On Tuesday, the PBS NewsHour explored how some investment firms and state comptrollers who have built their clients' financial portfolios around the hip liberal philosophy of “ESG” (environmental, social, and governance factors) are facing "backlash."
ESG investment standards could include investing in companies that fight so-called climate change, or in companies that make “equity and diversity” a priority, while divesting from "harmful" energy companies. Yet many stockholders increasingly believe such investment priorities are coming at the expense of profits, and those firms' fiduciary duty to their clients.
The story's online headline emphasized the political point: “Conservatives fight back against environmental and socially conscious investments.”
Host Geoff Bennett laid out the liberal worldview that “extreme weather events” made ESG-fueled investment priorities necessary:
The extreme weather events that have hit the U.S. and other countries this summer have cast a sharp spotlight on the role of climate change. In recent years, those same concerns have changed the way that major investment firms and some companies do business. Economics correspondent Paul Solman has more on the backlash that's brewing.
Solman’s first source was liberal NPR fan and New York City Comptroller Brad Lander, who seemed to have a definite ideological agenda lurking.
Lander: Diversification protects you against concentration risks. Looking at your environmental and social and governance risks protects you against systemic risks.
He claimed “climate risk is financial risk” and issued hypothetical warnings against “disruption in the food supply,” “climate refugees,” and real estate that may become literally underwater.
Solman also cited Republicans railing against ESG investing “as so-called woke capitalism,” including Governor Ron DeSantis of Florida and Texas Comptroller Glenn Hegar, who “has a list of financial institutions now banned from doing business with the state government because they boycott energy companies” including giants BlackRock and UBS.
Even Republican presidential candidate Vivek Ramaswamy popped up with a little rapping and criticism of “the politicized demands of asset managers,” while Solman poked him with rebuttals.
While Solman did quote ESG opponents, supporters seemed to always get the final word, with Republicans cast as heavy-handed enforcers of the status quo.
Rebecca Henderson, Harvard Business School: And when one political party decides that firms acting in this way is not appropriate, and is willing to use their power to enforce that, many managers say, oh, OK, OK, I'm going to be careful. I'm not -- at the very least, I'm not going to talk much about it.
Solman let supporters provide excuses for ESG investments not doing so well:
And, yes, some studies show ESG investing in general has led to lower returns in recent years. But proponents point to the long term.
The reporter let Henderson change the subject, without rebuttal, from financial returns to leftist talking points:
Solman: And Henderson argues monetary returns aren't the only metric we should be using.
Rebecca Henderson: Not to pay attention to what's happening to the climate, not to pay attention to the consequences of inequality of the society we're in, not to be aware of the new products and opportunities that dealing with these issues is going to create, is to be blinkered, and shortsighted.
Solman concluded by hinting the pro-ESG side was on the right side of history, accompanied by clips of a wildfire:
In the end, the debate may come down to timeframe, shareholder value in the more knowable short run, in contrast to the less knowable, but ever more threatening future.
This ESG-supporting segment was brought to you in part by Consumer Cellular.
A transcript is available, click “Expand” to read:
PBS NewsHour
8/29/23
7:32:30 p.m. (ET)
Geoff Bennett: The extreme weather events that have hit the U.S. and other countries this summer have cast a sharp spotlight on the role of climate change.
In recent years, those same concerns have changed the way that major investment firms and some companies do business. Economics correspondent Paul Solman has more on the backlash that's brewing.
Paul Solman: On Wall Street, New York City Comptroller Brad Lander.
Brad Lander, New York City Comptroller: A big part of investing is investing across the stock market.
Paul Solman: And that's how you protect your portfolio against risk.
Brad Lander: Diversification protects you against concentration risks. Looking at your environmental and social and governance risks protects you against systemic risks.
Paul Solman: Lander oversees over $250 billion in assets in pension funds for 750 New York City teachers, transit workers and other public employees.
Brad Lander: If you have retirement obligations, pension obligations out decades, then climate risk is financial risk.
Paul Solman: In Lander's words, taking into account a firm's environmental, social and governance, so-called ESG, risks is his fiduciary responsibility as a long-term investor. That includes, he says, reducing greenhouse gas emissions in the portfolio to near zero.
Brad Lander: We have adopted the most ambitious net zero plan of any us public pension fund. We're aiming to have our — three of our five funds be net zero by the year 2040, so pretty soon.
Paul Solman: In 2021, three of the five New York funds he oversees divested $4 billion from fossil fuel stocks to mitigate risks associated with global warming, he says.
Brad Lander: If we have disruption in the food supply, if we have an increased number of climate refugees, if we have more real estate can't live in because it's underwater or it's just too hot, all of those have big financial costs.
Paul Solman: By the end of last year, ESG investments nationwide totaled $8.4 trillion, 13 percent of total us assets under professional management.
Dan Abbasi, Douglass Winthrop Advisors LLC: Incorporating E factors within ESG for us is something that's just a matter of good, solid, prudent investing.
Paul Solman: Portfolio manager Dan Abbasi applies the E, environmental metrics.
Dan Abbasi: If we have increasingly dangerous problems like climate change, the companies that are selling solutions to those, there's opportunity to grow and be competitive, but also an opportunity to have favorable impact on society.
And we see those as flip sides of the same coin in many cases.
Sean Reyes (R), Utah Attorney General: It's an existential threat.
Paul Solman: But, these days, there's a political backlash against this ESG investing as so-called woke capitalism.
Rep. Lisa McClain (R-MI): It's not their job to pursue political agendas.
Paul Solman: Congressional Republicans have taken up the issue.
Rep. Lisa McClain: It's their job to actually manage the accounts for return on investment.
Paul Solman: A GOP bill to prevent pension funds from considering ESG prompted President Biden's very first veto.
So, states have taken up the anti-ESG cause. Gov. Ron DeSantis (R-FL), Presidential Candidate: In Florida, we signed legislation, nixing ESG from our pension fund, because we don't want political agendas to interfere with the pensions of our teachers, our firefighters and our police officers.
Paul Solman: This year, 165 pieces of anti-ESG state legislation have been introduced, 22 of which have become law.
Glenn Hegar, Texas Comptroller: Investment outfits that are not investing in the oil and gas industry from here forward, they are therefore deemed boycotting the oil and gas industry.
Paul Solman: In Texas, Comptroller Glenn Hegar has a list of financial institutions now banned from doing business with the state government because they boycott energy companies.
Glenn Hegar: If someone else can do this job, then go with those. Don't go with the entity that's boycotting the oil and gas industry.
Paul Solman: The Texas comptroller's office has already pulled several billion dollars from the likes of investment giants BlackRock and UBS.
Glenn Hegar: If we had no more petroleum in this nation in this world, you would literally would shut down most functions of the economy.
Paul Solman: And in New Hampshire…
Vivek Ramaswamy (R), Presidential Candidate: My name is Vivek. It rhymes with cake, and I'm on the campaign trail having some fun.
Paul Solman: One-time Harvard undergrad rapper Republican Vivek Ramaswamy, who went on to make mega millions as a hedge fund and biotech honcho.
Vivek Ramaswamy: Fossil fuels are a requirement for human prosperity.
Paul Solman: He's now campaigning for president in part on an anti-ESG platform.
Vivek Ramaswamy: What's actually driving it? It's the politicized demands of asset managers. And I think that that is a political agenda masquerading as value maximization.
Paul Solman: And ESG backlash is having real impact on asset managers, including the world's largest, BlackRock, whose CEO, Larry Fink, is on the defensive.
Question: There has been a rebuke, if you will, to what some people call woke capitalism.
Larry Fink, CEO, BlackRock: I believe stakeholder capitalism is not political. It is not woke. It is capitalism.
Paul Solman: But, today, Fink no longer publicly embraces ESG. And he's far from alone, says Harvard business school's Rebecca Henderson.
Rebecca Henderson, Harvard Business School: And when one political party decides that firms acting in this way is not appropriate, and is willing to use their power to enforce that, many managers say, oh, OK, OK, I'm going to be careful. I'm not — at the very least, I'm not going to talk much about it.
Paul Solman: But how well have ESG investments actually fared?
In New York, four city employees sued the pension plans that shed fossil fuel investments, alleging they breached their fiduciary duties? Fossil fuels have done quite well in recent…
Brad Lander: Well, it depends what time horizon you look at. They had a brief window. If you look over a longer period of time, they have not actually been doing very well at all.
So, our funds are in strong position. If you look at our one-year, our three-year, our five-year returns, they're really actually very quite strong, given all the decisions that we have made.
Paul Solman: Ramaswamy says he doesn't buy it.
Vivek Ramaswamy: Disguising this agenda in the guise of value maximization is a farce.
Paul Solman: So, the New York comptroller who tells me that he's trying to invest in the long-term interests of his pensioners is lying?
Vivek Ramaswamy: I believe he's not telling the truth. That's correct.
Paul Solman: But Dan Abbasi points to official data that his environment-focused investing has paid off.
Dan Abbasi: Our strategy has outperformed now benchmarks like the S&P 500 in the MSCI World for six-and-a-half years. This idea that it's an ideological issue, for us, it's just a prudent investment agenda that's very clear-eyed about the way the world is changing.
Paul Solman: So I asked Ramaswamy, is it ever the case that a company would say in good faith it is in the interest of our shareholders to maximize value by taking ESG into account?
Vivek Ramaswamy: Maximize shareholder value to do whatever requires taking maximize shareholder value into account. But the little puzzle at the heart of this is why these particular three letters and that acronym had to be the one factor they take into account. That should raise suspicions.
Paul Solman: And, yes, some studies show ESG investing in general has led to lower returns in recent years. But proponents point to the long term.
Rebecca Henderson: It's as if we're stuck in an old way of thinking about the world and an old — old assumptions about how to make money, and that we just haven't understood that the world is fundamentally changing.
Paul Solman: And Henderson argues monetary returns aren't the only metric we should be using.
Rebecca Henderson: Not to pay attention to what's happening to the climate, not to pay attention to the consequences of inequality of the society we're in, not to be aware of the new products and pportunities that dealing with these issues is going to create is to be blinkered, and shortsighted.
Paul Solman: Yet Henderson is also skeptical of so-called greenwashing firms who use ESG mainly as a marketing device.
Rebecca Henderson: There are companies that have just said, yes, we need ESG. Go measure it, stick it in the P.R. department.
And they aren't really being used to govern the firm and they aren't really useful to investors. So that is true. It is also true that some of the things that people are trying to measure are hard to measure. But, to me, that sounds like reason to improve the measures, not to get rid of them altogether.
Paul Solman: In the end, the debate may come down to time frame, shareholder value in the more knowable short run, in contrast to the less knowable, but ever more threatening future. For the "PBS NewsHour," Paul Solman.
