Sen. Sheldon Whitehouse, D-R.I., sits on the Environment and Public Works and Finance Committees; Sen. Brian Schatz, D-Hawaii, sits on the Appropriations and Commerce Committees; and Sen. Martin Heinrich, D-N.M., sits on the Energy and Natural Resources Committee and Appropriations Committee.
There’s a cohort of elected officials in america presently engaged in an anti-capitalist crusade against free-market principles. No, they will not be socialists. They’re congressional Republicans, and they try to forestall financial institutions from allocating capital in accordance with investor preferences and risk management principles. This attempted crackdown is solely ideological in nature — it’s an exercise in political pressure to force a gross government overreach into U.S. capital markets.
This campaign, which should offend anyone with even a modicum of pro-market sensibilities, is being championed from throughout the Republican Party. Republican state lawmakers and members of Congress are trying to stifle the expansion of sustainable investing and to punish corporate efforts at climate-related financial risk management.
The underlying problem is that the fossil fuel industry is running up against a “risk wall,” where long-established economic risks related to climate change at the moment are sufficiently clear and present to trigger odd risk-reporting requirements in financial markets. Moderately than reduce their emissions, or resist the risks that they cause, the fossil fuel industry is attempting to break and remake traditional risk reporting to selectively remove reporting of climate-related risks.
If it appears that evidently elected Republicans have very suddenly woke up to the momentum toward climate risk reporting and the recognition of so-called environmental, social, and governance (ESG) investing, and dramatically stepped up their counteroffensive accordingly, that isn’t any coincidence. It is a closely coordinated political effort driven by a network of dark money organizations fronting for climate denial groups and fossil fuel interests.
The recent election showed the extent of the Republican Party’s dependence on “outside spending.” This is generally anonymous dark money, and it is usually traceable back to the fossil fuel industry. Those thousands and thousands in political dark money likely got here with strings attached, and people strings are likely pulling this political effort.
As of this 12 months, there are $8.4 trillion in U.S. assets under management that employ sustainable investing strategies. The boom in sustainable and responsible investing has occurred for a quite simple reason: there is gigantic market demand for it. Warnings abound of great economic risks which can be plainly foreseeable if we do not transition to a low-carbon economy.
Investors see that danger ahead. Asset owners, accordingly, are clamoring for responsible investment options. They could have determined that sustainable investments higher suit their risk tolerance and objectives over longer time horizons, as is the case for a lot of pension funds whose beneficiaries rely on long-term, prudent stewardship of their retirement savings.
Or, they might be responding to clients who want investment options that align with their personal values. Either way, asset managers have simply kept pace with this demand. To refuse to accomplish that could be to lose share on this rapidly growing, competitive market.
Elected officials should be certain that financial regulatory agencies properly account for risks of their financial stability and supervisory work. Climate change poses unambiguous risks to the economic system, and controlled financial institutions would not have the posh of picking which risks to administer and which risks to disregard.
But Republicans are engaged in a completely different pursuit. They are trying to bully financial institutions and regulators into ignoring market demand and market 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 energy firms.
That may be considered preposterous. It’s similarly bizarre to inform asset managers they will not be allowed to reflect the preferences of their investors of their investment stewardship and proxy voting, or to inform regulators that they will not be allowed to think about a significant source of economic and financial risk.
This is not how the free market works. That is picking winners and losers, on this case putting a thumb on the size in favor of the fossil fuel industry and completely disregarding the overwhelming risks that climate change poses to our economy and economic system.
There isn’t a reason to think Republicans will stop with ESG; next, they may thoroughly be telling investors not to place their money in tech firms or firms with unions. It’s a surprising exercise in bald-faced hypocrisy from the party that so often claims to champion free-market values. The intent of their effort could be very straightforward: to create a chilling effect and force financial firms to disregard the market’s preferences and regulators to disregard actual risk. Wall Street — and its regulators — must not be intimidated.
