The US Republican Party has launched a crusade against sustainable investing. It was started by Republican states like Texas and Florida, but this week it has reached the Capitol as part of the culture war that polarizes the country. The House of Representatives and the Senate have approved preventing pension fund managers from being guided by environmental, social and corporate governance (ESG) criteria. The president of the United States, Joe Biden, will have to use his veto power for the first time to prevent that decision from being applied.
For the world of asset management, sustainable investment criteria help to identify risks and opportunities in the medium and long term that are not reflected in balance sheets and income statements. Many companies have adopted them to improve their practices. For most Republican politicians, by contrast, ESG criteria are a way of imposing a progressive agenda through the back door. The important thing for them is to maximize profit and the rest are milongas of capitalism woke up, as they derogatorily call it, in reference to those who have supposedly awakened (woke) in the face of injustices and social problems and prepare to fight them.
In the United States, the legislation on pension funds establishes that managers must be concerned with the profitability they achieve for the participants when distributing the assets. In the Donald Trump era, the managers of these plans were expressly prohibited from considering factors such as climate change or corporate governance issues (such as pending lawsuits) when making investment decisions.
With Biden in the presidency, however, that ban was lifted in the heat of the currents of corporate capitalism and asset management that value sustainability (environmental, social and corporate) and that perceive the function of the company as something more than the mere profit maximization at all costs.
For this reason, a rule issued by the Department of Labor has allowed pension fund managers to take into account ESG criteria along with financial ones when deciding what to invest in, as long as it is for the benefit of the participants. not the norm forces, simply It allows a manager to take these criteria into account.
Even so, the Republicans have made it anathema. They have declared that ESG criteria are capitalism woke and have declared war on woke, so they have put sustainable investment on the trigger. With their new majority in the House of Representatives they voted on Tuesday in favor of repealing that regulation of the Labor Department, and then they have managed to attract two Democrats to also obtain the support of the Senate by a vote of 50 to 46 this Wednesday. To repeal a regulation issued by a government body, a simple majority is enough.
The two Democratic senators who have joined the Republicans have been the usual wayward Joe Manchin of West Virginia and Jon Tester of Montana. Both are playing for re-election in 2024 (if they appear) in States with conservative electorates. Manchin has argued that the rule penalizes the fossil fuel sector, important to West Virginia. With the war in Ukraine, the oil companies skyrocketed on the stock market last year, causing funds managed with sustainable criteria to have lower profitability than those that do not apply them.
The congressional vote against ESG criteria is more cosmetic or symbolic than anything else, a slap in the face of sustainable investing. Not only because it will face a presidential veto but also because in practice the managers do not have to give an account of the reasons why they consider an investment to be the best from a financial point of view and in their analysis they can implicitly consider all kinds of factors, even if they are subordinated to profitability.
BlackRock, the world’s largest asset manager, is one of the standard bearers of ESG criteria, as its boss, Larry Fink, has repeatedly made clear. The Republican governments of Florida, Texas, Louisiana and South Carolina have punished the firm by withdrawing their funds from it for embracing those criteria. More than a dozen red states are promoting laws antiESG that prevent public funds from being managed with these criteria or from granting tenders to companies that apply them in a way that they consider discriminatory. Texas, for example, intends to defend its powerful hydrocarbon sector with this.
“ESG criteria and sustainability have received increased regulatory attention in all jurisdictions”, warns BlackRock in its latest annual report. “Some states or state officials in the United States have passed or proposed laws or have taken official positions that restrict or prohibit state public entities from doing certain business with entities identified by the state as “boycotting” or “discriminatory” against certain sectors or that take ESG factors into account in their investment and voting processes at the boards. Other states and localities may adopt similar legislation or other laws and positions related to ESG criteria”, it adds in the document registered with the United States Securities and Exchange Commission (SEC).
Lobbyists have targeted advocates of sustainable investment criteria. One of the Republican presidential primary candidates, billionaire Vivek Ramaswamy, has turned to fighting capitalism woke and ESG criteria at the core of your campaign. Ramaswamy’s role is marginal, but a similar creed is embraced by many Republicans, including Donald Trump and Florida Gov. Ron DeSantis, who are sounding like favorites for the nomination.
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