When Politics and ESG Collide: Surveying the Collateral Damage

The climate crisis is being felt in all corners of the world. Europe continues to endure its?worst drought in half a millennium, 49 US states are experiencing some?degree of drought, and South Asia has been pummeled by?record-breaking flooding, all summer heatwaves?scorched?much of the world. Add to the list devastating hurricanes Fiona and Ian (as of publication, Ian is projected to make landfall in western Florida as a high grade category four hurricane). Even climate experts have been?surprised?by the severity of weather events.

Meanwhile,?the politicization of ESG and sustainable investment continues.?Some governors?and legislators at the state and federal levels have launched a?campaign against ESG,?claiming that?their opponents are?leveraging ESG to forward a?political agenda. However, this?argument misses more than a few fundamental points. First,?ESG is apolitical.?It is merely a means by which to integrate the business and financial worlds into a reality that reflects a complete accounting of risk (specifically, environmental, social, and governance concerns). Florida?has moved to ban ESG considerations from the?state's pension investments. Texas is?implementing Senate Bill 13, which requires state entities to divest from financial institutions and funds that boycott energy companies. Attorneys general from 21 states filed their opposition to the?SEC’s proposed rule?requiring publicly listed companies to disclose their emissions.

First the good news:?Shareholders aren’t running for the hills. 43 anti-ESG shareholder proposals were filed from January to June, receiving an average of?just 7% support. ESG assets are expected to reach $50 trillion by 2025, dwarfing the hundreds of millions of dollars raised by investment vehicles that seek to explicitly ignore ESG (one such firm is notably?backed by Bill Ackman and Peter Thiel).

Now the bad: The two issues discussed here, the worsening climate crisis and the deceptive?battle against ESG, conspire to create a troublesome rat’s nest for confronting the climate emergency.?If the anti-ESG movement continues to pick up state-level momentum, it may severely hinder US regulators’ capacity to address the climate crisis. Take, for example, the opposition to the SEC’s proposed climate disclosure rule levied by those 21 state attorneys general. Any significant or lengthy legal fight could create a chilling effect for future regulatory efforts at climate mitigation.

Climate risk is investment risk. Any counter to that belief is doomed to fallacy?at best, delusion at worst.?Moreover, 17AM believes that a sustainable or ESG strategy actually represents a more efficient use of capital. Consequently, we are confident that, over the long term, anti-ESG legislation will not only harm our mitigation prospects, but also cause material injury to investors.?We therefore enter the autumn season running full speed towards the launch of two investment products, Intentional Portfolios?and our?Opportunity Fund. These funds will cater to the millions of global investors committed to leveraging their capital?for measurable?good. These products are?founded upon a full accounting of ESG risks, but go far beyond that in their intentionality of material global impact. We are looking forward to sharing more information about both?products?soon but, in the meantime, you can learn a bit more about our newly launched subsidiary?Intentional Portfolios?here and?click here?to learn why we support the SEC’s proposed climate disclosure rule.