ESG Investing Will Have A Good Year In 2024, Despite Turmoil In The U.S.

24 01 2024

(Image credit: Aditya Vyas/Unsplash)

By Tina Casey from Triple Pundit • Reposted: January 24. 2024

Critics have raised plenty of fire and brimstone in their opposition to investments made through the lens of environmental, social and governance (ESG) principles, but most of that energy has gone to waste. The ESG movement continues to gain momentum globally, and research shows that anti-ESG laws passed in the U.S. had a limited impact. In fact, the only clear losers appear to be the very people that anti-ESG legislation ostensibly aims to protect.

ESG investing gains global momentum while facing headwinds in the U.S. in 2023

The firm Russell Investment has surveyed how the investment management industry integrates ESG principles for the past nine years. Its 2023 survey, released in October, observed “the United States remains mired in a contentious debate” over ESG. That presents a sharp contrast with global jurisdictions that have strengthened their ESG reporting mandates, most notably Canada, Europe and Australia.

The contrast is also reflected in the adoption of the Net-Zero Investment Framework, a set of guidelines to help investors align their holdings with the global push to cap temperature rise at 1.5 degrees Celsius this century. Russell found that 80 percent of the managers surveyed in Europe had already signed on, with the U.S. lagging far behind at just 20 percent.

Others including the sustainable investing asset manager Robeco also noted a growing “ESG backlash in the U.S.” in 2023. 

The big question is how financial firms are handling the oppositional environment in the U.S. Some have simply decided not to use the acronym “ESG,” without actually changing how they use ESG principles. Those taking this approach include the world’s largest asset manger, BlackRock, CEO Larry Fink said at the Aspen Ideas Festival in June. 

Marjella Lecourt-Alma, CEO and co-founder of the ESG and risk management platform Datamaran, has noticed a similar shift in the way clients talk about ESG. “Some of them say we watch our words a little bit. They are bringing back things like ‘corporate sustainability,’” she told TriplePundit in December.  

Kris Tomasovic Nelson, senior director and head of ESG investment management for Russell Investments, agreed. “ESG factors are increasingly driving investment decisions,” he told Pensions & Investments reporter Hazel Bradford earlier this month, but “the door is open to using different terminology.”

He hastened to note that strategies at many U.S. financial firms still include ESG principles, even if companies are more careful in talking about them, and said he doesn’t see the U.S. situation impacting the global landscape. “Outside of the U.S., I don’t see any slowing of momentum,” he added.

Taking the anti-ESG bull by the horns heading into 2024

As of last year, 22 U.S. states adopted some form of “anti-ESG” legislation that seeks to limit how ESG principles can be used in investment decision-making or minimize investment in specific funds and firms, according to the law firm K&L Gates. Republican legislators in 12 different states enacted such legislation in 2023 alone, according to an S&P Global analysis. Many were “revised and weakened as they moved through the legislative process,” S&P reported, though they still have had a “chilling effect.”

In another strategy for navigating this complex landscape, some U.S. investors are taking advantage of vague language in these laws to forge ahead. 

Earlier this week, for example, Financial Times reporter Will Schmitt highlighted the case of the Texas Permanent School Fund, which deployed an opening in the state’s strict anti-ESG law to put $300 million into an energy transition fund under the Macquarie Green Investment Group. The investment occurred in 2022, shortly after the Texas state comptroller published a “blacklist” of forbidden firms that included Macquarie’s energy transition solutions fund.

“The investment highlights how fiduciaries are finding ways to navigate gaps in rules designed by conservative officials to keep environmental, social and governance considerations out of public investment portfolios,” Schmitt observed.

In other states, fiduciaries are taking matters even further into their own hands. The Oklahoma Public Employees Retirement System, for example, avoided a potential loss of $10 million when its board voted to retain BlackRock and State Street as investment advisors, even though the two firms were on an anti-ESG blacklist compiled by the state treasurer, S&P reporter Karin Rives observed in an analysis published last week.

“If we thought that we could have abided by the law without hurting the pension fund, we would have done that in a heartbeat. But we have a fiduciary responsibility,” Oklahoma’s insurance commissioner, Glen Mulready, told Rives.

Some U.S. firms have also lobbied their representatives in state government for changes to proposed legislation, in hopes of preventing the worst damage.

U.S. public funds face outsized risk under anti-ESG legislation, new analyses show

Despite these workarounds, anti-ESG legislation is impacting public funds, and not in a good way. The supporters of anti-ESG legislation claim the laws are needed to protect the financial interests of pensioners and other members of the general public. However, they neglect to mention that financial firms can simply pack up and take their business out of state.

One such example occurred in Texas, where legislators passed an anti-ESG law in 2021. The new law immediately reduced competition in the municipal bond market, costing the small city of Anna an estimated $277,334 on its bond sale.

That’s just the tip of the iceberg. Texas cities could pay up to $532 million in additional intereston their bonds in less than a year under the legislation, according to an analysis from the University of Pennsylvania and the Federal Reserve Bank of Chicago. 

“In Indiana, a bill to limit ESG investing could cut state pension returns by $6.7 billion over the next 10 years,” former Maryland Attorney General Brian Frosh and former Maryland State Treasurer Nancy Kopp wrote in Bloomberg last year, while the Arkansas Public Employees Retirement System risks losing $30 million to $40 million annually.

Karin Rives of S&P Global also cited an analysis by Econsult Solutions Inc., which estimates that six U.S. states could be hit with $708 million in higher borrowing costs due to anti-ESG laws impacting municipal bonds.

In the face of these swift and damaging results, it is fair to ask how legislators and other public servants could miscalculate the impact of anti-ESG laws so badly, especially when they were warned of the risk. They’re poised to lose more ground in 2024, as analysts including Thompson Reuters predict ESG will have a transformational impact on business models as more companies focus on reducing their Scope 3 supply chain emissions.

And investors will follow the money, as they always have.

Tina Casey writes frequently for TriplePundit and other websites, with a focus on military, government and corporate sustainability, clean tech research and emerging energy technologies. To see the original post, follow this link: https://www.triplepundit.com/story/2024/esg-investing-good-year/793256


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ESG at a Crossroads: Down, But Not Out

11 09 2023

Image credit: Justin Luebke/Unsplash

By Tina Casey from Triple Pundit • Reposted: September 11, 2023

With the 2023 proxy season in the rear-view mirror, financial analysts noted a sharp decline in shareholder support for environmental, social and governance proposals. However, anti-ESG proposals also failed to stick, and signs of an ESG resurgence are already beginning to emerge.

Mixed support in the 2023 proxy season

Most U.S. companies hold proxy sessions between April and June, enabling shareholders to vote on issues without being present.

Based on the outcome of the 2023 season, shareholders seem to be losing interest in ESG issues. In a June analysis, the firm FTI Consulting noted that “2023 has seen investors support significantly less environmental and social proposals than in past years.”

The question is whether or not the drop-off marks a permanent trend or a temporary reaction to current events. FTI attributed much of the decline to the “anti-ESG” agenda, explaining: “The scrutiny on institutional investor vote behavior…by the anti-ESG activists has caused institutional investors to support less environmental and social proposals in 2023.”

At the same time, anti-ESG proposals also failed to garner much support from shareholders over the past five years, the analysis found. FTI advised that other factors can also have a significant influence on ESG support. Analysts cited the 2022 proxy season, which also saw a drop in ESG support after a rules change by the U.S. Securities and Exchange Commission. The change fostered a spike in the number of prescriptive proposals to come up for a vote, and prescriptive proposals generally receive low support from shareholders regardless of their subject matter. 

We don’t talk about ESG, but we do it

One area where the anti-ESG movement has clearly had an impact is in the way in which bankers, money managers and other financial stakeholders communicate. Many continue to put the principles into action while avoiding specific references to ESG, as shown by a recent Bloomberg survey.

“About two-thirds of respondents in a survey of roughly 300 Bloomberg terminal users said the anti-ESG movement that started in the U.S. last year will force firms to stop using those three letters in conversations with clients,” Alastair Marsh and Lisa Pham of Bloomberg observed last month. “However, they’ll continue to incorporate environmental, social and governance metrics in their business.”

Financiers under fire

The Bloomberg analysis is among those attributing ESG avoidance to an aggressive, partisan political environment of legislative and legal attacks on ESG investing. 

Though the issue seems to have failed to gain traction among voters, fossil energy stakeholdershave been credited with motivating Republican office holders to act. Their efforts reportedly include model bills created by the American Legislative Exchange Council (ALEC), which has established a right-wing reputation with an emphasis on protecting fossil fuels.

“The finance industry is now grappling with a second year of attacks on ESG by key members of the Republican Party, including threats of litigation from state attorneys general, as well as outright bans on the strategy in some U.S. states,” Marsh and Pham of Bloomberg noted.

The attacks prompted one of the highest-profile proponents of the ESG investing movement, BlackRock CEO Larry Fink, to stop using the acronym altogether.

“I don’t use the word ESG any more, because it’s been entirely weaponized … by the far left and weaponized by the far right,” Fink told a gathering at the Aspen Ideas Festival last summer, as reported by Reuters. In the same speech, he reaffirmed BlackRock’s commitment to discussing decarbonization, corporate governance and social issues with the companies in its portfolio.

Financiers fight back

Despite the political headwinds, financial stakeholders continue to act in support of social and environmental principles. Part of the effort is happening behind the scenes, as financial stakeholders seek to convince legislators that anti-ESG bills will result in financial harm to their states.

In a recent analysis, S&P Global identified 12 states in which Republican legislators “successfully pushed anti-environmental, social and governance legislation across the finish line.” In all, 19 states now have one or more anti-ESG laws on the books. 

That may seem like a substantial gain, but the legislative failures outweighed the successes. “Many anti-ESG bills introduced in 2023 … failed after chambers of commerce, banking associations and public pension officials raised concern over costs or free market principles,” S&P observed. 

In addition, only four of the 25 new anti-ESG laws to pass this year remained intact by the time of the August analysis. The other 21 were substantially revised to protect state pension funds. S&P cited Indiana and Texas as examples, both of which would have faced billions in losses over 10 years without the revisions.

Taking it to the courts

Financial stakeholders are also taking their case to court. For example, last month the Securities Industry and Financial Markets Association (SIFMA) — an industry group that counts BlackRock among its members — moved to challenge new Missouri rules on ESG documentation.

The rules went into effect on July 30. As described by SIFMA, they stipulate burdensome documentation that no other state requires. SIFMA argues that the new rules put Missouri in direct conflict with the 1996 National Securities Markets Improvements Act, under which states cannot preempt standard federal record-keeping rules.

“Under existing federal securities laws, broker-dealers and investment advisers are already required to provide investment advice that is in the best interest of their customers,” the group argued as it announced the suit. “The Missouri rules are thus unnecessary and create confusion.”

The climate factor

New reporting rules established by the European Union may also motivate U.S. companies to continue making progress on ESG principles, regardless of what’s happening at home.

The new EU Corporate Sustainability Reporting Directive became effective last January. “This new directive modernizes and strengthens the rules concerning the social and environmental information that companies have to report,” the European Commission’s website reads. The new rules cover large companies as well as small and midsized companies.

In June, the Republican-led ESG Working Group in the U.S. House of Representatives released an interim report that recommended protecting U.S. companies from “burdensome EU regulations.” However, Republican leadership will have a hard time reconciling protectionism with their party’s longtime support for free market principles.

The anti-ESG movement is also floundering on the national stage. Surveys routinely reflect public support for ESG principles. Moreover, high-profile Republicans aren’t helping the case.

The hapless presidential campaign of Florida Gov. Ron DeSantis is one example. Among other issues, the Republican governor has cultivated a reputation for opposing ESG investing, highlighted by a high-stakes legal feud with Florida’s top employer, Disney, over LGBTQ rights.

Another example is the looming impeachment of Texas Attorney General Ken Paxton, a prominent anti-ESG Republican, on charges of corruption and bribery. His wife’s reported involvement with a shell company has raised additional questions about allegiance to the principles of fiduciary duty.

Looming over all this is climate change, a factor from which Florida, Texas and other anti-ESG states are hardly immune. With the exception of fossil energy stakeholders, the rising threat of climate risks will continue to influence and motivate corporate behavior regardless of the outcome of the upcoming 2024 proxy season. 

Tina writes frequently for TriplePundit and other websites, with a focus on military, government and corporate sustainability, clean tech research and emerging energy technologies. She is a former Deputy Director of Public Affairs of the New York City Department of Environmental Protection, and author of books and articles on recycling and other conservation themes. To see the original post, follow this link: https://www.triplepundit.com/story/2023/esg-down-not-out/782776


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The Problem with Hiding from ‘Anti-Woke’ Crusaders

5 08 2023

Image: Thirdman

Anti-ESG agitators are telling a story that’s both inaccurate and bad for business. And silence won’t deter further attacks — though it certainly could compromise long-term brand value. By Sandra Stewart from Sustainable Brands • Reposted: August 5, 2023

It might be tempting for purpose-driven companies to think of the “woke capitalism” smearas just a warmed-over meme — a bit of foam-flecked trolling sure to dissipate as soon as the cloud of performative outrage clears.

But that’s a dangerous dismissal. Right-wing agitation against corporate commitments to improve environmental, social and governance performance already has had a negative effect. The SEC’s long-anticipated rule on disclosing greenhouse gas emissions may be watered down following Republican complaints about “woke capitalism.” And it’s not just bureaucrats who are backing away: BlackRock CEO Larry Fink, not long ago a vocal proponent of stakeholder capitalism, is in full-fledged retreat.

Many corporations seem inclined to follow Fink’s “Don’t say ESG” strategy. Fortune reported that at a recent gathering of 40 ESG executives, most said they are abandoning the term but “doubling down” on ESG-related initiatives. But it’s hard to see how this can work. Anti-ESGers are not just coming for the words; they’re coming for the substance. And that’s a brand threat companies can’t just wait out.

The anti-woke crowd is advocating ‘backward capitalism’

The impulse to duck and cover is understandable — no one wants to present themselves for a pitchforking. But agitators are telling a story that’s both inaccurate and bad for business; and it’s time to talk about the dark, retrograde vision implicit in their critique.

Take the anti-woke crusaders’ rhetoric and proscriptions to their logical conclusion and you get a business and finance world clinging to the past, sleeping through the present, and insensible to the future. Call it “backward capitalism.” This is an economy in which fossil fuels rule (Backward capitalists are keen to shore up investment in oil, gas and firearms with anti-ESG state laws — even if they cost taxpayers and retirees hundreds of millions of dollars) — with polices that accelerate climate disaster, poison the air and water, and destroy vital ecosystems; where workers are poorly paid and unprotected (child labor already is making a comeback), and crony-ridden governance structures enable and obscure it all.

The anti-woke contingent isn’t just targeting what they perceive to be a few excesses. They dismiss the mainstream view of ESG assessment as a smart risk-mitigation strategy and flat-out reject the idea that businesses should consider anything but short-term profit. They claim that “woke” corporations are imposing environmental and social initiatives on a society that doesn’t want them. But this is the opposite of the truth: “People say business should do more, not less, to address issues like climate change, economic inequality and workforce reskilling,” the 2023 Edelman Trust Barometer found — echoing years of similar results. Shareholders have driven adoption of ESG reporting, more intentional investments and governance improvements; while employees and customers have spurred action on social and environmental issues.

Stand up for ESG, corporate responsibility and stakeholder capitalism

Ignoring sound business strategy and clear, consistent demands from core stakeholders isn’t typically a pathway to long-term success. And silence won’t deter further attacks — though it certainly could compromise long-term brand value. The rising ranks of workers, entrepreneurs and investors are not going to follow the backward capitalists into the 19th century; they’ll reward brands that can credibly point to a promising future. The best strategy in this contentious moment is not to hide ESG commitments, or even to defend them — but to actively make a positive case for them.

Corporations whose ESG assessments serve primarily to reveal risks and identify potential mitigations should say so, in every context where they mention ESG actions. Those that have made positive social and environmental performance a core aspect of their brand should promote the measurable impact of significant initiatives and make public commitments to continuous improvement. And the activist businesses that have led the B Corp movementand other efforts to use business a force for good should make an affirmative case for fully embracing stakeholder capitalism.

Broadly implemented, a stakeholder approach can produce declining environmental impacts; activate efforts to mitigate climate change and regenerate ecosystems; solidify living wages and hiring practices that draw from and support the whole talent pool; and foster governance that prioritizes transparency, accountability and net-positive impact. That’s a vision for a world most of us want to live in — so, we must stand up for it.

To see the original post, follow this link: https://sustainablebrands.com/read/marketing-and-comms/problem-hiding-anti-woke-crusaders


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Renewable Energy Investing Gathers Steam as Anti-ESG Movement Falters

29 06 2023

Image credit: Kervin Edward Lara/Pexels

By Tina Casey from Triple Pundit • Reposted: June 29, 2023

The renewable energy trend crossed partisan boundaries decades ago when red and blue states alike partook in the hydropower boom of the mid-20th century. More recently, some state officials have tried to push the clean power genie back in the bottle by ginning up action against ESG (environmental, social and governance) investing. They have achieved some success, but investors just can’t resist the opportunities offered by new clean technologies.

The anti-ESG movement is mostly hot air

In a new report, the consulting firm Pleiades Strategy tracked 165 bills introduced by Republican lawmakers across 37 states, all aimed at steering government pension fund managers and contracting agencies away from ESG principles. Since the “E” in ESG leans heavily on renewable energy, the main thrust of the legislation is to protect fossil energy stakeholders.

Last week, Pleiades reported that the legislative push has met with significant pushback. “This coordinated legislative effort, commonly referred to as the anti-ESG movement, generated massive backlash from the business community, labor leaders, retirees, and even Republican politicians,” a new report from the firm reads.

Among the 165 bills it identified, only 21 became law. Many were substantively amended to satisfy objections. “Broad escape clauses were added to limit the most draconian prohibitions, which experts have warned legally contravene the basic tenets of fiduciary duty, creating a ‘liability trap,’” the report reads. 

Renewable energy is not a new “woke” craze

The Republican-dominated state of South Dakota provides a living example of the extent to which anti-ESG office holders are out of step with business leaders.

Anti-ESG rhetoric is larded with scary talk that warns of a new “woke” threat taking over the country. But there is nothing new about renewable energy in the U.S., and South Dakota is a case in point.

In March, South Dakota Gov. Kristi Noem signed an open letter with 18 other Republican governors, warning that the “proliferation of ESG throughout America is a direct threat” that puts “investment decisions in the hands of the woke mob.”

Nevertheless, South Dakota continues to benefit from the 20th-century hydroelectric program. The U.S. Energy Information Agency (EIA) notes that 3 of the 4 biggest power plants in South Dakota are hydropower facilities that were built more than 60 years ago.

South Dakota’s agriculture industry has also benefited from longstanding federal policies going back to the Energy Policy Act of 1978. South Dakota is currently the fifth-largest producer of bio-ethanol among the 50 states, all from corn.

In addition, South Dakota grabbed onto the wind energy coattails fashioned by Iowa and Texas legislators in the 1990s and early 2000s. Wind contributed more than 50 percent to South Dakota’s grid in 2021, with hydropower coming in second, according to the EIA. Coal and natural gas each contributed less than a tenth. 

More wind power for South Dakota

Activity in the South Dakota solar industry has also begun to stir. But much attention remains focused on wind resources, including tribal lands. “Four of the nation’s top five reservations with the greatest wind-powered electricity generation potential are in South Dakota,” the EIA observes.

Transmission bottlenecks have been a roadblock to wind development in South Dakota, as in other states. Back in 2012, several South Dakota Sioux tribes organized to overcome the obstacles by forming the Oceti Sakowin Power Authority — which holds an estimated 60 gigawatts of potential wind capacity on tribal lands. Pending resolution of the transmission bottleneck, an initial tranche of projects is in the planning stages.

Diversification in the renewable energy field

New clean power technologies are also popping up in South Dakota. Much of that activity is focused on renewable natural gas (RNG), sourced from the state’s copious production of livestock manure.

At the start of the year, the Pennsylvania-based holding company UGI Corp. announced an investment of $150 million for two new RNG clusters in South Dakota, drawing from multiple dairy farms. The two projects add to a third cluster previously announced, with an investment of $70 million.

The Michigan company DTE Vantage also opened a massive RNG facility in South Dakota last summer. Another RNG company with a hand in the state is the global firm Biogest — which claims “RNG is the only renewable energy source that can be carbon-negative, as it significantly reduces methane emissions from agricultural operations.”

ESG or not, new green fuel industries are growing

Sustainable aviation fuel is another new industry establishing a footprint in South Dakota. In 2021, the biofuel firm Gevo began laying plans for an aviation biofuel plant that leverages the state’s corn growers as well as its wind industry.

The Gevo facility broke ground last fall. It includes a green hydrogen system, representing still another potential new industry. With an ample supply of both renewable energy and water, South Dakota has all the basic ingredients for a green hydrogen industry that could lead to follow-on opportunities in green ammonia and e-fuels production.

South Dakota businesses want renewable energy

The Joe Biden administration issued a fact sheet last March that drew attention to supportive relationships between renewable energy producers and other businesses in South Dakota. The White House took note of the meat producer Kingsbury and Associates, which is investing in a new $1.1 billion processing facility in Rapid City. Kingsbury says the new plant will rely on renewable energy, including captured biomethane, to achieve bottom-line results in a competitive environment.

Another indicator comes from the solar developer GenPro Energy Solutions. In May, the company received equity growth funding from the in-state financial firm South Dakota Equity Partners and an established South Dakota investor. The partners launched a new GenPro branch that aims to “open doors to South Dakota and other regional energy providers desiring to develop utility-scale solar projects while embracing South Dakota values,” according to GenPro.

Against this backdrop, last week the Washington Post took notice when an unnamed lobbyist for the Greater Sioux Falls Chamber of Commerce “scolded the supporters of anti-ESG legislation.”

Speaking of “woke,” all of this should be a wake-up call for anti-ESG candidates. It may be too late to make a course correction in time for the all-important 2024 election cycle, but 2028 is right around the corner.     

To see the original post, follow this link: https://www.triplepundit.com/story/2023/renewable-energy-south-dakota-anti-esg/777691


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