Why is there suddenly such a sharp and nasty backlash to principled investing? As always, look to the money: fossil fuel companies are exerting pressure on lawmakers to push back on the legitimacy of ESG, and sustainability practices in general, in the effort to keep investor dollars flowing toward them.
There’s nothing new about people wanting to put their money where their values are. Over the past few years, the desire to invest with an eye toward long-term health and sustainability has led firms to develop ESG (environmental, social, and corporate governance measures meant to hold companies to account) and impact investing.
These measures generally promote a move away from fossil fuels and exploitative practices in general. Now it seems politicians and firms are caving to pressure to abandon the principles and loosen the reins.
For years, firms have developed investment funds to cater to the desires of the investor. People have different attitudes and goals for their money: from low risk to high risk, with all range of principles. Putting your money where your mouth is not just a cliché, but a service offered by many investment firms. The idea is that you should have the freedom to invest in companies that represent your values, and not invest in ones that don’t.
For example, a Catholic priest may not opt to invest in a healthcare services company that provides contraception and abortions; a devout Muslim may not want to invest in a company that manufactures alcohol; and a pacifist should be able to keep their money out of arms manufacturers.
Many of us want to steer clear of fossil fuel companies, at the very least, and put our money into sustainable energies instead. We believe it’s good ethics, but also, absolutely vital to the future of our lives on the planet—and so, good business.
That’s where ESG and impact investing come in. These practices screen companies on issues to prevent funding (such as forced or child labor in the supply chain); or proactively invest in companies that claim to have a specific kind of impact (such as providing healthcare to underserved communities in Appalachia).
In fact, ESG has been growing in popularity for years. Global ESG fund assets reached about $2.5 trillion at the end of 2022. Investment firms, like BainCapital (founded by Senator Romney and others), utilize an ESG approach in their portfolios; and many companies, like AbInBev, provide extensive ESG reports to highlight how they perform against these criteria.
Here is what Senator Romney’s former company currently states about this kind of investing:
- We believe we can create durable, scalable impact through who we are, what we value and how we engage. By nature, we are critical thinkers, problem solvers and doers, and we will not leave the issues of our time for the next generation to solve. Reflecting on the urgency and magnitude of ongoing challenges across the globe, we are inspired to do more. We commit and aspire to intentionally add value to both people and our planet, while upholding our fiduciary responsibility to achieve outsized returns for our investors.
- Our commitment to lasting impact is at the heart of our firm’s purpose and values, and has led to our enhanced ESG approach.
Clearly, investors and firms understand the urgency of investing in companies that take a long-term approach to a healthy business model and economy; they promote practices that do not destroy the climate or harm people, but rather find new solutions to a healthy labor force, a sustainable energy model, and more.
However, despite these trends and statements, we are suddenly seeing an about-face on these values. In fact, Senator Romney and his self-declared free market Republican colleagues recently proposed a resolution that would prevent retirement investments from being able to do what Bain Capital does. These same Republicans are also pushing states to pass bills that prevent their state retirement funds from investing this way.
What happened to freedom to invest where you want? These measures are more about protecting monied interests than ensuring freedoms or protecting investors.
Follow the money
It’s a straight path that leads you to find that Republicans are working with groups like ALEC (American Legislative Council), which is heavily funded by companies, in particular the fossil fuel industry. Like the tobacco industry (which has declined since the 1960’s as a result of, transparency, science, litigation and regulation), the fossil fuel industry is seeing its influence and business model decline as governments, businesses, investors, and the public grapple with climate change and its link to fossil fuel extraction.
In a desperate attempt to keep investors from considering climate as a risk, or the SEC from requiring disclosures about climate risk, the industry is seeking to politicize investments by taking away the freedom to consider environmental, social or governance risks.
The irony is palpable, of course, as the “Anti-Woke” rhetoric is being led by people like Vivek Ramaswamy (now running for President), who founded the investment firm Strive Asset Management with Anson Frericks. Frericks was once employed by AbInBev, a company which churns out ESG reports annually; but now he and his investment firm purport to keep politics out of investment decisions, or as its website states: “A depoliticized investment option.”
Taking a stand on climate change is in fact political. To oppose the forces that have had a tremendous role in warming and polluting our climate means opposing fossil fuel companies, full stop. To choose to protect this industry is wildly, regressively political.
Indeed, protecting the industry—which many Republicans have now chosen to do—means not only ignoring the science on climate change, but abandoning a free market theory which relies on market forces of supply and demand. They want to eliminate our freedom to buy or invest as we see fit, without government intervention.
On the bright side, however, this desperate effort to remove values from our investment choices has strong opposition. Several states have pushed back on these bills—including some of the reddest ones—and President Biden vetoed the resolution at the federal level, which failed to get an override.
In a moment of such precarity, people who wish to invest in the future of our planet should have the choice to do so. To be forced to invest in a destructive and dangerous industry is a political game that hurts us all.