How Environmentally Conscious Investing Became a Target of Conservatives

The business world has been pulled into partisan politics, with Republicans bringing their battle against socially conscious investing to Congress.

Gelles is writing about how climate change has become part of the culture wars.

It’s been a widely accepted trend in financial circles for nearly two decades. But suddenly, Republicans have launched an assault on a philosophy that says that companies should be concerned with not just profits but also how their businesses affect the environment and society.

Now, Republicans around the country say Wall Street has taken a sharp left turn, attacking what they term “woke capitalism” and dragging businesses, their onetime allies, into the culture wars.

The rancor escalated on Tuesday as Republicans in Congress used their new majority in the House to vote by a margin of 216 to 204 to repeal a Department of Labor rule that allows retirement funds to consider climate change and other factors when choosing companies in which to invest. In the Senate, Republicans are lining up behind a similar effort that has been joined by Senator Joe Manchin III, Democrat of West Virginia.

E.S.G. investing has been routine on Wall Street for years. Most major companies issue extensive reports about their efforts to combat climate change and commitment to workplace diversity.

But in recent months, conservatives have increasingly attacked the practice, arguing that it promotes liberal priorities ranging from renewable energy to the Black Lives Matter movement.

And while E.S.G. applies to everything from diversity among corporate leaders to corruption controls, it’s the “E” in E.S.G. — the idea that the private sector needs to consider its impact on the environment — that has emerged as the top target of Republicans.

Officials in Republican-led states argue that it would lead to disinvestment in fossil fuel companies that provide tax revenue and jobs in their states, making it a top target of right-wing commentators and politicians.

“E.S.G. has been caught in the culture war cross hairs in the U.S.,” said Alexandra Mihailescu Cichon, executive vice president at RepRisk, a company that helps corporations track their E.S.G. goals. “It’s become a liberal versus conservative, Democrat versus Republican issue.”

The Labor Department rule is likely to remain on the books, as Republicans do not appear to have the votes to overturn a promised veto.

But the House vote on Tuesday was just the start of what’s expected to be a lengthy campaign against E.S.G.

Already this month, Representative Patrick McHenry, the North Carolina Republican who leads the House Financial Services Committee, announced the formation of a “Republican E.S.G. Working Group.” Republicans plan hearings this year at which conservative lawmakers are likely to grill executives from some of the nation’s biggest banks on their views about climate change, social issues and more.

BlackRock, the world’s largest asset manager, has been going out of its way to remind politicians that it still invests in fossil fuel industries, even as it supports efforts to reduce planet warming emissions.

“We are seeing major companies respond to this political pressure,” said Representative Sean Casten, Democrat of Illinois, who last month helped start the House Sustainable Investing caucus and who is a proponent of E.S.G. investing.

Even before Tuesday’s vote on Capitol Hill, the Labor Department rule had drawn a legal challenge from 25 Republican attorneys general, led by Ken Paxton of Texas.

As the Securities and Exchange Commission considers a new rule that would require corporations to disclose their carbon emissions, industry groups and Republican lawmakers have been pushing to limit its scope.

And Vivek Ramaswamy, a conservative businessman and commentator, has created what he considers an apolitical investment firm, Strive Asset Management, positioning it as an alternative to BlackRock. Mr. Ramaswamy recently announced he was running for president on what is effectively an anti-E.S.G. platform.

To the ranks of wonky risk management professionals who have toiled over the minutia of E.S.G. reports for decades now, the political fracas is perplexing.

The term E.S.G. was first introduced in a 2004 report prepared by the United Nations and 20 financial firms including Goldman Sachs, Morgan Stanley and UBS.

That advocacy has made him a target of scathing critiques from conservative commentators and politicians, as well as dark conspiracy theories.

“For the first time in my professional career, attacks are now personal,” Mr. Fink said at the World Economic Forum’s annual meeting in Davos last month. “They’re trying to demonize the issues.”

The current E.S.G. backlash can be traced to Texas, where in 2020 oil executives began complaining that big banks like JPMorgan had stopped lending them money.

Republican legislators in Austin, as well as officials at the Texas Railroad Commission, the state’s energy regulator, took up their cause.

“If E.S.G. is not put in check, not only will future retirees face challenges in the years ahead, but we could see record bankruptcies and layoffs in the energy sector,” Wayne Christian, one of the railroad commissioners, said in 2021.

Since then, others have taken up the fight against E.S.G.

It is unclear whether applying environmental and social principles to investing is actually good for business. Some studies have shown that companies that embrace environmental and social goals outperform their peers in the long run. But other studies show the opposite. And as the stock market slumped last year, oil and gas stock prices rose sharply.

Another point of contention is that E.S.G. rankings, which are compiled by companies like S&P Global, arrive at sometimes counterintuitive conclusions about which companies are doing the most for the environment and society.

Senator Sheldon Whitehouse, Democrat of Rhode Island, said he believed the Republican position on E.S.G. was more about ginning up outrage than about just how much of a financial risk climate change posed to long term investments.

“They invent culture-war provocations that drive clicks, and woke capitalism is part of that,” he said.

And yet with each week, Republicans around the country are intensifying their campaign.

Financial institutions caught in the middle of the fight say it makes their work difficult.

Category: Science

Source: NYTimes Science