That said, it has gotten more expensive for fossil fuel companies to borrow money in recent years, reflecting the risks those companies face from climate change, says Tensie Whelan, director of New York University's Stern Center for Sustainable Business. Instead, Fink has advocated for engagement, urging shareholders to press fossil fuel executives to be transparent about their plans for the future. In fact, BlackRock's CEO, Larry Fink, has said he thinks selling off fossil fuel stocks - or divestment - is an ineffective way to fight climate change. 'It's a question of which fossil fuel company do you hold? And how long do you hold them?' 'ESG isn't about a boycott,' says Henisz of the Wharton School. BlackRock, the world's largest asset manager and a favorite target of anti-ESG Republicans, is one of the top shareholders in many leading oil and gas companies. Big banks continue to provide hundreds of billions of dollars in financing to the fossil fuel industry every year. In response to severe drought, which is being fueled in part by human-caused climate change, some farmers in California are ripping out orchards of almond trees and replacing them with less water-dependent crops.Īre ESG investors boycotting fossil fuels? is focused on investing in companies with a clear mission to make a change to the positive.' 'In our view, ESG is more of a sort of defensive framework,' says Kunal Shah, a managing director at iCapital, a financial technology company. And that tilts your portfolio, it shifts your investment strategy.'ĮSG is different from impact investing, where the goal is to make money by investing in companies that are trying to achieve certain social or environmental outcomes. 'Some companies are, and some companies aren't. 'It's about looking at a business and saying, 'Are they prepared for the climate transition that's coming?'' says Witold Henisz, faculty director of the ESG Initiative at The Wharton School of Business at the University of Pennsylvania. Investors also want information about 'transition risk' - how companies will fare as governments enact policies aimed at cutting emissions and demand grows for things like renewable energy and batteries. For example, does a company rely on water to operate its factories, or to move goods in places like Europe or China where rivers have dried to a trickle this summer? It's probably easiest to think of this as a set of considerations that investors are using to try to understand risks and opportunities that aren't accounted for in traditional financial models.Ĭlimate change is one of the simplest examples: Investors are trying to find out how physical risks from things like rising sea levels and worsening drought could impact a company's operations. This FAQ is for anyone who wants to better understand an investing trend that is becoming core to global financial markets and a new battlefront in American politics - including, possibly, in your own state. Is the idea to bring about social changes that couldn't be achieved at the ballot box? And what does it mean for things like your 401K when investors follow ESG principles?

It's hard for most people to get a clear read of what ESG is amid the overheated rhetoric. Many experts disagree, saying Republicans are distorting the goals and strategies of ESG investing. And Republicans have said that if they retake Congress in the midterms, they plan to push federal legislation to curtail investment decisions they attack as 'woke.'Īnti-ESG Republicans say big financial firms are abusing their power to advance a liberal agenda on issues like diversity, social justice and, especially, climate change. Fifteen other states are considering similar measures.

In Texas and West Virginia, GOP leaders say they will block investors from state business who they claim 'boycott' the fossil fuel industry. Ron DeSantis recently barred investment fund managers and advisors from considering 'social, political, or ideological interests' when making decisions for Florida's retirement system. In Florida, a state board chaired by Gov. Republican politicians claim big financial firms are using environmental, social and governance (ESG) investing to try to bankrupt the fossil fuel industry and to advance other purported liberal objectives they couldn't achieve at the ballot box.Ī growing number of Republican politicians are moving to penalize Wall Street investors who consider environmental, social and governance (ESG) issues when they decide where to put clients' money.

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