California Gov. Newsom: ‘Ideological attacks on ESG investing defy the free market—and taxpayers are losing out. Here’s why we consistently beat Republican-led states in nearly every economic category’
Environmental, social, and governance—or ESG—investing is the latest target of Republicans who want to push their backward agenda at the expense of taxpayers. It’s a method of investing that prioritizes sustainability, invests in technologies of the future, and factors in the risks associated with climate change: wildfires, floods, hurricanes, and droughts.
According to Bloomberg’s analysis, ESG returns have “trounced” fossil fuel stocks and other investment strategies, and they’re “crushing the traditional investment benchmarks” by bringing in big returns. The largest exchange-traded fund investing in ESG “increased its assets 4,700 times to $24 billion since its inception in 2016 and 80 times the past three years” while investor appetite “increased 56 times during the past three years.” The Global Sustainable Investment Alliance estimates that ESG investments have reached $35 trillion.
Despite the proven results, some Republicans have targeted ESG because it doesn’t agree with their agenda, again attacking private industry when it disagrees with them. And the real losers here are the taxpayers, as state funds miss out on superior returns because politicians are trying to score political points.
In disregarding the interests of people whose livelihoods depend on public pension funds, states like Texas, Florida, West Virginia, and Oklahoma have limited or even outlawed ESG investing. They have prevented state and local pension funds from their duties to consider the best investments for their state and to simply price climate risk into their investment portfolios, a risk that clearly impacts every state in different ways.
Ignoring the danger that climate change poses is a clear financial risk to investments. We’re talking about catastrophic power outages in Texas brought on by uncharacteristic winter storms, wildfires throughout the West that have wiped entire communities and critical infrastructure off the map, record-breaking heat that strains electric grids, and more. These increasingly common events represent billions of dollars in insured and uninsured losses.
Many of the biggest investment firms are taking this seriously. As Cyrus Taraporevala, the CEO of State Street Global Advisors, said, “…we have a fiduciary responsibility to our clients to maximize the probability of attractive long-term returns and will never hesitate to use our voice and vote to deliver better performance. This is why we are so focused on financially material ESG issues.”
The CEO of Blackrock, Larry Fink, noted, “Stakeholder capitalism is not about politics. It is not a social or ideological agenda. It is not ‘woke.’ It is capitalism, driven by mutually beneficial relationships between you and the employees, customers, suppliers, and communities your company relies on to prosper. This 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 producing returns by charting pathways to net zero and transitioning away from investing in fossil fuel. Using ESG is part of how we get there.
No one can afford to keep burying their head in the sand. We need to invest in the future, move fast to reduce pollution, and accelerate the transition to clean, renewable energy to meet this challenge.
The pattern of behavior from Republican governors like Ron DeSantis of Florida is clear: punishing free enterprise and capitalism for political gain. When Disney spoke out against the “Don’t Say Gay” bill, DeSantis revoked Disney’s tax status, increasing costs on 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, N.Y. DeSantis has tried to restrict what businesses can and cannot say to their own employees—and even went after the Special Olympics for its COVID-19 measures.
We’ve also chosen a different path to investing and producing returns for taxpayers. Yes, we continue to invest in traditional energy companies. But we also prioritize investments in renewables and new technologies that recognize the very real dangers of climate change and speed our clean energy transition. We fulfill our obligation to retirement security we made to our teachers, our cops, and our firefighters—not by playing politics, but by sticking to bedrock investment principles and values that put people first.
Those are just the facts. Sacrificing financial gains and economic growth for politics only hurts taxpayers and their pensions.
Gavin Newsom is the governor of California.
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