How to Advance Sustainability and ESG with Red States and Conservative Governments
We started the year in our 2023 sustainability trends predicting environmental, social, and governance (ESG) topics in the US will continue to get politicized. So far, that prediction’s largely been true. There’s been a lot of push-back to stop the integration of ESG into business and finance from various ‘conservative’ movements. But, at the same time, we continue to see sustainability efforts advancing in red and Republican-led states.
What’s the disconnect? Can these apparent contradictions coexist?
Let’s take a deeper look into the current political landscape, as well as how some conservative states are pursuing sustainable projects and policies.
What’s been going on in 2023 with State-level anti-ESG movements?
There’s been a notable push recently from many GOP politicians and conservative groups to reduce ESG-related efforts (and impact) in business. These naysayers view ESG as a distraction from the traditional (narrow?) business goal of generating a profit and maximizing shareholder returns. The basic 'case' against ESG is that these initiatives and investments have negative consequences or costs for businesses and asset stewards, without discernable financial benefits.
The only problem? Lots of data suggests otherwise.?
According to a study completed by FCLTGlobal and the ESG Analytics Lab at the Wharton School at the University of Pennsylvania, companies that “paired strong stakeholder language with strong performance on material ESG measures” had 4% higher returns and 1.5% higher sales growth over three years. Another study looking at ESG investment funds found overall positive returns compared to the global market.
When the data isn’t on your side, some Republicans and conservatives will simply ignore it. Recently, Florida Governor DeSantis signed a bill that prevents state officials from investing public funds into ESG-related goals and ESG bond sales. In the Alabama Senate, legislation just passed that prevents companies in the state from “economic boycotting” other companies based on various ESG topics like fossil fuels, abortion rights, and gun control. Essentially, despite the fact that transformative economic change, the climate crisis, and broadly popular social trends may create ‘risks’ for companies, according to the state of Alabama those risks need to be ignored.?
Perhaps an even more acute example of the ESG political-economic disconnect can also be seen in Mr. DeSantis’ home state of Florida, in his highly public fued with Disney.
The controversy between Disney and Ron DeSantis in Florida began in March 2022, when Disney CEO Bob Chapek released a statement opposing the Parental Rights in Education bill, also known as the "Don't Say Gay" bill. The bill prohibits classroom instruction on sexual orientation and gender identity in kindergarten through third grade. Disney, doing the right thing, stood up for LGBTQ+ rights and inclusion, a clear ESG social tenant.
In retaliation, DeSantis appointed a new board to oversee the Reedy Creek Improvement District, the special district that governs Disney World, which allows the company to control its own land and taxes. The new board voted to dissolve the district, which may cost Disney billions of dollars.
As a response, Disney cancelled construction of a new Florida office complex in May 2023. Intended to be located in Lake Nona, Florida, the project would have created 2,000 jobs and generated north of $1 billion dollars for Florida’s economy. As draconian and backwards as DeSantis’ views are to begin with, it’s hard to see the economic case for cutting Florida jobs and damaging the state’s business-friendly reputation.
If Disney pulled out of Florida entirely, it would cost the state economy $75 billion dollars a year, not to mention 70,000 jobs and millions of tourist visits.
Anti-ESG in Washington, D.C.
While the anti-ESG movement has found traction in certain conservative legislatures and state capitols, conservatives have also taken shots at ESG at the federal level too. Earlier in March, Senate Republicans blocked a Department of Labor (DOL) rule that went into effect on January 30th, 2023 which would allow fiduciaries to consider ESG factors when investing in retirement plans. The DOL states it took an “appropriate regulatory neutrality” stance when reviewing and considering ESG factors. The Final Rule includes ESG and traditional financial risk factors in the definition of risk-return factors. Fiduciaries are not required to include relevant ESG considerations, but they are strongly encouraged to.?
At the end of the day, risks are risks, whether ESG or not.Anti-ESG in Washington, D.C.
On the “E” side of ESG, Congressional Republicans have also pushed back on environmental rulings. After the SEC released its proposed Climate Disclosure rule that would require certain companies to report on environmental topics, a group of congressional Republicans wrote to the SEC chair criticizing it. They stated that the rule’s “efforts far exceed the SEC’s authority, jurisdiction, and expertise” and advance a “progressive social agenda”.?
Most Americans were keeping a close eye on the debt ceiling negotiations between President Biden and Congress a few weeks ago. Thankfully, the debt ceiling was raised and the potential for economic disaster was avoided. One of the results of the negotiations was the advancement of the controversial Mountain Valley Pipeline which conservative Senators Capito (R) and Manchin (D) pushed hard for. This pipeline will deliver natural gas over 300 miles from West Virginia to southern Virginia. Some environmental groups estimate the pipeline could add nearly 90 million metric tons of greenhouse gasses annually to the environment. Not cool.
Why ESG Issues Should Be Top of Mind, Both Economically and Politically
Understandably, many politicians are worried about the current state of our economy. However, when we look at the top ten global risks ranked by severity over the long term from the World Economic Forum’s latest Global Risks Report, zero out of the ten top risks are classic economic risks — and virtually all of them are ESG risks.
Would global inflation be as bad if all of our energy and vehicle fuel was coming from renewable electricity?
Would government budgets be as strained if we weren’t spending trillions on climate disasters like wildfires and other extreme weather events? According to Swiss Re, natural disasters and extreme weather events will reduce global GDP by around 14%, or $23 trillion by 2050.
If ESG-oriented economic sectors like climate tech are major job creators, why fight the broader ESG trend? Increases in ESG investment are bringing jobs in industries ranging from renewable energy and sustainable agriculture to science and manufacturing innovation. These jobs create new opportunities for workers, and economic development opportunities for governments. According to the International Labor Organization, an estimated 24 million new jobs can be created by the sustainable economy by 2030.
For example, Volkswagen is training 22,000 of its current employees to build electric vehicles as they transition their German plants from the production of diesel and gas cars to EVs. Even in an emissions-heavy industry like transportation, companies have an opportunity to help workers learn new skills and preserve local employment.
And generally, politicians like DeSantis are the exception when it comes to ESG and economic development. The majority of conservative politicians do support job creation, energy independence, domestic manufacturing, and economic development — and if they’re being powered by the clean energy economy, that’s perfectly fine.
When Conservatives Embrace Sustainability
Even with the political divide, we’re still seeing red states benefit from sustainability measures — and in some cases, advance them with direct intent. States like Georgia, North Carolina, Texas, and Oklahoma are all examples of red states that are using ESG investments to their advantage.??
Georgia
Georgia aims to make name for itself as a leader in U.S. EV manufacturing. Governor Kemp’s office stated that since 2020, “Georgia has recruited more than 40 EV-related projects totaling 28,400 announced jobs and $22.7 billion in anticipated investment”. The investment in EVs will help Georgia’s economy by bringing in new business and jobs and put it on the global market as a large contributor to EV production. Below are some of the recent EV wins in Georgia.
Texas
Texas is a state with some of the highest renewable resource opportunities. It’s expected to receive around $66.5 billion in funding from the Inflation Reduction Act (IRA), the highest amount of funding any state will receive. While many state republicans still aren’t fully on board with supporting renewable energy projects because it threatens the state’s lucrative oil and gas industry, the economic trend here is clear cut: the era of fossil fuel energy is coming to an end — even in Texas.
Today, Texas is already the top producer of wind-powered energy in the United States, and has some of the highest levels of sunlight each year, making it a perfect candidate for solar PV. According to the Bureau of Labor, both industries have the potential to create tens of thousands of new jobs.
With the right investment in renewable energy, Texas can continue to provide cheaper more reliable, and cleaner energy throughout the state, while also creating job opportunities for people transitioning from the oil, gas, and coal industries.
With the financial support of the IRA, AES Corp. and Air Products and Chemicals Inc., two large energy companies, are also launching the Texas Green Hydrogen Project, investing $4 billion into a renewable hydrogen project where they hope to “extract green hydrogen from water molecules using electricity from wind turbines and solar panels”.
North Carolina
You might be surprised to learn North Carolina is the second-highest producer of solar energy in the United States after California. North Carolina hope that trend continues, and its government is working to incentivize individuals and businesses to invest in solar energy through tax exemptions, rebates, and net metering programs.
The Renewable Energy and Energy Efficiency Portfolio Standard (REPS), strong state policy and regulations, and the federal IRA have all contributed to success across North Carolina’s home-grown solar industry. With the IRA, North Carolina is expecting $2.7 billion in investment in clean energy generation and storage, as well as an uptick in clean energy jobs.
Oklahoma
Oklahoma is one of the top producers of wind-powered energy in the US after Texas and Iowa. In 2021, over 40% of Oklahoma’s electricity was generated from wind energy. Wind is one of the cheapest forms of electricity in the world, and if Oklahoma can continue to capitalize, it will further reduce local energy costs and create new jobs. There are currently around 20,000 clean energy jobs in Oklahoma, principally tied to wind energy.
While certain Republicans fight and cry out against “woke ESG politics”, the reality is they’re mostly fighting against social acceptance for vulnerable communities — and the jobs and economic well-being of many of their voters.
States like Georgia, Texas, and North Carolina are all proof that ESG and sustainability are clear wins for business, people, and environmental conservation. Supporting a transition to a sustainable economy creates jobs, fights inflation, supports energy independence, and lowers energy costs for businesses and families.
Or, another way of looking at it, is when it comes to ESG, most conservative politicians embrace the "G" (particularly when it's in their constituent's favor), appreciate the economic benefits of "E", and only largely remain hold-outs on the "S". ?
Nonetheless, with all of the noise around ESG, there’s ample evidence supporting the business case for sustainability and ESG. Even if companies and politicians don’t want to invest in sustainability because it’s the right thing to do for people and our planet, there are financial benefits too — many of which resonate even with conservative politicians and voters. ESG, at the end of the day, is simply good business.
—
This Week in Sustainability is a weekly(ish) email from Brightest (and friends) about sustainability and climate strategy. If you’ve enjoyed this piece, please consider forwarding it to a friend or teammate. If you’re reading for the first time, we hope you enjoyed it enough to consider subscribing. If we can be helpful to you or your organization’s sustainability, ESG, or social impact journey, please be in touch.
I ghostwrite LinkedIn content for B2B climate tech startup executives. 7 clients served in the industry. Net zero nerd.
1 年Great insights, Chris. It's all about the messaging! For instance, when talking about climate to the general public, focusing on public health (i.e. pollution) is one of the most effective tactics. In business, it's hard to think of a more persuasive message than the financial benefits of ESG.
Great article, thanks for posting this Chris Bolman Unfortunately, as an outsider looking in, US politics is still broken and polarised. GOP senators seem to have forgotten their original purpose and values with the sole motivation or "NOT what they want." All in the face of massive public concern and growing and undisputed evidence about not just climate but also about their own state economies. We have to avoid making the same mistakes #bigoil executives made back in the mid-70s (and re-inforced since) to create the climate denial industry. Please go back to doing what is right for your state populations and follow the incredible example of Arnie's California - 3rd fastest state growth and 4th biggest economy in the world. Both sides still disagreeing on everything but working to the same agenda to reduce pollution (i.e. GHGs) - simple! Allow the US to become the global leader in climate change - now that really would Make America Great Again.
Environmental Compliance Consultant, Author, Entrepreneur: Tammy helps manufacturing facilities achieve and maintain compliance with environmental requirements! #airpermitting #stormwater #spcc #epcra #rcra
1 年As a conservative environmental scientist, I completely understand why you would think that conservatives would not support ESG. The politicization of manmade global climate change left a bad taste in the early 2000s but I believe many conservatives, including the many businesses I work with, either fully embrace ESG and Sustainability or are implementing it because their clients require it. I think those who resist are more concerned about the S--which is "Social" and the threat that has on our freedom in terms of the "ESG Score" which can be used in determining your borrowing interest rates and such. If the "S" was for "Sustainability" we would see more support. I love the research and thought you put into this informative article!