Sen. Sheldon Whitehouse, DR.I., serves on the Environment, Public Works, and Finance Committees; Sen. Brian Schatz, D-Hawaii, serves on the Credit and Commerce Committees; and Sen. Martin Heinrich, DN.M., serves on the Energy and Natural Resources Committee and the Appropriations Committee.
There is a cohort of elected officials in the United States currently engaged in an anti-capitalist crusade against free market principles. No, they are not socialists. They are Congressional Republicans and they are trying to prevent financial institutions from allocating capital in accordance with investor preferences and risk management principles. This attempted crackdown is purely ideological in nature – it is an exercise in political pressure to force a crass government to interfere in US capital markets.
This campaign, which should offend anyone with even a modicum of pro-market sensibility, is championed within the Republican Party. Republican state lawmakers and members of congress attempt to stifle the growth of sustainable investing and punish corporate efforts to manage climate-related financial risks.
The underlying problem is that the fossil fuel industry is hitting a “risk wall,” where the long-established economic risks associated with climate change are now sufficiently clear and present to trigger ordinary risk reporting requirements. in the financial markets. Rather than reducing their emissions or addressing the risks they pose, the fossil fuel industry is trying to break and remake traditional risk reporting to selectively suppress climate risk reporting.
If it seems that elected Republicans have very suddenly woken up from the momentum towards climate risk reporting and the popularity of so-called environmental, social and governance (ESG) investing, and have dramatically stepped up their counter-offensive as a result, this is no coincidence. It is a closely coordinated program political effort driven by a network of black money organizations the facade of climate denialist groups and fossil fuel interests.
Recent elections have shown the extent of the Republican Party’s dependence on “external spending”. It’s usually anonymous black money, and it’s often traceable back to the fossil fuel industry. Those millions in political black money probably came with strings attached, and those strings likely drive this political effort.
From this year, there are $8.4 trillion in US assets under management that employ sustainable investment strategies. The rise of sustainable and responsible investing has happened for a very simple reason: there are huge market demand for it. Warnings abound of the significant economic risks that are clearly foreseeable if we do not transition to a low-carbon economy.
Investors see this danger coming. As a result, asset owners are demanding responsible investment options. They may have determined that sustainable investments are better suited to their risk tolerance and longer-term goals, as is the case with many pension funds whose beneficiaries depend on prudent, long-term management of their retirement savings.
Or, they can cater to clients who want investment options that match their personal values. Either way, asset managers have simply kept pace with this demand. To refuse to do so would be to lose a share of this rapidly growing competitive market.
Elected officials should ensure that financial regulators give due consideration to risk in their financial stability and oversight work. Climate change poses unambiguous risks for the financial systemand regulated financial institutions do not have the luxury of choosing which risks to manage and which to ignore.
But Republicans are engaged in an entirely different pursuit. They try to bully financial institutions and regulators into ignoring market demand and risk. Imagine elected officials telling investment firms they can’t offer large-cap or small-cap funds, or emerging-market funds, or value funds — or, for that matter, sector funds with exposure to companies. energy.
It would be considered absurd. It is equally bizarre to tell asset managers that they are not allowed to reflect their investors’ preferences in their investment management and proxy voting, or to tell regulators that they are not allowed to take into account a major source of economic and financial risk.
That’s not how the free market works. It is about picking winners and losers, in this case putting a thumbs up in favor of the fossil fuel industry and completely ignoring the overwhelming risks that climate change poses to our economy and our financial system.
There’s no reason to think Republicans will stop at ESG; then they could very well tell investors not to put their money in tech companies or companies with unions. It is a stunning exercise in shameless hypocrisy by the party that so often claims to uphold free market values. The intent of their effort is very simple: to create a chilling effect and force financial firms to ignore market preferences and regulators to ignore real risk. Wall Street – and its regulators – need not be intimidated.