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Environmental, social and corporate governance, referred to as ESG, is a set of factors that conscientious capitalists use to identify worthy investments. For most of the movement’s relatively brief existence, ESG has fallen under the purview of sustainability experts. Recently, however, Wall Street appears to have embraced ESG with both arms – according to some estimates, last year over $41 trillion in global ESG assets were traded. This turn has liberals and environmentalists concerned that the definition of what qualifies as an ESG-friendly company may be watered-down. At the same time, prominent Republicans are decrying the use of ESG factors, claiming that it’s part of the “woke mob’s war on fossil fuels.” This week on Sea Change Radio, we speak to Rebecca Leber, a senior climate reporter at Vox. She unpacks the complex conservative position on the ESG movement and explains why she finds it so puzzling and troubling.
00:02 Narrator – This is Sea Change Radio, covering the shift to sustainability. I’m Alex Wise.
00:21 Rebecca Leber – I think the ask isn’t that we have more ESG, but that we have more standardization of reporting around this and that companies actually think and evaluate what their products are doing to the world. So while we’re talking about the Republican end goal here, it’s important to think about what the other sides end goal really is, and what climate activists are really asking for. It isn’t this world where we all have ESG. It’s that we actually truly assess climate change and its impacts on Wall Street and its investments.
00:57 Alex Wise – Environmental, social and corporate governance, referred to as ESG, is a set of factors that conscientious capitalists use to identify worthy investments. For most of the movement’s relatively brief existence, ESG has fallen under the purview of sustainability experts. Recently, however, Wall Street appears to have embraced ESG with both arms – according to some estimates, last year over $41 trillion in global ESG assets were traded. This turn has liberals and environmentalists concerned that the definition of what qualifies as an ESG-friendly company may be watered-down. At the same time, prominent Republicans are decrying the use of ESG factors, claiming that it’s part of the “woke mob’s war on fossil fuels.” This week on Sea Change Radio, we speak to Rebecca Leber, a senior climate reporter at Vox. She unpacks the complex conservative position on the ESG movement and explains why she finds it so puzzling and troubling.
02:21 Alex Wise – I’m joined now on Sea Change Radio, by Rebecca Leber. Rebecca is a senior climate reporter at Vox. Rebecca, welcome back to Sea Change Radio.
02:29 Rebecca Leber – It’s great to be back on.
02:31 Alex Wise – So to kick off the new year, I wanted you to walk our listeners through this piece that you wrote in December of 2022 entitled The Weird Republican turn against corporate Social Responsibility, and it is. It is a strange little twist. Why don’t you kind of outline what the Republican beef is with corporate social responsibility measures or ESG that stands for environmental, social, governance. A lot of people on the Left, they’ve been critical of ESG, not going far enough, but the Republicans think it’s too far. Why don’t you explain what kind of ripples they’re sending through Congress?
03:12 Rebecca Leber – Yeah, this is a complicated issue that goes back a bit, so I’ll do my best here to lay it out, but the reason the headline of the story calls this weird is because for all the experts I talked to and onlookers, even people in the financial community, they’re just baffled by what’s going on here because the GOP is basically holding up this version of ESG that doesn’t really exist. It’s a complete misunderstanding of what’s actually happening in the financial world, so the first thing to remember about this fight is it’s a political one, not so much an economic division in the financial community. So like you said, ESG stands for environmental social, governance and it’s basically a framework that applies to how companies evaluate the risks of a whole set of issues that range from climate change to corporate transparency to human rights violations in countries that they might operate in, and they’re evaluating the risk that this poses to a company’s bottom line, so it’s basically this recognition of a reality that’s out there that’s not normally taken into account in a company’s typical earnings, and its typical reports so, Going back actually decades now. Lots of onlookers, including the UN Secretary General in 2004 challenge the corporate community to finally acknowledge all of these other risks that they’re not incorporating into. They’re planning for the future, so that’s where ESG comes in. It’s not specifically, just the climate issue. It applies to a range of things, but also if this sounds really vague, it’s because it is vague. ESG is this catchall phrase that’s been used for all these kinds of issues, and it doesn’t mean a company is required to do anything particularly different in the present. It’s all looking at future bottom line, future investing decisions. What the GOP is presenting this as is a dangerous kind of concept taking over the business community that discriminates against fossil fuels. There’s this argument circulating among the critics of ESG that this is basically an attempt at collusion by environmentalists by companies to stop fossil fuels and to move towards this climate future. On the other side of this are actually environmentalists who also don’t like ESG for very different reasons, because it is used as this catch all that tends to greenwash corporate actions, so we’ll dig into this more because this is quite complicated to explain, but because it’s such a vague concept it becomes this kind of a projection of what its critics wanted to be, and that’s what the GOP is taking advantage of here.
06:23 Alex Wise – And maybe that’s one of the problems with ESG is that it is so vague that it can be whatever you want it to be. So we could look at Republicans, saying they’re misunderstanding it, but maybe they’re understanding it perfectly and exploiting the vagaries of ESG? I read a quote in your piece from West Virginia’s Treasurer Riley Moore saying “ you’re talking about climate change. You know, in 100 years. I mean these folks are hedging on what climate might look like in 100 years and he goes on to say So what you’re telling me is you’re going to have sea levels rise by X amount of centimeters in 100 years, and that somehow is going to affect the profitability of a company. Not sure I follow that.” So he’s being intentionally obtuse, and it seems to be kind of a way to muddy the waters, if you will.
07:08 Rebecca Leber – I think Riley Moore’s quote hints at a driving factor for basically why Republicans would attack. You’d think their own allies and this undercurrent of climate change denial and this fear that the financial world is actually realigning with climate science. If you look at this long arc of how Republicans have message on climate change over the years, they’ve cycled through lots of different excuses for not taking action. But there’s lots of polls that show how the public has embraced climate science. People tend to agree that climate change is a threat, so the Republicans basically outright denying it is no longer really politically viable, but what they may be doing here is finding another boogeyman which is corporate woke is so Moore’s quote here really just gets at that point because what he is presenting as a skepticism about the science, but camouflaging this as this, this is a fight over how this affects consumers, how this affects pensions. There is, I think, what the GOP is responding to here is this growing recognition from Wall Street that climate change is a threat and that they can’t willfully be blind to the risk that it imposes. This is we’ve seen over the years, lots of forward movement in boardrooms and in Wall Street. I think most critical BlackRock came out in 2021 talking very strongly about climate change and how it needs to incorporate climate risk in its assessments. At the same time, lots of oil companies have seen challenges at their own annual shareholder meetings pushing for certain climate reforms. So the train’s already left the station essentially for Wall Street and this is I think, one way Republicans are trying to take back this and go on the offense. Over an issue that they really can’t find a politically winning platform point.
09:18 Alex Wise – Yeah, they they’ve decided this is a new social wedge issue. I saw that Florida in September banned its $186 billion pension fund from investing according to ESG factors. So this is kind of the backlash of seeing Wall Street slowly but surely come along and say yes, we need to be taking in these existential threats to the planet into our balance sheets and into how we invest in companies. And now the right is basically framing it as, they’re just being politically correct.
09:56 Rebecca Leber – Yeah, I think an important point. Just to frame how big of a deal this is, is Blue states actually far outweigh investments and political capital in companies like BlackRock then Red states have. So basically when you look at what West Virginia has done, what Florida has done. This is a drop in the bucket for a company like BlackRock that has trillions of dollars globally, but the politics still matter here. So while the actual withdrawals of funding and the divestment won’t really make a difference, and in terms of BlackRock’s planning because it won’t affect its bottom line politically. I think companies we’ve seen them either try to moderate their positions or walk back certain efforts. So the biggest news was Vanguard withdrawing from a Net Zero coalition after it was called in to hearings in taxes around ESG, so it’s important to remember the scope that it’s not clear that these Republican attacks are really going to work because the financial numbers just aren’t in favor of them, but politically that there is signs this is scaring the big companies. So I think 2023 is going to really be a big year for this. Where we see how much damage these kinds of investigations this divestment can really do.
11:37 (Music Break)
12:53 Alex Wise – This is Alex Wise on Sea Change Radio and I’m speaking to Rebecca Leber. She’s a senior climate reporter at Vox. So Rebecca, we’re talking about the Republican attacks on ESG corporate social responsibility guidelines for company’s investors and what are kind of the barometers for whether this works. Is this more of a political gambit where they’re trying to turn this into a social wedge issue like gays, guns and God-type thing or is this more of a way to threaten corporate America from looking at the realities of climate science?
13:34 Rebecca Leber – There are some limitations to this really becoming a huge popular issue. Just look at this. We took a few minutes just to lay out what ESG was and to explain all of the nuance here.
13:45 Alex Wise – Yes, and we’ve done so many pieces on ESG, and it was called CSR. And each time we have to spend 5 minutes kind of recapping what it is because it’s a little too in the weeds for a mom and pop kind of explanation. Sorry to interrupt, go on.
14:00 Rebecca Leber – Yeah, it’s an in the weeds issue for me too, so I think right there that tells you a lot about the limitations of this becoming a huge electoral issue. I haven’t really seen any signs there. This was kind of floated in the midterms as a issue. Republicans were were trying to campaign on and I’m not sure we saw any real signs of this gaining traction. I think the most high profile example has been DeSantis in Florida, who has been really outspoken on this so maybe he’s testing the waters. If this does work in a presidential run, but I think this is really limited politically in terms of getting votes, so I’m not sure how much traction it’s really going to get there.
14:48 Alex Wise – Just thinking of DeSantis in a presidential run, you could see him trying to align with some of the deeper pocketed forces in Wall Street. That would say, yeah, enough of this ESG crap. We’re going to go with this guy to Santos who is calling it like it is and trying to bring us back to the good old days of 1974 or whatever.
15:08 Rebecca Leber – Yeah, he’s clearly trying certain tactics to distinguish himself from Trump, but I think the end game isn’t really a political one here in terms of winning the presidential election, I think there are different end games here. Some we talked about. I think this is a backlash to the recognition by Wall Street that climate change is real. So it’s kind of this recasting of corporate America as somehow aligned with the left. This is a populist issue. To say that the GOP is taking on Wall Street in a way that traditionally we wouldn’t expect Republican leaders to, so there is a bit of that clever messaging there where environmentalists are put in a difficult position here specifically because they don’t want to be defending Black Rock here they are also critical of Black Rock, so there’s some clever politics here. It’s a warning sign or they’re trying to warn off companies from taking further action on climate change, so there are real policy stakes here and there are real world economic stakes for people who live in red states because states that have been pulling pensions from some of these companies in the long run it it’s unclear how this is going to affect pensions because some financial experts told me how if states continue to divest from the companies that are considering climate change they might be exposing pensioners to a lot more risk in the market because they are far less diversified. We might see a scenario where we have this polarized world of banks of red banks versus blue banks, and there’s other ways that states can do damage. Because there’s other arms that they are trying to test out with this strategy, so I just want to remind folks that even if politically this might not gain a ton of traction with voters, it has some real world stakes.
17:14 Alex Wise – I’m just trying to think from the Republican strategy standpoint why this might work. They’re trying to thread this needle where rhetorically they’re taking on Wall Street, but they’re protecting fossil fuel interests which are part of Wall Street so that maybe that’s part of the weirdness that we’re looking at in your piece is that that this is they’re trying to have their cake and eat it too, but maybe it’ll work.
17:37 Rebecca Leber – Yeah, there are lots of links to the far right plank of Republican parties. The groups that have really propelled this issue. Lots of them are connected to the federal societies. Leonard Leo, and there’s a whole series of dark money funded groups that have been pushing this message around ESG. Lots of these groups are known to have to be funded by the oil industry and by fossil fuels that we don’t know to the exact extent because they’re dark money. So this connects back to basic fights around climate change, but I just wanted to add because again I don’t want to sing the praises of ESG too much because it has lots of limitations. There are ESG funds that include ExxonMobil in them, and that’s because the company does disclose some of its risks from climate change. And it also meets certain requirements on corporate transparency. So just to be clear, I think the ask isn’t that we have more ESG but that we have more standardization of reporting around this and that companies actually think and evaluate what their products are doing to the world. So while we’re talking about the Republican end goal here, it’s important to think about what the other sides end goal really is, and what climate activists are really asking for isn’t this world where we all have ESG. It’s that we actually truly assess climate change and its impacts in Wall Street and its investments.
19:26 (Music Break)
20:18 Alex Wise – This is Alex Wise on Sea Change Radio and I’m speaking to senior climate reporter at Vox Rebecca Leber. So Rebecca, we’re talking about the impact that the rights attack on ESG environment social governance guidelines will have on the movement. Let’s look at some of the shortcomings you mentioned, some of them from the left that that say that ESG factors are becoming maybe the standards are dropping so much that could be one of the reasons why it’s so wildly popular as an investment barometer or tranche. I think some reports say that global ESG assets total around $41 trillion this last year, and that’s a huge explosion. But maybe some of that is because the barriers for entry are lower. Like you mentioned, a fossil fuel company can get in if they have good corporate transparency or they do have an active recycling program irrespective of the fact that their main product is choking the planet. So do you think that maybe the rights attack on ESG could damage some of the progress that’s being made from the left and in criticizing it and forcing the left and environmentalist to back this flawed system.
21:37 Rebecca Leber – Yeah, I mean I think this is a really tricky situation and at the time that I was reporting this piece, I think what I sensed was that environmentalists who’ve worked on this issue and made some real progress on their aims have been a bit caught off guard by how quickly, this anti-ESG backlash has grown in the states. I think one limitation is like I said, the messaging on this is pretty tricky that no one really wants to come out and defend Black Rock here, so I think there are some impacts, so one that I mentioned was a big development was right ahead of a Texas hearing around ESG where they hauled in companies including State Street, Vanguard and Black Rock Vanguard, actually announced it was withdrawing from a global Net Zero coalition and once it announced that the Texas Republicans actually they dropped them from the hearing. They were no longer asked to testify and that was seen as this very clear concession that Vanguard was making to say stop looking at us, we don’t want the scrutiny. So while that is that Net Zero pledge there’s plenty of criticism to make that this is that net zero pledge wasn’t doing a ton in the first place. I think it puts climate activists in this precarious position because they were running this campaign unopposed for years and they were winning because the science is in their favor and the financial numbers are also in their favor here. But now, with this pretty effective backlash that’s taking states over next year, we’re going to see bills in at least 15 states around around this anti-ESG legislation now that climate activists are facing this kind of backlash, I think corporations are put in this weird position too. Where you are essentially going to have to pick which direction they’re going into. Are they going to appease Republicans or are they going to forge ahead with what the science says and with what progressive activists are pressuring them to do so? I think it forces more of a crossroads than we would have seen without this.
24:06 Alex Wise – The fossil fuel divestment movement is that at all related to the anti ESG backlash by the GOP? Is the fossil fuel divestment campaign, led by organizations like 350.org, Bill Mckibben’s the co-founder of that organization, and it’s been a real vocal leader in the divestment space, I mean, you’re having large elite university funds, pension funds, etc. working to eliminate fossil fuels from their portfolios – is this a completely separate issue or is it related?
24:42 Rebecca Leber – I think it’s related in a few ways. One is, I think the divestment movement was a precursor to all this. It has been wildly successful and goes back about a decade long before environmental saw any gains in the board room. I think the strategies are slightly different because the investment is arguing that institutions should pull out funds from fossil fuels. While I think the ESG movement is a little bit more inside baseball, it’s working in inside the corporate boardroom, pushing shareholder resolutions at the annual meetings, all in order to get companies to recognize this future. So I think I think there’s a slight distinction here, but they do overlap, but there’s another similarity here, and one of the criticisms of the divestment movement is that lots of people have wondered how effective is it really, because again, if you look at what institutions have invested in fossil fuels, it’s a drop in the bucket for a company like Exxon and one argument in favor of divestment was it was more of a political campaign to ostracize fossil fuel companies rather than hurt them financially. This is, I think, an important lesson from divestment that applies to what the GOP is doing. Because in some cases Republican state treasurers are also arguing to divest in a very different way. They’re not arguing to divest from fossil fuel companies, but they’re arguing they are pulling funds from companies that are evaluating the future of fossil fuel companies and also overtly supporting oil, gas, and so I think it also offers a lesson of when we think about what the impact of what red states are it’s doing is that it’s going to be pretty limited, because divestment itself is a really hard strategy to pull off in an economic sense, and it is more a political one that works to ostracize and make a political point.
26:45 Alex Wise – So now that we have a GOP controlled House of Representatives, is there anything on the docket right now that speaks to what we’re talking about here in terms of the Republican attack on ESG parameters?
27:01 Rebecca Leber -The short answer is yes, Republicans have already promised this will come where they will haul in companies and request documents in order to prepare antitrust investigations around this issue. I think the major way this is going to manifest this year is in investigations because we do have a split Congress. So that’s where I would watch and there is a lot more damage. I think Republicans could do at the state level where they do have control, so investigations at the federal level and trying to stall various rules like what the SEC is undertaking around ESG disclosure and then at the state level. We’re going to see more bills that divest funds and limit what banks that states can use for their own projects. So it’s going to be a dual approach.
27:58 Alex Wise – Rebecca Leber thanks so much for being my guest on Sea Change Radio.
28:02 Rebecca Leber – Thanks for having me.
28:17 Narrator – You’ve been listening to Sea Change Radio. Our intro music is by Sanford Lewis and our outro music is by Alex Wise. Additional music by Donald Fagen, Marvin Gaye and Johnny Cash. To read a transcript of this show, go to seachangeradio.com. Stream or download the show or subscribe to our podcast on our site or visit our archives to hear from Doris Kearns Goodwin, Gavin Newsom, Stewart Brand and many others and tune in to Sea Change Radio next week as we continue making connections for sustainability. For Sea Change Radio, I’m Alex Wise.