Investors supporting responsible business
More than 300 investors and companies are emphasizing the importance of prudent investment strategies and smart risk management, amid the dangerous political backlash against sustainable investment and business practices.
The Freedom to Invest statement, which was coordinated by Ceres and the We Mean Business Coalition, is a reminder to policymakers that investors must be free to consider all material financial risks and opportunities, including those related to the climate crisis.
Another point is that the political arguments against environmental, social, and governance (ESG) rules are not based on sound economic logic. Building profitable businesses and portfolios demands an analysis of all major financial risks. In failing, or being limited or prevented from making those assessments, investors would not be fulfilling their fiduciary duty.
“Neglecting the robust economic benefits of the clean energy economy — and the substantial public and private investment opportunities that are necessary to achieve this shift — would represent a failure to build a stronger, more resilient U.S. economy and a betrayal of the interests of our stakeholders, shareholders, beneficiaries, customers, and the communities where we do business and live,”
While federal ESG rules are set to be introduced by the Securities Exchange Commission, the political pushback against socially and environmentally responsible investing and business practices is growing and has produced draft legislation in several states in the United States (US).
Laws aimed at restricting sustainable investment opportunities and banking practices have been rejected in North Dakota, Virginia, and Wyoming. These followed campaigns about the millions of dollars in additional taxpayer costs these policies would result in, as well as growing wariness over interfering with investor freedom to invest responsibly and protect the long-term value of their investments.
However, similar legislative efforts are being made in Florida and Texas.
Research by the economic consultant firm ESI and released by Ceres found that taxpayers in six US states could have been on the hook for up to $700 million in excess interest payments if such restrictions on sustainable investing had been passed and implemented.
We are seeing a similar pattern in Europe, where the European Union’s (EU) Sustainability Reporting Standards (ESRS), which have also been significantly watered down, are set to be adopted in June 2023.
Already a group of over 60 companies and investors with $80 billion in market capitalization and over $570 billion in assets urged the EU financial services commissioner to swiftly make the ESRS law without reducing their scope.
The new EU disclosure rules will come into force under the EU Corporate Sustainability Reporting Directive (CSRD) and apply to around 50,000 European businesses, including the concept of double materiality, whereby a company considers the impact of the outside world on its business, and the impact of the company.
As more investors and companies stand up for the freedom to invest responsibly, they are also standing up for policies and regulatory actions consistent with the global goal of limiting average temperature rise to no more than 1.5 degrees Celsius and cutting greenhouse gas emissions in half by 2030.
This is increasingly important as costs of extreme weather damage amounted to more than $165 billion in 2022—a figure that is projected to continue rising in the near term.
Likewise, neglecting the economic benefits of the clean energy economy — and the substantial public and private investment opportunities that are necessary to achieve this shift — would represent a major failure of politics and economics.
The evidence of recent months, and the concerted attempts to water down new reporting requirements, demands that big market players need to join the campaign. Conspicuous by the absence from the Freedom to Invest list of signatories were the big banks. It is time they, and others in high finance, found their voice.