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Of course, having a rule that merely allows retirement plan investors the choice of buying an ESG fund is a terrible threat that will destroy America in the lobbyists view. There is no definitive evidence that ESG criteria or funds either outperform or underperform in the aggregate. There are strong ESG fund performers, too, as well as low cost ones. So, why not let investors decide for themselves by giving them the option to buy one? Somehow this is allowed in the rest of the world and a hell mouth hasn’t opened.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.
More than $18 trillion is held in investment funds that follow the investing principle known as E.S.G. — shorthand for prioritizing environmental, social and governance factors — a strategy that has been adopted by major corporations around the globe.
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.
….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.
…
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.
Mr. Whitehouse added that he believed the fossil fuel industry was responsible for funding much of the pushback. Groups like the Texas Public Policy Foundation, which has been opposing climate action around the country, are supported by oil and gas companies. And the oil and gas industry continues to donate to Republicans at a far greater rate than it does to Democrats, according to data compiled by OpenSecrets.
© 2015 Mutual Fund Observer. All rights reserved.
© 2015 Mutual Fund Observer. All rights reserved. Powered by Vanilla
Comments
XOM is found in many ESG funds other than ones that explicitly screen out fossil fuel companies. The oil lobby is fighting a battle of image, not of substance.
Sometimes XOM is included in ESG funds because it is rated as one of the "best of the worst". For example, Sustainalytics scores XOM as high risk but in the best 20% of oil and gas producers. Refinitiv appears to generate a company's overall score using only within-industry comparisons, leading to an overall score of 69/100 (second best quartile)
Sometimes because no matter how dirty a company is, the company may have good hiring and pay practices that counterbalance its other sins.
Nov 2019, WSJ: ESG Funds Enjoy Record Inflows, Still Back Big Oil and Gas
May 2022, UMich Ross School of Business: How a Sustainability Index Can Keep Exxon but Drop Tesla
Ultimately I think this is all going to be meaningless. Better run companies will consider risks, including environmental risks (e.g. are their facilities at risk of rising sea levels, are their practices at risk of more stringent regulation, etc.) when making business decisions. Fund managers look at how well companies are run, regardless of whether there's an ESG label slapped onto them. And relatively few ESG funds are set up to go beyond publically available (self reporting, low grade, nonstandardized) data or to make a significant difference in the way companies operate.
Trump's anti-ESG regulations had already been somewhat tempered by removing "ESG" and instead merely emphasizing pecuniary factors. And that's all that most funds marketed as ESG are doing.
https://www.plansponsor.com/dol-issues-final-rule-softer-stance-esg/
This is PlanSponsor's summary of the the newer (2022) version of the rules that are being opposed.
https://www.plansponsor.com/esg-now-permissible-not-required-erisa/
Now if you want to invest in a fund that truly tries to make a difference, that's another story.
There is also long-term climate risk assessment done by those relativist ESG funds that still hold XOM and those assessments make the fossil fuel industry nervous. They do not want there to be any acknowledgment that climate change is a material financial risk to their businesses which requires either divestment or changes to their business policies such as leaving certain assets in the ground.
In the short term there is much greenwashing and saber rattling. In the long term these matters are of grave importance, and retirement plans must think both short and long term about risk. For the sixty year old employee there is perhaps little financial risk in holding fossil fuel companies and perhaps rewards, but for the thirty year old employee in a retirement plan the risks are substantial.
What the DOL rule is about on a more granular level is allowing plan sponsors to consider climate risk as a material financial risk in their selection of funds and those funds investment strategies. That makes the fossil fuel industry uncomfortable.
And while I'm not a fund, I'd like to think that I'm a bit complex, too.
There is some rationality being brought to the fight however. I turns out bankers do not like being told what to do
https://www.washingtonpost.com/climate-environment/2023/02/28/climate-change-wall-street-investments/
There are already documented instances of bond proposals costing towns and cities millions of dollars more in Florida and Texas because sales were delayed or postponed because of anti-ESG laws and the number of underwriters is much less.
There was also another article today ( which now I can't find, of course) that illustrates how "anti-ESG" conservative Governors are more than happy to take money for their states from renewable energy subsidies. I think Texas has the largest solar and wind farm footprint in the country.