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By Frances Schwartzkopff<\/a><\/p>\n\n\n\n August 25, 2022 (Bloomberg.com) <\/p>\n\n\n\n Investment professionals are warning that a Republican campaign seeking to wipe ESG off the financial map puts at risk the savings of ordinary Americans caught in the political crossfire.<\/p>\n\n\n\n Environmental, social and governance investing is now under attack in the world’s largest economy. Florida Governor Ron DeSantis this week banned<\/a> state pension funds from screening for ESG risks. Texas is seeking to isolate financial firms<\/a> it says are hostile toward the fossil-fuel industry. And in Arizona, Republican Senate nominee Blake Masters has characterized ESG scores as an existential threat<\/a> to America. ESG is still a relatively new investing form, and the acronym itself has only existed for less than two decades. But over the past five years, it has outperformed. US large-cap sustainable equity funds focused on growth rose at an average annual rate of 14% in the period, compared with 11% for conventional non-ESG funds, according to data provided by Morningstar Inc. ESG funds also did better when looking at global and European data from the researcher.<\/p>\n\n\n\n A study<\/a> published in May by the European Securities and Markets Authority that looked at 6,528 so-called UCITS funds found that ESG generally improves returns and cuts client costs over time. ESMA found that funds focusing on the \u201cS\u201d in ESG tended to perform best. Sasja Beslik, a sustainable finance veteran who\u2019s now the chief investment officer at NextGen ESG, described the decision by DeSantis as \u201ctragic.\u201d <\/p>\n\n\n\n It shows that the governor of Florida and others who share his view \u201cdon\u2019t understand that long-term management of pension investments naturally includes material ESG issues that can impact returns,\u201d Beslik said.<\/p>\n\n\n\n \u201cIt is pension money that runs the most significant financial risk if they don\u2019t take ESG into account,\u201d he said. \u201cESG\u2014when done for real\u2014is first and foremost a risk-management tool. Politicians run for four years, maybe eight. But pension money is very long term.\u201d \u201cPension funds in Europe have a legal duty to invest in the long-term best interest of beneficiaries,” said Anastasios Pavlos, policy adviser at PensionsEurope, whose members oversee about $7 trillion in assets. \u201cThe war in Ukraine revealed a new important dimension regarding the importance of ESG considerations.”<\/p>\n\n\n\n The notion that ESG is a left-wing conspiracy infiltrating US corporate life also is hard to square<\/a> with the fact that 69% of major companies in the country are run by executives who identify as Republicans, according to University of Oxford\u2019s Said Business School professor Robert Eccles, who cited a paper by professors Vyacheslav Fos of Boston College, Elisabeth Kempf of Harvard Business School, and Margarita Tsoutsoura of Washington University in St. Louis.<\/p>\n\n\n\n Eccles, who\u2019s a proponent of sustainable investing, has suggested it may be necessary to jettison the ESG label<\/a> now that it\u2019s become a target for Republicans. While the principles behind ESG are sound, it would be better\u2014given the political climate\u2014to change the terminology, he said.<\/p>\n\n\n\n Whatever the label, ignoring ESG risks such as a hotter planet comes at a physical cost, said Sonali Siriwardena, partner and global head of ESG at law firm Simmons & Simmons. The claim that ESG hurts returns is \u201cshort-termism at play,\u201d she said. <\/p>\n\n\n\n \u201cThe science is now clear and we\u2019re seeing the negative effects of climate change far earlier than predicted,\u201d Siriwardena said. <\/p>\n\n\n\n What on Earth?<\/p>\n\n\n\n The Bloomberg Green newsletter is your guide to the latest in climate news, zero-emission tech and green finance.EmailSign Up<\/p>\n\n\n\n By submitting my information, I agree to the Privacy Policy<\/a> and Terms of Service<\/a> and to receive offers and promotions from Bloomberg.<\/p>\n\n\n\n Florida is perhaps uniquely vulnerable with a coastline exceeding 8,000 miles (12,900 kilometers). DeSantis has even acknowledged the threat, and late last year recommended more than $1.5 billion of environmental programs<\/a> be earmarked to help protect the state from coastal flooding. But that may be just a tenth the amount needed given the scale of the environmental threat facing the state, according to Jesse Keenan, a professor at Tulane University in New Orleans who focuses on climate-change adaptation.<\/p>\n\n\n\n The United Nation\u2019s Intergovernmental Panel on Climate Change estimates that the planet might be on track for temperature increases that may be twice the limit<\/a> set out in the Paris climate accord. That would result in a climate catastrophe with the potential to render much of the planet uninhabitable, with coastal areas particularly at risk. <\/p>\n\n\n\n New York City Comptroller Brad Lander earlier this month accused Republicans of defending the interests of oil companies in a \u201cwar of political distraction.\u201d<\/p>\n\n\n\n \u201cBeing a comptroller, being a fiduciary of pension obligations for hundreds of thousands of people, you keep an eye on the long term, you pay attention to the science,\u201d Lander said. \u201cYou make the wisest, long-term and responsible decisions you can.\u201d<\/p>\n\n\n\n Read more: NYC\u2019s Comptroller Strikes Back at Republicans\u2019 ESG Criticisms<\/a><\/p>\n\n\n\n In the final months of Donald Trump\u2019s presidency, his Department of Labor moved to adjust the Employee Retirement Income Security Act of 1974 (ERISA) to require those overseeing pension and 401(k) plans to always put economic interests ahead of so-called non-pecuniary goals. It was seen as a direct attack on ESG and green investing. In January 2021, President Joe Biden included the DOL\u2019s \u201cFinancial Factors in Selecting Plan Investments\u201d on his list of Trump climate-related agency actions that are up for review.<\/p>\n\n\n\n \u201cWe\u2019re still waiting for the Biden administration to officially reverse the Trump proposal,\u201d McGannon said. As for Florida, the governor\u2019s pronouncement will only effect state-run pension funds and not company-run retirement plans, he said.<\/p>\n\n\n\n (Courtesy of Michael Kelly, H.W.)<\/p>\n","protected":false},"excerpt":{"rendered":" GOP Fury Over ESG Triggers Backlash With US Pensions at Risk Politicians from Florida and Texas go on the attack against investment firms that weigh risks tied to climate change and other societal issues. By Frances Schwartzkopff August 25, 2022 (Bloomberg.com) Investment professionals are warning that a Republican campaign seeking to wipe… Continue reading
The development represents a rapid escalation of aggression toward an investing form that few people even knew existed five years ago. But the finance industry, which has embraced ever more ESG products promising to address issues like climate change and inequality, is starting to strike back, arguing that Republican policies put the financial security of US savers in serious jeopardy.
\u201cDeSantis\u2019s decision is clearly tied to politics because it\u2019s certainly not in the best interest of pension fund beneficiaries,\u201d according to Bryan McGannon, director of policy and programs at US SIF<\/a>, a Washington-based group that supports sustainable investment businesses. \u201cReading between the lines, DeSantis is ultimately saying that climate change is a non-pecuniary issue putting the long-term savings of Florida pensioners at risk. That just doesn\u2019t make sense.\u201d
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Ignoring ESG may even open the door to legal liability.
\u201cExisting US securities laws require registrants to disclose any risks that are reasonably likely to have a material impact on their business, results of operation, or financial condition,\u201d said Ken Rivlin<\/a>, head of the international environmental law group at Allen & Overy. \u201cFailure to disclose such material risks\u2014including climate-related risks, if they\u2019re material\u2014could create a basis for liability.\u201d
DeSantis, who\u2019s pegged as a possible contender for the 2024 presidential election, has promised voters to \u201cprotect\u201d them from ESG, which he has claimed threatens their economic freedom. On Tuesday, he characterized ESG as a \u201cperversion\u201d of financial investing.
But evidence exists that shows US voters aren\u2019t as hostile toward efforts to fight climate change as DeSantis suggests. A Harris Poll of US savers conducted on behalf of Nuveen last year found that more than two-thirds of people asked want<\/a> their employer to offer pension plans that incorporate ESG factors.
What\u2019s more, a study by Enersection, a Houston-based data visualization firm, shows that Republican districts are well ahead<\/a> of their Democratic counterparts in targeting clean-energy projects. And a data analysis<\/a> conducted by Bloomberg Opinion and Enersection of where renewable-energy technology gets deployed in the US shows the vast majority is in Republican-led congressional districts.<\/p>\n\n\n\n
In Europe, the main pensions association said ESG has already played a role in safeguarding members’ finances.<\/p>\n\n\n\n