuel companies and the entire American economy.

Under questioning in Texas, BlackRock’s head of external affairs, Dalia Blass, said the firm considers ESG issues that pose financial risks and opportunities for clients “so we can deliver the best risk-adjusted returns for them.”

Blass said that only a small portion of the investment funds that BlackRock manages in the U.S. are labeled as ESG. He also said the firm found that ESG index funds generally outperformed their non-ESG peers over a three-year period.

“Going forward, with Republicans controlling the House, they seem inclined to investigate, so maybe later. Hunter BidenMorningstar’s Hale said, “We might see some effort to try to get ESG backers.” “But I think when they do, they’ll find that it’s not a group of left-wing ideologues that they seem to expect, but rational businessmen and investors.”

Representative Patrick McHenry, a Republican from North Carolina and Incoming Chairman The House Financial Services Committee, in a statement to NPR, said GOP lawmakers “will provide appropriate oversight for activist regulators and market participants who have significant influence.”

Republican opponents of ESG investing say the practice of considering climate change risks is driving money away from the fossil fuel sector and threatening American energy companies.

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Republican opponents of ESG investing say the practice of considering climate change risks is driving money away from the fossil fuel sector and threatening American energy companies.

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Blowbacks can make investors more conservative in the face of climate change

Voters think investors should be free to act on concerns about climate risk. A September vote By ROKK Solutions and Penn State University’s Center for the Business of Sustainability, 63% of registered voters say the government should not limit ESG investments.

“They are basically saying that businesses should have autonomy [what] They see fit and act in the best interest of their stakeholders,” said Tessa Resendes, assistant professor of business at Penn State.

But the congressional hearings could still be damaging — or at least embarrassing — to some investors.

“I think both sides have probably overstated their case: those who are attacking ESG and those who, perhaps, ESG oversold For selfish, opportunistic reasons,” says Columbia Business School professor Shivram Rajagopal.

Financial experts say ESG Not a substitute for government action To combat climate change. And such complaints have been made by some companies misrepresent their environmental performanceA practice known as greenwashing.

As political backlash grows, some ESG critics are focusing on investment firms that have worked together to implement new standards for sustainability, such as collaborations. May violate antitrust laws.

“I’m sure the lawyers are spending a lot of time going over the minutes, the statements, the conversations to make sure the lines aren’t crossed and that they have a defense strategy where the lines are crossed,” said Witold Hennis of the corporation, which could be a focus of Republican scrutiny. Hennis is faculty director of the ESG Initiative at The Wharton School of Business at the University of Pennsylvania. “I don’t think they’re expecting huge liabilities, huge fines. But could some organizations be embarrassed? Could there be conversations that cross a line that could result in some fines? I mean, I wouldn’t be surprised.”

Hennis said the biggest risk from the GOP attack is that investors will be less willing to take aggressive action to address climate change. But he says there are no signs that investors are wavering in their belief that ESG issues like global warming pose a serious financial threat.

Vanguard said that while it is no longer part of the Net Zero Asset Manager initiative, it will continue to focus on climate risk and provide investor information and investment products to meet the goal of zero greenhouse gas emissions.

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