Environmental, social and governance, or ESG, investing is the latest target for Republicans looking to advance their backward agenda at taxpayer expense. It is an investment method that prioritizes sustainability, invests in future technologies and takes into account the risks associated with climate change – wildfires, floods, hurricanes and droughts.
According to Bloomberg’s analysis, ESG returns have “outperformed” fossil fuel stocks and other investment strategies and are “crushing traditional investment benchmarks” by delivering high returns. The largest exchange-traded fund investing in ESG “has grown its assets 4,700x since inception in 2016 and 80x in the last three years to $24 billion,” according to investor appetites “Has increased 56-fold in the past three years.” The Global Sustainable Investment Alliance estimates that ESG investing has reached $35 trillion.
Despite the proven results, some Republicans have targeted ESG because it doesn’t align with their agenda, and in turn have attacked private sector when it doesn’t align with them. And the real losers here are the taxpayers, because government coffers miss out on above-average returns because politicians try to score points politically.
States like Texas, Florida, West Virginia and Oklahoma have disregarded the interests of people who depend on public pension funds for their livelihoods and have restricted or even banned ESG investing. They have prevented state and local pension funds from their duty to review the best investments for their state and simply price climate risk into their investment portfolios – a risk that clearly affects each state in different ways.
Ignoring the threat of climate change is a clear financial risk for investing. We talk about catastrophic power outages in Texas caused by atypical winter storms, wildfires across the West that have wiped entire communities and critical infrastructure off the map, record-breaking heat straining power grids, and more. These increasingly common events represent billions of dollars in insured and uninsured losses.
Many of the largest investment firms take this seriously. As the CEO of Street Global Advisors said: “We have a fiduciary responsibility to our clients to maximize the likelihood of attractive long-term returns and we will never hesitate to use our voice and vote to achieve better performance. This is why we are so focused on financially relevant ESG issues.”
Blackrock CEO Larry Fink observed: “Stakeholder capitalism has nothing to do with politics. It’s not a social or ideological agenda. It hasn’t “woken up”. It’s capitalismdriven by mutually beneficial relationships between you and the employees, customers, suppliers and communities on which your business depends thrive. That is the power of capitalism.”
With $700 billion in assets, California’s largest public pension funds — CalSTRS, CalPERS, and the UC Retirement Savings Program — are managing the risks that climate change poses to generating returns by exploring pathways to net zero and transitioning investments into fossil fuels. Using ESG is part of how we get there.
No one can afford to keep burying their heads in the sand. We must invest in the future, act fast to reduce pollution, and accelerate the transition to clean, renewable energy to meet this challenge.
The pattern of Republican governors like Florida’s Ron DeSantis is clear: punishing free enterprise and capitalism for political gain. When Disney opposed the “Don’t Say Gay” law, DeSantis revoked Disney’s tax status and increased the cost to local taxpayers. He blocked money for the Tampa Bay Rays’ practice facility after the baseball team spoke out against gun violence following the deadly mass shootings in Uvalde, Texas, and Buffalo, NY. DeSantis has tried to limit what companies can and can’t say to their own employees. and even went to the Special Olympics for its COVID-19 response.
In California, we beat Florida and other Republican-led states in almost every economic category, from GDP growth to job creation to new business creation.
We have also chosen a different way to invest and generate income for taxpayers. Yes, we continue to invest in traditional energy companies. But we are also prioritizing investments in renewable energy and new technologies that recognize the very real dangers of climate change and accelerate our transition to clean energy. We fulfill our retirement-saving obligations that we have placed on our teachers, police officers and firefighters – not by playing politics, but by adhering to fundamental investment principles and values that put people first.
That’s just the facts. Sacrificing financial gains and economic growth for the sake of politics only hurts taxpayers and their pensions.
Gavin Newsom is the Governor of California.
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