Impact Investing vs ESG

by Stephanie Cohn Rupp

What’s the difference between ESG investing and impact Investing and why do both of these approaches matter? 

Environmental, Social, and Governance (ESG) and impact investing are often lumped together, but there are meaningful differences between these approaches. With so much positive and negative spin and contradictory coverage of ESG and impact investing, many investors are understandably confused about what these terms mean and how they differ in practice. 

I have worked in the sustainable finance industry both in the United States and in emerging markets – for over 24 years and now lead one of the longest-serving ESG- and impact-focused investment advisory firms in the US. To help investors better understand the differences between ESG and impact investing, I will briefly compare them in terms of purpose, measurement practices, investment approach, and market size.

Purpose

What is ESG?

The aim of ESG is to mitigate risks and identify sustainable growth opportunities, while maintaining traditional financial goals. ESG Investing focuses on integrating environmental, social, and governance factors into the investment decision-making process – usually in public markets (for companies listed on a stock exchange).

What is Impact Investing?

Impact investing goes a step further than ESG by explicitly seeking to generate measurable, positive social or environmental impacts alongside financial returns. It is not just about avoiding risks – it is also about driving measurable change. Also, impact investing usually applies to investments in private companies. Despite what you may have heard, impact investing is not philanthropy. 

Measurement

Evaluating Investments via Company ESG Ratings 

ESG criteria are typically used to evaluate companies based on their performance in key areas like carbon footprint (e.g., is the company emitting more CO2 than its peers?), labor practices (e.g., does the business use child labor?), and corporate governance (e.g., is there an independent board? Are there checks on the CEO?). Investors use ESG ratings to assess the long-term viability and ethical standing of companies.

Measuring Impact Outcomes

Impact Investing requires concrete, measurable results in social or environmental areas. This often involves setting clear impact targets, such as improving healthcare access, or supporting underserved communities. For example, an impact investor focused on community wealth building might invest in a fund that provides low interest loans to entrepreneurs in native-American communities. Impact investors want to see reporting that shows the outcomes their investments helped achieve. This same investor might want to see the actual number of high-quality jobs created in that specific community – thanks to the investment made.

Our firm provides impact reporting directly to our clients and we publicly release an annual Impact Report that highlights the collective social and environmental impact our clients’ investments helped achieve. 

Investment Approach

Positive and Negative ESG Screening

ESG Investing is often about screening investments, either positive (selecting companies with strong ESG practices) or negative (excluding companies that do not meet certain ESG standards). These standards can vary hugely: they depend on the values and preferences of the investor. This is why politicizing the sector does not make sense – any investor, with any values can be an ESG investor.

Investing for Impact

Impact Investing tends to involve proactive investments in industries or companies directly tied to positive societal or environmental outcomes, such as renewable energy, affordable housing, or education. It is more mission-driven, often aligned with specific causes or goals. 

Comparing Market Size 

Recent data shows that the impact investing and ESG markets differ significantly in terms of size. 

In 2023, the GIIN (Global Impact Investing Network) reported that in the US and Canada combined, the impact investing market represented $198 billion

According to research published by US SIF (Sustainable Investment Forum) at the start of 2022, the ESG investing market in the US amounted to $8.4 trillion in assets under management (AUM).² This represents 13% of all professionally managed assets in the US – so it is a much larger sector.


Stephanie Cohn Rupp is CEO and Partnership Chair at Veris Wealth Partners, an investment advisory firm focused on helping families and foundations align their investments with their mission, values, and vision. She also serves as a Board Director and Board Secretary of US SIF, a member of the Impact Assets 50 Review Committee, and an advisory board member to the Panel of Recognized International Market Experts in Finance (PRIME Finance) based in the Hague. Full bio

Disclaimer

The information contained herein is provided for informational purposes only and should not be construed as the provision of personalized investment advice, or an offer to sell or the solicitation of any offer to buy any securities. Rather, the contents including, without limitation, any forecasts and projections, simply reflect the opinions and views of the author.

All expressions of opinion reflect the judgment of the author as of the date of publication and are subject to change without notice. There is no guarantee that the views and opinions expressed herein will come to pass. Additionally, this document contains information derived from third party sources. Although we believe these third-party sources to be reliable, we make no representations as to the accuracy or completeness of any information derived from such third party sources and take no responsibility therefore.

Sources

1 https://thegiin.org/publication/research/2023-giinsight-series/

2 https://www.ussif.org//Files/Trends/2022/Trends%202022%20Executive%20Summary.pdf

 

Veris Interview Series: Timothy Smith

Transcript

Stephanie Cohn Rupp: My name is Stephanie Cohn Rupp. I am the CEO of Veris Wealth Partners, which is an ESG and impact investing focused financial advisory firm. I am delighted to introduce Karen deRochemont, my colleague and fellow Veris Partner who is Director of National Client Service and Chair of our firm’s Policy and Engagement Committee. Karen, do you want to introduce our guest of honor?

Karen deRochemont:  Thank you, Stephanie, I am happy to introduce our guest. Timothy Smith is a responsible investing pioneer, a leader in corporate responsibility and shareholder engagement for over five decades. Tim started his journey with a BA from the University of Toronto and Master of Divinity degree from Union Theological Seminary. Tim is a founding staff member of Interfaith Center on Corporate Responsibility (ICCR), where he served as staff for 30 years, including 24 years as executive director. Currently, he serves as ICCR’s Senior Policy Advisor. Additionally, Tim led Boston Trust Walden’s shareholder engagement efforts for 22 years, beginning in 2000. Tim has been named in numerous honors, including top 100 Most Influential People in Business Ethics and the Joan Bavaria Award for Impact. And was also named as one of the most influential people in corporate governance by the National Association of Corporate Directors. We are excited to have Tim join us for this conversation.

Stephanie Cohn Rupp: Thank you, Karen. Welcome, Tim. We are going to start with the basics. You have spent decades with ICCR, and we would love to hear from you about the organization. What strategies does ICCR use and what issues does it work on?

Tim Smith: I am thrilled to be here. Thanks so much. I have had a chance to work with Veris Wealth Partners over the decades and appreciate your leadership. As Karen indicated, I was one of the early founders of ICCR in the 1970s. We are now over 50 years old, and ICCR has grown to be an organization composed of about 300 investors small and large. We include religious investors, pension funds, trade unions, and investment managers too.

ICCR members use a whole variety of strategies and approaches to address their work. Of course, they are active share owners. And so, we engage companies in conversations through letters and sometimes through shareholder resolutions where we file resolutions for discussion, debate, and votes at stockholders meetings. We are also involved in public policy concerns, public education about ESG, and being a leading force trying to protect our industry as we are under attack now as we have not seen before. That is our basic approach. We work on dozens of issues, everything from climate change to diversity, human rights to lobbying and political spending, drug pricing and opioid addiction. You go down a very long list of issues that our members are engaging companies on and doing it with some, I think some positive impact over the decades.

Karen deRochemont:  What are some of the best examples of positive outcomes achieved through shareholder engagement that you have seen? Could you share one from a historical perspective and one more recent?

Tim Smith: If you look over the decades that investors have engaged companies and tried to be a voice in the marketplace, there are I would say scores and scores of examples where companies have changed their policies and practices in response to either encouragement from or pressure from their shareholders from their investors.

One of the issues that many people will remember historically was the whole question of investing in apartheid South Africa. In the 1970s, it was the Episcopal Church that filed the very first shareholder resolution on a social issue by a religious group. And it was filed with General Motors, encouraging them to disengage from South Africa because of the apartheid system. And that resolution led to hundreds of companies being engaged over two decades of work. We must be careful here not to pretend that one strategy or one set of voices was the primary voice for bringing about pressures on South Africa. It was a whole range of global pressures, but I think it is important to note that the investor voice, or even the voices of universities and other institutions decided to sell their shares and divest from companies in South Africa, those voices were heard in corporate boardrooms, as were the shareholder resolutions that populated company proxy statements for decades. The history of South Africa, facing such dire economic pressure, decided to come to the negotiating table and the result was Nelson Mandela being freed from prison and becoming the president of South Africa. That is an example of working on something for decades. It took 20+ years of hard work on that issue.

To jump into more current times, the work that, not just the faith community is doing, but so many investors are doing on climate change is significant because we are facing a climate crisis. Investors are letting companies know that they either appreciate their leadership or need them to step up and address the climate crisis with urgency. And that means reducing their greenhouse gas impact and doing positive things to address climate change.

One example would be the pressures that ICCR members have been putting on companies on their climate lobby – how they are trying to influence public policy on climate. Our initiatives have been pressing companies to look at what they say they stand for and yet how their government affairs departments may be lobbying contrary to their views and certainly some of their trade associations like the Chamber of Commerce would be undercutting their very values.

It is interesting that you have issues like climate change, where I think our voice has been exceedingly important, but at the same time, we are all realistic and we recognize that. Whether it is the voice of investors or governments or NGOs and environmental groups, we are all fighting very hard to try to make climate change solutions a reality. And we are all somewhat discouraged by the lack of adequate progress.

I will point at one other example. For years, investors have been encouraging companies to report meaningful information on what we call sustainability practices. And companies would say, too expensive, nobody will read it, nobody cares, why would we do that? And now a decade and a half later, 90% of major S&P 500 companies do meaningful sustainability reporting. Now, some could get better, but nonetheless, they recognize this as an issue. So, we could go on with numerous other examples of companies changing their governance practices or companies changing their diversity practices because of shareholder input. And it is one of the reasons why our voices are so important.

Stephanie Cohn Rupp: Thank you, Tim. What is also interesting is the rise of shareholder activism and how it has ebbed and flowed. There have been attacks against minority shareholders’ ability to file or co-file a resolution.[1] Which corporate leaders have considered to be a distraction from the business or an attack on long-term shareholder value. Can you share with us some of the changes that you have seen around shareholder activism in the course of your career? And do you feel like we are now seeing more activism or, because ESG is under attack, are you seeing people recoil from leveraging engagement and going to divestment or screening?

Tim Smith: You are right. In the early days, one would celebrate if we filed a shareholder resolution, and we got votes of over 3% because it allowed you to come back the next year. And in those early days, many of the investors who were raising questions about diversity, or the environment or South Africa were motivated by a social mission, and they were committed to try to present that to the business community. If you jump ahead five decades, the landscape is as huge as all outdoors. And while we still have many investors who are very concerned about protecting our environment, that is their first priority, we also have investors with tens of trillions of dollars who are active leaders in this ESG space because they see these as issues that affect shareholder value.

I will give you an example. I served on a panel for Tom DiNapoli, the Comptroller of the State of New York, which has a well over $250 billion dollars that they manage. And he reminded us, as he was legally required to, that their priority is to protect the financial interests of their beneficiaries of the pensions – of the teachers and et cetera. And therefore, the work that they did on climate or on diversity or on protecting LGBTQ rights was all their motivation was believing that those issues have an impact on the bottom line, and therefore companies that are better dealing with them in a more positive way are protecting long term shareholder value. Whether you are New York State, CalPERS or CalSTRS, pension funds in California or New York City, you will hear that motivating force often, right?

Within ICCR, we have folks who have different motivations for being there. I am on the board of the pension fund of the United Methodist Church called Wespath. It is fairly large, over $25 billion. And it is a pension board, so it has to protect its beneficiaries. But they are also trying to be faithful to their religious beliefs and so they walk that interesting tightrope between faith and finance and trying to excel at being responsive to both.

So, the new world we are in is one where we have groups like the Principles for Responsible Investing that have investors globally with over a $100 trillion dollars of assets under management that are committed to addressing ESG because they have a firm belief that it affects shareholder value. So, you look at environment, social, and governance issues, because they affect shareholder value. So that is a very different context that we work in today than even 20 years ago.

And the new thing you mentioned, Stephanie, that is important to note is we now see conservatives have a strong right-wing agenda who are using shareholder resolutions as well. I believe there are about 90 filed this year and they are strongly opposed to work on diversity. They argue that white men are being discriminated against and we should get rid of these affirmative action programs. And many of them are climate deniers. They are a loud player in this space, but the market is responding. The marketplace is telling us that the anti-ESG vote, while they have a right to be put on a proxy under the SEC rules, are not going to come back because they did not get enough of a vote. Whereas resolutions on climate have stirred up a considerable, meaningful debate that accelerates positive growth.

Stephanie Cohn Rupp: Just to play devil’s advocate, the votes towards or in support of climate resolutions are gaining more and more momentum, but they are not winning. We are still talking about a victory for the movement is 20% or 30%, but we are still not voting directors out of their roles. We are just giving them less support. And do you think that we are going to come to a point where, we just need, it is an issue of coalition building and getting more momentum so that it is no longer just signaling by a stronger minority percentage, but a majority percentage, or do you think that is an optimistic view?

Tim Smith: I like your term signaling and I am glad you asked. Let me start off with the premise that winning is not getting 50%. Oftentimes a resolution is sponsored, or even there is an engagement with a company before a resolution, and you come to a meaningful agreement on companies taking steps forward. About a third of them are withdrawn because there’s agreements reached through dialogue with the company. That is positive progress. I do not know if we call them wins or successes, but it is positive progress that the company and the investors have come to common ground.

Secondly, if I am on a board and a shareholder resolution on an issue gets 30% of the vote, I see that as a very important signal. If I am looking at the pay package of a company and I am on the compensation committee and that pay package gets like a 20% no vote. That is an alarming number for me as a director. Usually, a comp committee will immediately go on the road and talk to their large shareholders and say, how do we need to change our formula? What are you concerned about?

I am going to argue that a resolution of 20% or 30% still sends a message, especially with issues that are important but do not yet have public focus on it. Take an issue like plastic waste, which groups like As You Sow and others have been working on for well over a decade. In those early years, they were raising the issue thoughtfully, powerfully, but they did not get much momentum. Now, not only are the votes significant, and a couple of years ago, we got several votes over 50%, but a company can read the tea leaves and say, this is an issue whose time has come. It is material for us. We need to address it. This process is not all about getting 50% votes. It is making a meaningful business case that companies, industries, and oftentimes government will embrace and say is important. And in some cases, in the cycles of the votes that we have seen in the last decade, we did see over 35 majority votes that went over 50%.

Finally, you mentioned a good point, Stephanie. Some critics say it seems unfair for minority shareholders to be able to file resolutions. There are two individuals who are really active proponents, James McRitchie and John Chevedden, who have been filing resolutions as small individual shareholders for years. They have filed it on governance, and they are filing it on some of the social environmental issues as well. And their resolutions, particularly on governments governance, maybe they had a hundred shares. We are getting 50, 60, 70% of the vote on some governance votes. What does that tell you? That tells you that huge institutional investors saw the request that was put on the table to be meaningful and smart governance, and they were going to vote for it, whoever the sponsor. Interesting, right? So, we see both small investors and large investors who have an important voice in creating this change in our marketplace.

Karen deRochemont: Tim, could we explore the ESG attacks a bit more? Anti-ESG attacks are getting sharper and more political. What impact do you believe these attacks might have and what do you think our response should be?

Tim Smith: You are right, Karen, that the attacks have become sharper, much more politicized. I think the attacks are cannon fodder for some politicians who see this as a way of building their voice, their vote, and their base. Attacks against anti-woke companies and anti-woke investors, and many of the people on this call would be considered “woke” but those attacks are also against companies like Walmart and Intel and other companies that are making a commitment to work on diversity and climate and human rights and supply chain. Strong conservative voices are criticizing companies who are doing that, arguing they are taking their eye off the ball of just making money for shareholders.

The attacks run multiple levels. In Congress, we see them. Last week there was a hearing on antitrust that had Mindy Lubber from CERES and somebody from Arjuna Capital, and somebody from CalPERS under attack by the conservatives in the House who were arguing that they were violating antitrust by talking to each other about issues like climate change and sharing information. Strange, right? Because those same people do not attack oil companies, they get together in the American Petroleum Institute and share information – as is their right. So why, when our investors are talking about a key issue, why is it an antitrust violation?

Of course, on the House floor, there were also Democratic speakers, including the Attorney General of Minnesota, who was a former member of Congress, Mr. Ellison, who is an expert on both climate and antitrust. And he said there is no evidence of any antitrust violations. But, back to your point, Karen, it does not matter if there is a real case. It is a good sound bite, right? So, they say things like you are violating the antitrust rules. You are pushing ESG criteria into investment decisions and losing money for beneficiaries.

The State of Texas and the State of Oklahoma decided to not do business with certain companies that they consider in that category. The state of Texas pulled $8 billion from BlackRock. BlackRock actually saw its business grow because investors in Europe that were very strongly committed to ESG principles were giving them business. No company likes to lose clients, but at the same time the attacks were misguided, foolish, arguing that BlackRock was boycotting oil companies. BlackRock owns stock in virtually every oil company, but they also are willing to talk about the need to have a climate transition, right? And then we are all going to face that, whether it is a company or an investor.

We are seeing attacks in Congress and at the state level. We are seeing attacks by right wing groups who are attacking companies. We are seeing suits to challenge the SEC’s rule on climate change, suits that have been blocked for the moment. This is serious business. We have never seen these issues in our industry under attack like this before.

At the same time, here is some good news, the attacks have been less successful at the state level. There were anti-ESG laws and regulations proposed in well over 30 states last year. And this year, very few of them passed and now studies are coming out showing that in Oklahoma or Texas the pension funds are going to lose perhaps billions of dollars because of the legislation that has passed. So suddenly it becomes an issue of a fiduciary duty for a pension fund. And we have seen some, I have no idea what their politics are, but some people working for pension funds or trustees who say this is not prudent, I do not want these laws to be passed.

Stephanie Cohn Rupp: Can you explain for our audience why these pension funds lost billions because of these laws? There’s also loss from a taxpayer perspective because of less competition. For example, with municipal bond issuances, by nixing certain banks from bidding for business these states had increased debt service to issue general obligation bonds or specific project bonds. So, the taxpayer paid, but can you explain why the pension funds also lost billions?

Tim Smith: That is an important point, Stephanie – who is winning, who is losing by these pieces of legislation. The pension fund may be losing too, if they have to move from specific managers and they have to go to a manager that is costing them more. And then you have the dislocation of moving your investment pool from one manager to another. The fund is often paying a financial penalty. And as you said, the taxpayer is as well. And in places like Indiana, for example, when the bill was proposed some of the folks in the pension world did a cost analysis or risk analysis of what this bill would mean. And they pointed to ways in which the fund and then the beneficiaries would face penalties from these very extreme pieces of legislation.

Stephanie Cohn Rupp: And now Exxon Mobil, which I believe is the largest emitter of carbon dioxide of all listed companies, filed a lawsuit against two shareholders, Arjuna Capital and a Netherlands based organization called Follow This, because they filed a shareholder proposal requesting that the company do more to reduce its greenhouse gas emissions. What should people know about this case? And what is your takeaway? I understand that there was a recent development.

Tim Smith: That is an important case and not a narrow one. We will talk about the bigger picture. Last night, the judge in the case ruled that it was moot. Even though there was lots of criticism of Arjuna Capital, he ruled that, in fact, there was no resolution on the docket, and Arjuna had pledged not to file one next year or to cause it to be filed, and therefore the case was moot. Now the Exxon case is off the court docket, but this was a highly unusual action.

Stephanie Cohn Rupp:  There was a level of aggression that we have not seen. Share more for our audience about what actually occurred.

Tim Smith: Yes, you put the right words on the table – level of aggression. With Exxon Mobil, some of us were involved in dialogues with them for years. They were willing to talk to their investors about climate change and about other issues, too. And they would host meetings where maybe 25 investors would come and have a half-day conversation with them about the climate and not just listen to the presentations but put their own positions on the record. Here was a company who for decades was willing to do that, at least have the door open.

What was highly unusual and aggressive, this year Exxon decided to sue two investors who had filed a resolution on climate change, urging them to move faster. They sued the investors and said that if they won the investors should have to pay court costs. For a small investment firm that would be quite a challenge. But this was very unusual. It is not that it has never happened before. But this was, I think, the first time I have seen a resolution on climate change challenged in the courts, rather than going through the process of appealing to the Securities and Exchange Commission who would adjudicate and decide whether the resolution could be on or not. And here is the irony. Exxon had a pretty good case if they argued it at the SEC, saying this resolution is pretty similar to one last year. It did not get enough votes. It should not be allowed on the proxy.

My own view is they would have had a rather good possibility of winning at the SEC. But instead, they used a nuclear option of suing shareholders and having that suit go on for months, even when Arjuna and Follow This said they pledged not to file the resolution that was being challenged.

But the second part of the suit was not just about these two shareholders. It was attacking the Securities Exchange Commission for the way they had been ruling. So, it is not even an oblique attack. It is a rather open attack against the SEC. And I think it was alarming to investors who feared that other companies might follow suit, and this would become a new tactic. I do not like a resolution — I’m going to sue you. I think it also was an occasion where the aggression was not just in the courts, it was in their proxy statement where they challenged and insulted investors who are filing resolutions. They use the term that some of these investors have extreme agendas, meaning they do not have the financial interests of the company at heart. They also argued that they were not bona fide shareholders because they had small holdings. In the case of Follow This, they bought to be an advocate. They followed the SEC rules, but Exxon felt they could make an example of them. This broad case of aggressive action against investors is a new chapter with Exxon and we hope it is not a new chapter of souring relations between companies and their investors.

But here’s how investors respond. Two ICCR members, Mercy Investment Services and Wespath, the United Methodist Pension Board, filed a solicitation arguing that investors should vote against both Darren Woods, the CEO, and the lead director, Jay Hooley, because they should be held accountable for this suit. And they made the business case for it. And thus, began months of a lot of stories, a lot of controversy, and many major investors who declared themselves supporting that no vote position, whether it is New York State and New York City or CalPERS and CalSTRS. And CalPERS, the public employees retirement system, didn’t just say they were going to vote no. They decided to vote against the whole board. They were active on the airwaves making the case that this was an abuse of power. Other investors talked about it being bullying. In other words, it was an extremely strong pushback.

Now, you were talking earlier about symbols, Stephanie, and what mattered. So, in the end Jay Hooley got about a 13% no vote, which puts him in the bottom of directors votes. That no vote was not because he does not do his job as well as Lead Director, it was because of the suit. And it does send a message. I’m not saying Exxon has ears to hear, but the concern about other companies using this as a tactic, if I was the general counsel of any other company who had a board member or manager saying, maybe we should just sue this shareholder, I would say, let’s look at the legal costs, the PR costs, let’s look at the cost of investor opposition and the public controversy. We may have a campaign against our boards. Maybe we will get other pressures from investors. I think the message in the marketplace is this is not a wise strategy to use and that is quite important too. They were even led by Comptroller Brad Lander of New York City. A very interesting letter signed by 13 state and city pension fund leaders to investment managers, urging them to vote no too because of this suit. And I am glad they did that. It was a strong statement, but at the same time we did not see the BlackRocks and the Vanguards and the State Streets voting no. Vanguard explained why. They were impressed by Exxon’s profits, so they were not about to vote no, but they did say they were concerned about this court case and the precedent that it set, so there were a lot of investors who voted for the board, but still quietly said to the company this is not a wise strategy. We are not comfortable with it.

Karen Walls deRochemont: Thank you, Tim. I know we could spend a whole day discussing this case. There is lots to uncover. But if we could move on, there are many different ways that investors can engage with companies when issues come up. Can you talk about when it is better to divest versus engaging with a company directly? At what tipping point does divestment really matter? And is it even worth it?

Tim Smith: A great question, Karen, and not an easy one to answer. When I worked previously at Boston Trust Walden, we had clients of different persuasions, different views on things. And I have a lot of respect for a university foundation, an NGO of religious groups who decides to say our values and our beliefs mean that it would be a total contradiction to own shares in, for example, a tobacco company. And so, they decide to screen to not own or perhaps to sell them. And then more recently, we have had a huge international debate about fossil fuel companies. And many investors have decided to step back from owning those shares. And we are talking about a significant number of shareowners – investors with trillions of dollars of assets under management. So, it makes a serious statement. But as some others would argue it takes you away from the table. You do not have a role to play there because you do not own the shares.

Now, the reason it is so complicated is somebody who’s a pro divestment proponent might say, yes, but your shareholder advocacy has not made enough of a difference. Fair comment. Yes, when nobody’s declaring that shareholder advocacy with oil companies has turned the industry around. But I think we can point to scores of cases where differences have been made on everything from methane flaring to setting greenhouse gas reduction goals. And then the dramatic case a couple of years ago, where Exxon had three board members unseated and new board members being brought on. So, we do have those cases to point to.

It may depend partly, Karen, on what the issue is about whether divestment or screening or shareholder advocacy is the route to go. I think a number of ICCR members who decided to be a continuing voice with the Chevrons and Exxons and other companies believe that those voices make a difference, even when it’s like pushing the rock uphill.

And a couple of years ago, Wespath at a resolution to Occidental Petroleum, for example. Back to your point, Stephanie, it got over 50% of the vote. And a couple of years ago, we had resolutions filed on climate lobbying and lobbying with Exxon Mobil and Chevron too. But the Exxon Mobil resolutions both got over 50% of the vote, and the company stepped up and did meaningful reporting in response.

I believe a strong case can be made that shareholder advocacy on a whole range of issues is important, and I’m glad that I’m personally glad there are members of ICCR that still own tobacco stock and have been regularly at tobacco stockholders meetings, raising issues of health and promotion to youth to smoke, that kind of thing. There are still many of these companies still pushing a lethal product out there, but they are being forced to debate the issue with their shareholders.

I think divestment makes a statement, but as we look at the fossil fuel issue, I would argue, rather than taking a doctrinaire position on the strategy, (either you should divest, or you should keep your shares) that both strategies have had an impact in the public debate. And of course, going back to our earlier point, they have also had an impact that the right wing has rallied behind the fossil fuel companies, describing us as trying to destroy our economy by asking for a transition during the climate crisis.

Stephanie Cohn Rupp: Thank you, Tim. Our final question is about the future of this space and what is your hope for this for the sector? And knowing that we have asset owners here listening to you and asset managers, what is your call to action? A lot of this can be overwhelming, can be frightening, but we are not alone. There are a lot of groups like ICCR. We are a movement – a movement that has been initiated by people like you. There are very few who started in the 1970s as you did. I would love to have a pragmatic call to action and hear your hopes for the future.

Tim Smith: I think the first point we could make is; we described the fact that the opposition is as strong as ever and very critical and politicizing the debate where everybody on this call is woke and trying to destroy capitalism. These are actual terms being used, right? We need to face that, it is true, but secondly, we need to ask is that the influential voice in the marketplace. No, it is not. We are in a global marketplace. In Europe ESG investing is growing by leaps and bounds in places like Japan and other parts of Asia.

And secondly, this is not just a debate about investors it is about companies as well. We are seeing companies sometimes cooling their rhetoric on ESG or sustainability, but still being committed to work on diversity, or climate change, or human rights…etc. Why? Because they see the business case for it. I am not saying they do not have hearts that are moved by these issues and want to address them. But they see the business case and see the wisdom of it. We are not going to see companies retreat and step back from their commitment on sustainability, I think.

I see ESG continuing to grow, even though it has its ebbs and flows. We must push back on some of the myths, like the myth that you lose money through ESG investing. I think it is possible that the anti ESG politicized campaigning is going to get a little tired after a while, especially when some of the realities that we have seen with the costs the pension funds come to bear. So that is getting played out a lot more.

We can go on about what the hopes for the future are and what the lessons are, but this can get a little intimidating. Somebody might say, why would I want to jump into this muck and mire? Unfortunately, it is investors and our portfolios that are being debated too. You have taken a position saying that the ESG investing is wise and prudent, and you are serving your clients well. It is in our interest to say, whether it is Veris or scores of other investment firms and asset owners, to make the case for why we are doing this and why it has merit. And why it has legitimate returns too.

Secondly, vote your proxies. Some asset owners do not necessarily need to file resolutions, although come on in the water’s fine. You could join in a resolution somebody else has filed and do very little heavy lifting, but you are still showing where you stand. Vote your proxies and you could write a short letter to a company saying I’m a shareholder in company X. You’ve got this resolution on worker safety, and we want to tell you why that’s important to us. Your voices need to be heard.

Unfortunately, these actions happening in Congress are very threatening. I would really encourage you to play a role here with your clients, for example, sending out alerts when there’s terribly important legislation coming up. For example, in July, we expect a vote to be held to reverse the SEC’s ruling on climate change, which investors worked on for years. This would be a terrible reversal. And it is important that legislators hear this is important, from all sorts of investors. So that would be encouraged to speak out whether it is at the state level, but especially when some of these federal pieces of legislation get put on the docket.

There are a few things, Stephanie, looking forward, that we all can do. And we are not doing this alone. It is not that you alone are fighting against Jim Jordan and those who are saying we are trying to destroy capitalism. You are joined by firms like Veris, but also a whole community in this country of investors and even some asset managers who are leaders in this space.

Stephanie Cohn Rupp: I sit on the board of US SIF, the US Sustainable Investment Forum. Their work is to help educate and lobby Congressmen and Senators to ensure that they understand what ESG investing is. A lot of it is around definitions. There are a lot of falsehoods that have been, I believe, pushed or have been very influential with representatives who do not know what it is. Whoever comes to them first has more influence so education on the subject is important.

Tim Smith: You are so right, Stephanie. I serve on the policy committee for US SIF. And the work they are doing is important. They are watching these bills and trends and alerting people when the votes are coming up. It is essential work, and, by the way, their website has some helpful things on the attacks – some sensible responses and talking points and things you can write to your own Senators and Congressmen.

Stephanie Cohn Rupp: We have a question from the audience which has to do with your personal journey, Tim. So how did you come to ICCR?

Tim Smith:  Happenstance. Blind luck. When I was at school at Union Theological Seminary, I did field work for the United Church of Christ on the whole issue of South Africa. And when I graduated, the beginning of ICCR was being formed, and they invited me to do some ad hoc staff work, which I did. And then that grew over the years. It was good fortune that put me on that path.

Stephanie Cohn Rupp: Another audience question is on long term, uphill climb engagements, such as with Amazon and companies like Meta whose structures do not lend themselves well to shareholder activism due to the outsized control of their founder. Shareholders want short term success, but these are long term campaigns. What advice or comments do you have on long term, uphill campaigns, especially with tech stocks?

Tim Smith: I think we could take a lesson from some of our past work on the South Africa issue. We had to have the endurance of the long-distance runner. We were committed to stick in until things were changing in South Africa, and that gradually 20 years later happened. I think you are right to point to the fact that maybe it’s the American mentality, not just investors. We like to see instant success, but in fact, sometimes that happens. You make a point with a company, whether through a conversation or a letter or a shareholder engagement, and the company might respond because it makes some sense. They have been thinking about it. They had a staff member or a team in house that was proposing that, and your suggestion came at the right time. But then there’s other cases where you feel like, oh, this is a giant, and I am not sure I am going to be able to imagine the day that giant will move. In that case the first thing, obviously, is to recognize that you should not be looking for immediate change. But even if a company is a giant, some of them can do some things that you want to give them some recognition for, even if there’s other things you would be critical of. I am thinking of Amazon. I am even thinking of the Exxons and other companies in this sphere and watching that on certain issues, they are hearing and willing to take steps to change. For example, the oil industry is working with some diligence on reducing methane gas from flaring, for example that’s because not just investors. The government, the public, and the climate crisis sent that message clearly to them that they needed to do it. I am not despairing, with a company like Amazon, a long term, consistent, thoughtful, strong professing of the business case. I believe that can have an effect, but we should not be discouraged if you have been working for this for 10 years and the company is not changing, that does not mean you necessarily go away.

The other point that you raised, Stephanie, is that there are companies that you are raising issues with where there is a lot of inside stock ownership. Zuckerberg controls about 60% of their stock. What we are finding is that some resolutions are being put in now. And very wisely, investors are analyzing the votes after the vote to say, these had a majority of outside investors, outside shares voting for them. That sends a message too. It has been important.

Stephanie Cohn Rupp: We have another devil’s advocate question. Is there a shareholder that is too small to challenge companies to behave responsibly?

Tim Smith: My answer is no, but the caveat is that it depends. There are companies who are going to say that an investor is just an individual who is a pain in the neck. Some companies will ignore you but some listen, especially if an investor is writing and it is an issue of the day, maybe students are bringing it up or it’s being debated in scientific circles. You can still have a ripple effect.

There is a woman named Jan Dell, who is quite an expert on plastics issues. It is her vocation to challenge plastic waste. And she has some shares and filed a resolution with Kraft Heinz, and I think got a decent vote in the 20% range. But here’s an individual, I don’t think she’s a huge investor, but she knows of what she speaks. She did what is called an exempt solicitation, arguing the case for other investors, and she is one of those prophets in the marketplace who is raising an issue.

Now, there are some individual investors who are also pushing self-interested questions or zany questions like I want you to change your product line or something like that. The management may be respectful and polite because they are a shareowner, but basically that position is going to get ignored, as it should. But it is not because they are small. It is because they did not make a very good case for their position. And some small shareholders are making excellent cases, whether it is Jim McRitchie and John Chevedden on some governance issues or Jan Dell.

Stephanie Cohn Rupp: And they are then getting significant votes in their favor. The proof is in the followership. Are you saying it is not the size of the investor that matters, it is the quality of the issue that is brought up?

Tim Smith: Yes, and sometimes you can be raising an issue in the early days that does not seem to have a lot of public attention. And then 10 years later, it is an issue whose time has come and therefore you planted seeds, you planted them with the company, you planted it in the investor ecosphere, and it bore fruit.

Stephanie Cohn Rupp: We are at time. Thank you so much, Tim, for sharing your expertise and your experience.

[1] The rule used to be that all you needed to do to file or co-file a resolution was to own 2,000 shares of the stocks and hold it for a year. Now, to file a proposal at a company, shareholders must own at least $25,000 in market value of the company’s shares for one year or $15,000 for two years to file a resolution. Those who own shares valued at $2,000 to $15,000 would have to wait three years before becoming eligible to file. Learn more from the SEC here https://www.sec.gov/divisions/corpfin/rule-14a-8.pdf

Resources

Tim shared a variety of resources that can help you learn about some of the most critical issues in ESG and shareholder activism today. 

This transcript has been edited for clarity.

IMPORTANT DISCLOSURES

The information contained herein is provided for informational purposes only, represents only a summary of topics discussed, and should not be construed as the provision of personalized investment advice, or an offer to sell or the solicitation of any offer to buy any securities. Rather, the contents including, without limitation, any forecasts and projections, simply reflect the opinions and views of the speakers which  may or may not reflect the views of Veris Wealth Partners. All expressions of opinion reflect the judgment of the speakers as of the date of publication and are subject to change without notice. There is no guarantee that the views and opinions expressed herein will come to pass. Additionally, this document contains information derived from third party sources. Although we believe these third-party sources to be reliable, we make no representations as to the accuracy or completeness of any information derived from such third-party sources and take no responsibility, therefore. Certain case studies, research studies, and performance results presented herein are illustrative and designed to support the investment theses or opinions of the speakers and should not be construed as representing the entirety of all pertinent experiences or relevant market data, some of which may support a different opinion or thesis.

Past performance is not indicative of or a guarantee of future results. Investing involves risk, including the potential loss of all amounts invested.

 

Roraj Pradhananga, Co-CIO of Veris live on Scripps News in June of 2024

Roraj Pradhananga Interviewed About ESG Investing on ScrippsNews

Full Transcript

Chris Stewart: He is Co-Chief Investment Officer and Managing Director at Veris Wealth Partners. Thank you for taking the time to be with us. Your group specializes in ESG investing. What’s an example of a company that is a good ESG investment?

Roraj Pradhananga: Before I offer an example, when we think about ESG investing, it is a set of factors you’re assessing to understand the product, services, and operations of the company. For example, if you look at Orsted, which is a renewable energy company that does large offshore and onshore wind projects, we (consider questions like) what is the product that the company is offering? Does it lead to a more sustainable future? And we also look at the operations of the company. How are they manufacturing these products? Are they looking at their energy efficiency? Are they looking at waste generation? Are they looking at recyclability and reusability? We look at all those factors.

On top of that, we also look at social and governance factors. So, for example looking at the governance structure, looking at shareholder rights, looking at board diversity, looking at board independence, et cetera, all make a difference in terms of how these companies are run because sustainable companies tend to be good actors and they not only care about generating returns — they also care about the communities they operate in and the planet as well.

Chris Stewart: Sustainability can be a divisive topic. In the business world, there are critics of ESG investing. Researchers at Columbia University found on average ESG funds pick firms with worse employee treatment and environmental practices.¹ The study also found that ESG funds charge higher management fees and obtain lower stock returns compared to non-ESG funds. When you read something like that, as someone who works in the industry, how do you respond?

Roraj Pradhananga: I think you need to bifurcate this in terms of the type of products that you’re investing in. Veris has been doing this since 2007. We look at the intentionality and authenticity of the investment products that we invest in. Getting an understanding of the rigor of ESG analysis and the types of companies that a fund, whether it’s a mutual fund or ETF, invest in is very critical. I think this is where greenwashing comes into play.

You must also look at active versus passive management. So, if you’re looking at passive management, and if a product, for example, is only using ESG scores and doesn’t really do an in-depth analysis of the operations of the companies, it might lead to some of those criticisms that we are seeing in the market. But there are also active products where a fund manager might do very in-depth analysis of the companies, but that also leads to certain impact on the risk return profile of that product because, in an actively managed product, you end up with exclusion — or rather lack of exposure — to certain industries or sectors. And that can have an impact on the risk return profile depending on the market cycle.

Chris Stewart: I think of the average person walking watching right now, they might have a financial planner. They might invest through a mutual fund. How can they have a conversation with their financial planner? To make sure the money, if they’re interested in this, to make sure the money is going to the right place.

Roraj Pradhananga: I think asking the financial planner what the investment thesis of the products they’re allocating your portfolio to is very important. Asking them to look at the holdings of those products is very important.

Ask about proxy voting. As equity owners, you have the right to vote proxies on various policies and agenda items in a company’s annual general meeting. I think ensuring that you understand the proxy voting track record around ESG guidelines is important.

And then finally, look at performance. Performance is important for sustainable investors. Ensuring that you not only have positive environmental and social impact, but also looking at the performance of the product is equally important.

Chris Stewart: Roraj Pradhananga from Veris Wealth Partners. Thank you for your insight. We appreciate it.

Note: This transcript was lightly edited for clarity and length. 

References

1. https://leading.business.columbia.edu/main-pillar-climate-change-sustainability/21st-century-finance/esg-mutual-fund.

Note: The author of the study cited by Chris Stewart, Columbia Business School Professor Shivaram Rajgopal, has gone on record noting that he believes “understanding environmental, social, and governance (ESG) issues is vital for business. (Source: What is ESG and Why Does it Matter). Professor Rajgopal’s remarks in that interview seem to support Roraj Pradhananga’s stated view that looking at the intentionality and authenticity of the investment products and rigor of ESG analysis is key in the practice of ESG investing.


Disclaimer

The information contained herein is provided for informational purposes only, represents only a summary of topics discussed, and should not be construed as the provision of personalized investment advice, or an offer to sell or the solicitation of any offer to buy any securities. Rather, the contents simply reflect the opinions and views of the speaker which may or may not come to pass.

Certain sample information, including references to specific issuers or companies, should not be construed as a recommendation of such issuer or company, and no inference should be drawn as to the performance of such company or whether it represents a good investment.

Six Trends in Sustainable, ESG, and Impact Investing

Despite politicization and anti-ESG and anti-DEI rhetoric, I believe investor interest in sustainable, socially responsible, and impact investment is on the rise.¹ The ESG and impact investing industry continues on a path to the mainstream, as I predicted in my last article on impact investing trends in 2022.

I still believe now, as I did then, that ESG and DEI mitigate risk and help identify long-term investment opportunities and returns. A growing number of investors seem to share that belief.

From what I am seeing, more and more asset owners are asking advisory firms how they can align 100% of their assets with their values. According to a recent poll conducted by Morgan Stanley Institute for Sustainable Investing and Morgan Stanley Wealth Management, 77% of individual investors globally are interested in investing in companies and funds that aim to achieve market-rate financial returns while also considering positive social and/or environmental impact and 54% say they anticipate increasing allocation to sustainable investments in the next year.² 

Where will these trends lead? Here are six topics that I believe will shape the sustainable and impact investing industry in 2024 and beyond.

Regulatory Changes

Topics like climate and socio-economic challenges will be on the ballot in 2024 as ~49% of the global population – including voters from over 64 countries – head to the polls.³ The outcomes of these elections will help determine the policies that will either be favorable or unfavorable to sustainable investing.

We have already seen policy tailwinds in the past two years. The US SEC adopted the Climate Disclosure bill on March 6, 2024, which requires standardized disclosures and assurance requirements on material Scope 1 and 2 emissions as well as climate related risks and risk management that can have significant impact on business strategy, operations and financial outcomes, which will help investors in decision making. 

The SEC’s Climate Disclosure bill doesn’t require Scope 3 emissions reporting and deviates from the EU Corporate Sustainability Reporting Directive (CSRD) and California’s climate disclosure bills: SB-253 (Climate Corporate Data Accountability Act) and SB-261 (Greenhouse gasses: climate-related financial risk). However, the EU’s CSRD requires disclosures on double materiality (both financial and impact) that cover various environmental, social and governance topics including Scope 1, 2 and 3 emissions and this will apply to over 50,000 public and private companies including many US companies. I believe all these, including the International Financial Reporting Standards Foundation’s disclosure recommendations, will further enhance standardized disclosures and will help facilitate an apples-to-apples comparison of companies. However, we need convergence and harmonization of these various requirements so that companies are clear on reporting requirements globally.

To use ESG and DEI or not to use ESG and DEI

Election year brings heightened focus on ESG and DEI and many large investment firms have stopped using these two terminologies or are walking back their climate and DEI commitments.⁵ But some corporations are still indicating why ESG and DEI are important to them, and consumer demand is clear on sustainable products from sustainable companies. Corporates are continuing with their efforts in identifying material ESG factors and making changes to their policies, practices and operations to improve their financial outcomes. In a survey conducted by KPMG in early 2024, a significant number of CEOs named “executing ESG initiatives” as their top operational priority over the next year and a majority of those executives said that they expect to see significant returns from their investments in sustainability within the next three to five years.

The SEC adopted the Names Rule in 2022 which requires funds that use ESG in the name to invest at least 80% of the value of its assets in alignment with ESG factors. There have been similar regulations in Europe which have helped asset allocators identify sustainable funds that are intentional and authentic and improved the rigor of funds that invest in sustainable companies. The silver lining is that this helps funds and managers that are authentic and intentional about ESG and DEI stand out and continue to innovate. At Veris, we continue to use these terminologies.

Intersectionality of Climate, Racial & Gender Equity, and Economic Justice

Climate solutions and getting to net zero emissions continues to be an important topic for many impact investors on the back of one of the hottest years on record along with higher frequency and severity of weather conditions including hurricanes, flooding, heat waves, drought etc. and wildfires in 2023. However, we cannot look at climate solutions as a standalone impact area.

The climate crisis impacts certain communities, including women, people of color, coastal and low-and moderate-income communities, more than others. The elderly, women, children, and blue-collar workers are impacted more by heat waves or other severe conditions.¹⁰ Some insurance companies have decided to not insure homes in California and Florida. This will impact low- and moderate-income communities more as competition decreases.

At Veris, we look at the intersectionality of climate, racial & gender equity and economic justice through the lens of a Just Transition Investment Framework. Innovation and allocation to investments that aim to mitigate or adapt to climate change and efforts designed to ensure that members and communities that are disproportionately affected by climate risks are part of the decision-making process and participate in the economic upside will be critical over the coming decades. We are excited about the allocation of the Greenhouse Gas Reduction Fund from the Inflation Reduction Act and the current administration’s Justice 40 initiatives that we believe will help us achieve a Just Transition.

Artificial Intelligence (AI) and Sustainable Investing

AI and generative AI seems to be the topic that every investor wants to talk about given the meteoric rise in the stock price of Nvidia and valuation of Open AI and peers. The euphoria around generative AI has propelled the global stock market forward and many private market funds are also investing in AI opportunities.¹¹ This raises questions around various topics like morality and ethics in AI and technology, impact on jobs and productivity, discrimination against communities of color, data privacy, the use of biometric data, copyright infringement, surveillance state, fake news, manipulated elections, fraud, etc. The EU has proposed an AI Act around governance framework for ethical AI product development and model training.¹²

AI could shape the future of sustainable investing. AI can enhance sustainability reporting and data analytics and due diligence, help with implementation of corporate ESG strategy, operational efficiencies and drive reduction in consumptions and GHG emissions through acceleration in science and new materials, etc. However, we are in the early innings of the rollout of AI, and we believe we need robust governance structures to ensure that the use of AI results in an equitable, just and sustainable world.

The Future of Impact Measurement and Management

Lack of transparency and trust in reported data continue to improve but there are still concerns about authenticity or greenwashing. We believe various regulations and bills mentioned earlier have helped or will help alleviate some of these concerns.

Since the EU Sustainable Finance Disclosure Regulation enforcement started in March 2021, asset managers have been required to provide more information on sustainability risks, how they incorporate environmental or social characteristics in their investments, and impact of their investment products. This has shifted the availability of data as well as rigor. Many investment managers are now reporting impact metrics and we would like them to report impact outcomes.

Standardization and assurance requirements of the SEC’s Climate Disclosures rules and various frameworks, metrics and firms that have propped up over the years have helped to verify authenticity of impact investments but much needs to be done.

Innovation

The impact investing industry has historically been innovative and collaborative. Many innovative investments products focused on employee ownership, decarceration, climate justice, regenerative agriculture, climate adaptation and decarbonization of hard to abate sectors, have come to market in recent years. These products have the potential to make an immense positive environmental and social impact.

In the last few years, Veris has adopted our EDI manager due diligence framework and the Just Transition Investment Framework which are designed to help our clients allocate their investments to create a more equitable, just, and sustainable world.

We believe that initiatives like Due Diligence 2.0, 2X Global and Tara Health Foundation’s Diverse Investing Collective have helped improve allocation to diverse and first-time fund managers. It is our view that the combination of innovative products and commitments will help tackle inequality, and other global challenges as well, through capital markets.

Veris is excited to be part of this ecosystem by working with asset owners, investment managers, and data and solution providers.

Looking Beyond 2024

We live in a world that is full of volatility, uncertainty, complexity, and ambiguity (VUCA) with wars, partisanship, and political turmoil not just in the US but globally, and anti-ESG and DEI attacks, but the trends highlighted shows that momentum is strong. I believe investors have higher conviction in ESG, DEI, and impact investing now more than ever, and I expect that both interest and momentum will continue to grow in the future. 

Roraj Pradhananga is a Partner, Co-CIO, and Managing Director, Investments at Veris. 

1. https://www.researchandmarkets.com/reports/5938513/impact-investing-market-global-industry-size
2. https://www.morganstanley.com/ideas/sustainable-investing-on-the-rise
3. https://time.com/6550920/world-elections-2024/
4. https://finance.ec.europa.eu/capital-markets-union-and-financial-markets/company-reporting-and-auditing/company-reporting/corporate-sustainability-reporting_en
5. https://www.nytimes.com/2024/01/13/business/dealbook/dei-goes-quiet.html
6. https://www.mckinsey.com/industries/consumer-packaged-goods/our-insights/consumers-care-about-sustainability-and-back-it-up-with-their-wallets
7. https://kpmg.com/us/en/articles/2024/kpmg-2024-ceo-outlook-pulse-survey.html
8. https://www.sec.gov/news/press-release/2023-188
9. https://www.epa.gov/newsreleases/epa-report-shows-disproportionate-impacts-climate-change-socially-vulnerable
10. https://news.stanford.edu/2023/08/14/heat-affects-vulnerable/#:~:text=Extreme%20heat%20threatens%20the%20physical,can%20also%20spark%20climate%20anxiety.
11. https://www.forbes.com/sites/neilsahota/2024/02/07/futuristic-finance-ais-seductive-power-in-reshaping-private-equity/#:~:text=Some%20private%20equity%20firms%20have,identify%20and%20evaluate%20potential%20investments.
12. https://digital-strategy.ec.europa.eu/en/policies/regulatory-framework-ai

Disclaimer

The information contained herein is provided for informational purposes only and should not be construed as the provision of personalized investment advice, or an offer to sell or the solicitation of any offer to buy any securities. Rather, the contents including, without limitation, any forecasts and projections, simply reflect the opinions and views of the authors. All expressions of opinion reflect the judgment of the authors as of the date of publication and are subject to change without notice. There is no guarantee that the views and opinions expressed herein will come to pass. Additionally, this document contains information derived from third party sources. Although we believe these third-party sources to be reliable, we make no representations as to the accuracy or completeness of any information derived from such third-party sources and take no responsibility, therefore.

2023 End of Year Letter From Veris CIO Michael Lent

By Michael Lent, Co-founder and CIO of Veris Wealth Partners 

This letter was originally published as part of Veris’ 2023 Impact Report.

I write this at a time of great turbulence in the world. We are seeing acts of violence and warfare, extreme partisanship and political turmoil, and a barrage of attacks on ESG investing and DEI practices. 

It can sometimes be hard to feel hopeful in this period, but I still believe that progress is being made and that impact investors are making meaningful contributions towards solving social and environmental challenges.  

Despite the turbulence, the US economy has been doing fairly well,¹ workers have been gaining at the bargaining table,² and the energy transition is moving forward³ (albeit at a slower pace than we would like to see). 

Silver Linings 

In my view, the attacks on ESG and DEI present an opportunity for us to determine who in the investment field is authentically committed to these issues and who is not. For example, some mutual funds and ETFs have stopped marketing themselves as ESG or Sustainable because they were not truly committed to an authentic process and instead were greenwashing.⁴ 

The SEC recently adopted the Names Rule which requires funds that use ESG in the name invest at least 80% of the value of its assets in alignment with ESG factors.⁵ It appears that some asset managers and investors do not want to stand up to the scrutiny of the Republican AGs and House committees and have stopped using ESG or DEI in fund names even if they continue to offer investment options in this area.  

However, those funds and managers that are committed to ESG and DEI are staying the course and continuing to innovate, deepen their analysis, and move our field forward.⁶    

Challenges We Are Facing on the Route to a Decarbonized Economy

It is important to recognize that it has been a difficult market environment for ESG and Impact Investors as well. The traditional energy sector (oil and gas), which is one of the largest contributors to climate change, has been one of the best performing areas of the public equity markets over the past three years due to the Russian invasion of Ukraine, OPEC+ supply constraints coming from Saudi Arabia and Russia, and the emerging Middle East Conflict.⁷  

Renewable energy stocks have underperformed during the same time due to their high capital requirements, higher borrowing costs, and increased cost of inputs.⁸ ⁹

This has had an impact on portfolios that are fossil fuel free and low carbon. Some environmental thematic equity managers and funds have had some short-term underperformance. However, we see this as a short-term phenomenon. Over the past ten years traditional energy stocks have been the worst performing sector of the market. 

S&P 500 GICS Sectors Annualized 10-year Risk/Return. Source: Morningstar 2023

The US Inflation Reduction Act, the Chinese commitment to significant investment in solar power and Electric Vehicles, the need for Europe to become less dependent on natural gas and the innovations in energy efficiency and other low carbon options will likely provide a tailwind over the medium term. 

We think the current challenge is bringing together the desire to decarbonize the economy with a just transition that addresses frontline community needs and the need for POC and labor to participate in the economy of the future. Our report highlights our Just Transition Investment Framework and two investment examples. We are committed to identifying more options in the next several years as we see this as one of the most important contributions impact investors can make. 

Progress Towards Our Firm’s Equity, Diversity, and Inclusion Goals

Veris has made a commitment to continue to bring EDI managers on our platform and work with our current managers to encourage progress in this area. See our firm’s report on Investing in Diversity, Equity, Inclusion, and Belonging for more information about our approach. 

Despite the attacks on DEI, we have been able to identify new opportunities for investing with DEI managers: both diverse teams and those using a DEI investing lens.

We have brought to our platform several excellent EDI managers, some of whom are first-time fund managers. Investing in first-time EDI managers is critical to ensure that the field becomes more diverse in the future. As we have outlined in this report our engagements with our approved managers have resulted in better EDI-specific data collection and we are seeing improvement in the diversity of metrics and disclosures. While these improvements are important, we are committed to making further progress to meet our goals.

Our Work Continues 

Since the very beginning of our firm’s history, Veris has had a vision to build a more just, equitable, and sustainable world through our investments and our practices. The challenges the world is facing require bold and innovative approaches. We are not daunted by the most recent challenges and see that they create new opportunities. 

I thank our Managing Director of Investments, Roraj Pradhananga and his Investments Team for the excellent work they are doing in advancing our impact investing research and continuing to innovate to achieve our vision.

Michael Lent

Chief Investment Officer and Founding Partner

Veris’ 2023 Impact Report is available for download here

Veris Wealth Partners annual impact report for 2023. Featuring highlights of the social and environmental impact of our clients' investments and shareholder activism. Also features the debut of our Climate Justice Investing Framework.

References

1 https://www.bea.gov/news/2023/gross-domestic-product-third-quarter-2023-advance-estimate

2 https://www.bloomberg.com/news/articles/2023-10-28/uaw-aims-to-announce-stellantis-deal-saturday-as-talks-finish-up

3 https://www.bloomberg.com/news/articles/2023-01-26/global-clean-energy-investments-match-fossil-fuel-for-first-time

4 https://www.morningstar.com/sustainable-investing/sec-targets-greenwashing-with-dws-investments-settlement-names-rule

5 https://www.morningstar.com/sustainable-investing/sec-targets-greenwashing-with-dws-investments-settlement-names-rule

6 www.institutionalinvestor.com/article/2cdc8zv066plxdq1p83cw/culture/how-the-fearless-fund-lawsuit-is-provoking-outrage-new-dei-strategies-and-renewed-commitment

7 https://www.bloomberg.com/news/articles/2023-10-20/energy-stocks-keep-rising-after-middle-east-tensions-widen

8 https://www.ctvc.co/spooky-season-for-clean-energy-stocks-171/

9 https://www.bloomberg.com/news/articles/2023-10-20/a-5-bond-yield-means-280-billion-green-stocks-rout-will-worsen

This content is intended for informational purposes only, provides only a summary of topics discussed, does not constitute personalized investment advice or recommendations, and solely reflects the opinions of Veris Wealth Partners (“Veris”), which are subject to change without notice. The information contained in this document contains certain forward-looking statements, often characterized by words such as “believes,” “anticipates,” “plans,” “expects,” “projects,” and other similar words, that indicate future possibilities. Due to known and unknown risks, other uncertainties and factors, actual results may differ materially from the expectations portrayed in such forward-looking statements.

Certain information contained herein is derived from third party sources. While Veris believes such information to be accurate, we have not independently verified the accuracy or completeness of such information.

Veris visited Washington D.C. Our firm's delegation to US SIF Capitol Hill Day and Member Day events share their insights.

Veris Goes to Washington: Insights from US SIF’s 2023 Capitol Hill Day & Member Day

The US Sustainable Investment Forum (US SIF) is a member-based organization, established to be the leading voice advancing sustainable investing across all asset classes. Their mission is to rapidly shift investment practices toward sustainability, focusing on long-term investment and the generation of positive social and environmental impacts.

Veris was proud to co-sponsor US SIF’s 2023 Capitol Hill Day and Member Day in Washington D.C. this summer. Our firm sent Veris CEO Stephanie Cohn Rupp; CIO Michael Lent, Managing Director of Research Roraj Pradhananga, and Director of National Client Service Karen Walls deRochemont to Washington to participate in both events. 

Roraj Pradhananga, Michael Lent, and Karen Walls of Veris Wealth Partners in front of the US Capitol building.

Roraj Pradhananga, Michael Lent, and Karen Walls of Veris Wealth Partners in front of the US Capitol building.

Capitol Hill Day Activities

As part of Capitol Hill Day, approximately 50 US SIF members met with the offices of 40 different Representatives and Senators from both sides of the aisle to help educate members of Congress on financially material Environmental, Social and Governance (ESG) factors and data and why they are important to investors, urge them to support SEC disclosure proposals around climate risk and human capital issues, ask members to support the Congressional Sustainable Caucus in the US House of Representatives and to not allow riders to be attached to the Authorization’s bills that would limit the SEC’s authority. 

The delegation from Veris spoke with congressional aides who work with members of Congress including Senators Chuck Schumer (D-NY), Senator Thom Tillis (R-NC) Corey Booker (D-NJ), Robert Menendez (D-NJ), Jeanne Shaheen (D-NH), and Maggie Hassan (D-NH), Angus King (I-ME), Michael Bennet (D-CO) and Representatives Chris Pappas (D-NH) and Ann Kuster (D-NH). 

It was an honor to walk the halls of Congress in support of our firm’s mission and our clients’ vision for the future. 

Member Day Activities

The delegation from Veris also participated in US SIF’s Member Day event, which gathers together some of the leading voices of the sustainable investment movement for knowledge sharing and field-building conversations. 

At 2023’s Member Day event, we heard remarks from Representative Sean Casten (D, IL-6), Co-Chair of the Congressional Sustainable Investment Caucus, engaged in a listening session with incoming US SIF President Maria Lettini, and heard from industry experts on topics including refocusing the narrative around anti-ESG messaging and the Environmental Protection Agency’s Greenhouse Gas Reduction Fund. 

Stephanie Cohn Rupp, CEO of Veris Wealth Partners and US SIF's Director of Education and Outreach Michael Young.

Stephanie Cohn Rupp, CEO of Veris Wealth Partners and US SIF’s Director of Education and Outreach Michael Young. 

The Veris Delegation’s 6 Major Takeaways 

1. Congressional offices are knowledgeable about ESG topics. 

During our Capitol Hill Day experience, the Veris team saw high levels of conviction and interest from legislative aides who were extremely well versed in the legislative issues around ESG topics. It was inspiring to see so many passionate young professionals who are working to educate our congressional representatives and senators about pending legislation. 

We also saw signs of progress made in terms of greater congressional awareness of relevant critical issues surrounding ESG and in the depth of the questions that had to address their concerns. For example, Senator Chuck Schumer and his aide were very aware of EU Sustainable Finance Disclosure Regulation (SFDR) and the Sustainability Accounting Standards Board (SASB). Their primary questions were around avoiding the pitfalls they have seen Europe face. They wanted our thoughts on the best approach for how to incorporate and codify disclosure rules going forward. They were digging into these topics in detail to inform decision making and rulemaking. 

Hopefully the Congressional Sustainability Investment Caucus, which was created to help inform Congress about ESG topics, will continue to look for new Representatives to join to continue to be internal advocates for these critical issues.

2. There is strong support for SEC disclosure rules. 

All the Democrats that the Veris delegation spoke with were supportive of SEC disclosure rules on Climate Risk and Human Capital Management. 

When we advocated for the passage of SEC disclosure rules, we heard aides say that they see it as a way of increasing transparency for investors so they can better understand the potential impacts of their investment. We heard some aides emphasize the need for public messaging around the potentially negative impact of not including financially material ESG factors in investment decision making. 

The primary concern we heard from our Congressional representatives around standards requiring Scope 3 emission measurement and reporting, was that the requirements might place regulatory burdens on corporations and small businesses. They are concerned about the impact on farmers and the restaurant industry especially and are seeking ways to address these issues. 

Veris' Managing Director of Research Roraj Pradhananga with members of US SIF.

Veris’ Managing Director of Research Roraj Pradhananga with members of US SIF.

3. We heard support for universal global standards. 

One major refrain we heard concerned the need for universal global standards for measurement and reporting of material ESG factors to make it easier for businesses to comply. Linda-Eling Lee, Head of ESG research at MSCI, said that it will be important to ensure that the US  standard is consistent with the regulatory framework in Europe. Universal global standards would make it easier for businesses that operate both in the US and in Europe to comply, because they would not have to abide by two separate sets of rules. 

4. US Congress members on both sides of the aisle need to hear from ESG supporters.

We heard it expressed that our field needs to have a strategy for engaging Republican members of the Senate who seem to be persuadable to vote for policies that support ESG investing. This is particularly important because there are concerns that SEC rulemaking could be blocked by attachments to the appropriation bills in September. 

We also heard from congressional staffers that Democrats need to hear from their constituents on these issues just as much as Republicans do. Hearing from constituents is very important for driving action in Congress across the political spectrum. 

As part of the conversation with Senator Mendez’s office, we discussed the fact that the House passed the Corporate Governance Improvement and Investor Protection Act, which would require disclosure of racial, gender, ethnicity of the board and C-suite members of public companies, in June of 2021 but it still hasn’t passed in the Senate. This Act includes many provisions we want to see, including disclosure on diversity, lobbying, C-Suite compensation, climate related risks, and more. Senator Menendez is pushing for more corporate governance disclosure and there is the potential for movement on that soon. If you support that, you may wish to write to your senators to express your views. 

5. We need to get better at explaining ESG. 

One of the major themes of the conversations that took place at US SIF’s Member Day event was that, as a field, we need to do a better job of explaining what ESG is and why integration of financially material ESG factors is so important in investment decision making. 

Most of the anti-ESG sentiment is broad and focuses on terminology instead of real-world concerns. Critics of ESG tend to attack the acronym in general ways – calling it “woke capitalism” instead of pointing to specific issues. 

We heard an idea expressed that the best approach would be to focus on our shared values and find ways to talk about financially material ESG factors and ESG in personal terms so that it’s more relatable. One powerful way to do this would be to offer real-world examples of environmental, social, and/or governance factors guiding decision-making. For example, increased wildfire risk due to climate change has already led at least two major insurance companies to stop offering homeowners insurance in the state of California.

Take a look at ESGtruths.com to get specific talking points to help connect with people – your friends, family, colleagues and elected representatives alike. 

6. US SIF seeks to further build the field. 

US SIF is helping to build the field of sustainable investing through research, education, media outreach, and policy advocacy. Your voice and perspective can help accelerate that work. 

If you are not already a member, consider joining US SIF. Membership is open to asset owners and asset management firms, and other types of organizations and service providers that are active in the field of sustainable and responsible investing.

If you are a member, US SIF’s New CEO Maria Lettini said at Member Day that she is actively seeking feedback on the future of the organization. She wants to hear from Members on what vision for the future we collectively want to see the organization advocating for. If you are a member, you can contact US SIF to express your ideas about the best path forward.

Disclaimer 

The information above is provided for informational purposes only, represents only a summary of topics discussed, does not constitute investment advice, and solely reflects the views of the authors, which are subject to change without notice. Additionally, this document contains information derived from third party sources. Although we believe these third-party sources to be reliable, we make no representations as to the accuracy or completeness of any information derived from such third-party sources and take no responsibility, therefore.

Although Veris has highlighted herein various initiatives relating to policy activism in which it has participated, no inference should be drawn as to the success or failure of such initiatives or the ultimate impact on the financial or impact results achieved by our clients.  

Letter from Stephanie Cohn Rupp: Advocating for ESG Investing to Governor Sununu for a Sustainable New Hampshire

On April 10th, 2023, New Hampshire Governor Chris Sununu signed Executive Order 2023-03, which expresses anti-ESG views and mandates that “Executive branch agencies shall prioritize investment decisions that maximize financial returns and minimize risk.” Veris CEO Stephanie Cohn Rupp wrote the following letter to Governor Sununu in response. As of May 16, 2023, we have not yet received a reply. 

Governor Sununu, 

Veris Wealth Partners is a wealth management firm and a long-time employer in Portsmouth, New Hampshire. We also have a 100% focus on impact and ESG investing. We strongly object to Executive Order 2023-03. I wanted to express my concern and offer to meet with you to discuss what ESG investing is and is not. Many Republican officials have been misinformed and do not know that ESG investing can provide a variety of benefits including better corporate governance (and less corporate crises), better long-term financial returns, and better outcomes for the environment. 

I believe you are signing this order at the expense, not only of investors, but all Granite State residents and ecosystems, especially those in coastal communities that are at high risk of damage from climate change driven sea level rise. 

As a firm, Veris believes that the integration of environmental, social, and governance (ESG) principles in portfolio selection can mitigate risk and have a positive impact on investment returns. We serve many New Hampshire residents who want to see their investments help them achieve their financial goals in a way that does not compromise the environment or their values. 

In our view, Executive Order 2023-03 provides no benefit to our state or its citizens and misleads Granite Staters about what it means to consider ESG factors in the investment decision-making process. The Order states the following premises:  

“WHEREAS, fiduciaries’ investment decisions based on non-financial considerations may fail to meet the financial needs of the State and its citizens; and WHEREAS, investment decisions based on non-financial considerations may include environmental, social, and governance (ESG) criteria which have shown to produce lower returns compared to investment decisions based on financial considerations alone; and WHEREAS, the pursuit of ESG goals may result in suboptimal investments that fail to meet the fiduciary obligations that State entities investing taxpayer and beneficiary funds owe to their investors.” 

We believe your presumption that consideration of ESG criteria in the investment making process equates to an abandonment of fiduciary duty that produces “lower returns” is not supported by the preponderance of evidence. I serve on the board of The Forum for Sustainable and Responsible Investment (US SIF), which has a repository of studies showing that, “sustainable investment funds on average over the long-term achieve comparable or even better financial returns than conventional investments.”¹ 

Our firm’s investment philosophy is centered on our belief, based on our own research and experience, that ESG integrated investing is an approach that can yield positive outcomes of a portfolio while achieving the performance of the representative asset class. 

ESG is a lens applied to investment due diligence that integrates real world impacts. New Hampshire’s state retirement system can adhere to its fiduciary duty to obtain market rate returns while also considering the short- and long-term material impacts of those investments on the environment, workers, and members of the communities in which those investable businesses operate. 

It appears that this anti-ESG Executive Order is either based on misunderstandings about the practice of ESG or it is an exercise in partisan politics. Your Order mandates that:

“Executive Branch agencies that are permitted to invest funds shall review their investments and pursue any necessary steps to ensure that no funds or state-controlled investments are invested with firms that invest New Hampshire funds in accounts solely based on ESG criteria. 

The word “solely” seems to have been chosen very carefully here. Considering ESG criteria in the investment decision-making process does not mean an abandonment of traditional quantitative analysis of financial risk and return. There are very few, if any, instances of funds that are assembled solely on the basis of ESG criteria. 

We hope that you reconsider your position on ESG and I invite you to meet with me to discuss this issue. I believe it would be helpful for you to hear perspectives other than those issued by partisan critics. In any case, please look to other states that have already enacted anti-ESG legislation to see what may come of it. The editorial board of the Miami Herald pointed to losses already seen in other states in a recent opinion that called the Florida Governor’s “assault” on ESG investing “exceptionally nonsensical.”² They opined that pending Florida legislation banning local government entities from investing in funds or purchasing bonds based on social, political or ideological interests, “stands to harm Florida pensioners and taxpayers across the board.”³ 

There is already evidence that residents of states that have passed ESG bans are paying a financial cost for the shortsighted actions of their legislators. To cite one example, a recent study found that anti-ESG laws in Texas were linked to higher costs for Texas borrowers in the millions of dollars.4 By banning certain financial options and certain financial firms – Texas decreased competition available to their pension systems and paid a very heavy price. Especially in a State whose motto is “Live Free or Die,” I find it incongruent to ban any financial option, especially one that provides more information on the real-world impacts of finance. You are not banning an ideology – but banning a methodology which is meant to empower investors. 

We hope that New Hampshire does not go down that path. Barring retirement plan fiduciaries from considering ESG factors, as New Hampshire’s House of Representatives just considered, would have likely to expose New Hampshire’s pensioners to risks that may come with a high cost. 

With climate change posing future threats to coastal states, we believe New Hampshire’s pensioners are not the only residents of the state who would be exposed to greater risks in the absence of ESG investing. According to a report by the New Hampshire Coastal Risks and Hazards Commission, the NH seacoast is likely to see its relative sea level rise up to 1.3 feet by 2050 and up to almost 3 feet by 2100 if global greenhouse gas concentrations stabilize.⁵ NH’s own Fish and Wildlife department has published projections that changes due to sea level rise are likely to create more damaging storms that threaten to destroy coastal infrastructure, recreational areas, and opportunities for economic growth through tourism and fishing.⁶

Again, we hope you will think deeply about the long-term implications of what ESG means and reconsider your position. I am available to meet with you to discuss any of the above or answer any questions you may have on the topic of ESG investing. 

Sincerely, 

Stephanie Cohn Rupp

CEO, Veris Wealth Partners

 

References

1 www.ussif.org/performance

2 www.miamiherald.com/opinion/editorials/article273909135.html

3 www.miamiherald.com/opinion/editorials/article273909135.html

4 www.unpri.org/academic-blogs/how-us-anti-esg-laws-raise-borrowing-costs-for-public-finance/11330.article

5 https://scholars.unh.edu/ersc/210/

6  https://www.wildlife.state.nh.us/climate/sea-levels.html

Veris Wealth Partners Recognized as Best ESG Investing (Advisory) Firm at the 2023 Family Wealth Report Awards

NYC, San Francisco, Portsmouth, – Veris Wealth Partners, an independent, woman-led, B Corp certified impact wealth management firm, has been selected as the winner in the Best ‘ESG Investing (Advisory)’ category at the Tenth Annual Family Wealth Report Awards.

The annual Family Wealth Report Awards program recognizes the most innovative and exceptional firms, teams and individuals serving the family office, family wealth, and trusted advisor communities in North America. Award organizers announced that Veris was selected for Best ESG Investing (Advisory) because “the firm’s 100% focus on impact investing and ESG investing made it a clear winner in this category.” They noted that the judges were also impressed by our firm’s community lending platform which enables Veris clients to invest in entrepreneurs in low-income communities across the United States.

“We are honored to receive this recognition of our firm’s leadership in our industry and dedication to ESG in our investment approach and platform,” said Veris CEO Stephanie Cohn Rupp. “This is a testament to everyone’s hard work at Veris and our leadership in the space of ESG investing, sitting on the shoulders of our founders.” 

Veris Wealth Partners is named the winner in the Best ‘ESG Investing (Advisory)’ category at the Tenth Annual Family Wealth Report Awards.

Veris’ General Counsel Richard Chen, COO Sheryl Kucer & CEO Stephanie Cohn Rupp receive the award for best ESG Investing (Advisory) firm.

About the Family Wealth Report Awards

The Family Wealth Report Awards’ judging process was conducted by a panel of experts from family offices, private banks, trusted advisers, consultants, and other service providers with deep knowledge and experience in the industry. 

“Every category winner and highly commended firm has been subjected to rigorous and independent judging process” said Stephen Harris, ClearView Financial Media’s CEO, and publisher of Family Wealth Report, “and (can) be rightly proud of the success they have achieved this year.”  

Winners and highly commended companies were announced on May 4, 2023 at a Gala Ceremony at the Mandarin Oriental Hotel in Manhattan, New York. 

About Veris Wealth Partners 

With a mission to create an equitable, just, and sustainable world through capital markets, Veris Wealth Partners is a wealth management firm that builds customized, well-diversified portfolios that focus on creating long-term, sustainable social and environmental impact. 

With offices in New York City, San Francisco, and Portsmouth, NH, Veris helps high net worth individuals, families, and foundations achieve their financial goals while aligning their wealth with their values. Veris believes investors can have positive social and environmental impact across all asset classes and strategies through ESG integrated investing, shareholder advocacy, and thematic impact investing. The firm’s four impact themes are Climate Solutions & The Environment, Sustainable & Regenerative Agriculture, Community Wealth Building, and Racial & Gender Equity. 

For more information, visit www.veriswp.com. 

About ClearView Financial Media Ltd (“ClearView”)

ClearView Financial Media was founded by Chief Executive, Stephen Harris in 2004, to provide high quality ‘need to know’ information for the discerning private client community.  London-based, but with a truly global focus, ClearView publishes the WealthBriefing group of newswires, along with research reports and newsletters, while also running a pan-global thought-leadership events and awards program. 

For More Information 

Contact Mandy Gardner, Marketing Associate at Veris Wealth Partners mgardner@veriswp.com

Veris Statement on Senate Vote to Overturn Final DOL ESG Rule

As part of the attacks on ESG, an important vote was passed by the US Senate which is worthy of note to all ESG investors and the Veris network. The US Senate passed House Joint Resolution 30 (H.J. Res 30), the Congressional Review Act (CRA) Resolution to overturn the U.S. Department of Labor’s (DOL) final rule on “Prudence and Loyalty in Selecting Plan Investments and Exercising Shareholder Rights.” The resolution now goes to President Biden’s desk where he is expected to veto it.

Veris supports the statement made by Bryan McGannon, Managing Director of US SIF: The Forum for Sustainable and Responsible Investment:

“We urge the President to quickly veto the resolution and allow the marketplace to continue to fulfill their fiduciary duty to plan participants and meet the growing demand for sustainable offerings in retirement plans. The Department of Labor’s ESG rule is a sensible policy allowing retirement plan fiduciaries to consider all financially relevant information when making investment decisions. This benefits plan participants and it ends the retirement policy pendulum between administrations. These gains are undermined by the March 1 vote to kill the rule. The DOL’s final rule does not mandate the consideration of environmental, social and governance (ESG) criteria, as proponents of the CRA suggest. In fact, the rule re-affirms ERISA’s long-standing principle that the duties of prudence and loyalty require ERISA plan fiduciaries to focus on relevant risk-return factors and not subordinate the interests of participants and beneficiaries.”

We hope that you will support this call for President Biden to veto the resolution. We will also keep you updated on any further federal level attacks on our sector.

Sincerely,

Veris Wealth Partners

ESG Critics Are On The Wrong Side of History

by Stephanie Cohn Rupp, CEO of Veris Wealth Partners

Don’t take the wrong side of an argument just because your opponent has taken the right side.”                                                                                                                                              — Baltasar Gracián


Environmental, Social, and Governance (ESG) investing is facing a new round of criticism from American conservative leaders. Senator Ted Cruz, to offer one example, has framed BlackRock’s ESG policies as “abusing the market.”1 More alarming to me, are the new state-level policy attacks on ESG led by elected officials from across the United States. To offer three recent examples: 

  • Governor Ron DeSantis and trustees of Florida’s State Board of Administration passed a resolution barring state pension funds managers from considering ESG criteria.2
  • Texas State Comptroller Glenn Hegar banned state and local entities from doing business with ten banks that the state accused of boycotting the oil and gas industry.3
  • The State of West Virginia and its State Treasurer now refuse to do business with financial institutions that divest from fossil fuels.4

As I see it, these actions demonstrate a lack of concern for the financial performance of the pension-holders they supposedly wish to protect – as well as a lack of regard for the views of a vast majority of the American people. A recent Pew study showed that 69% of American adults want the US to focus on developing the infrastructure for wind, solar, and other alternative energy sources instead of expanding the production of oil, coal, and natural gas.5

I have spent the last twenty years of my career in global Impact and ESG investing, serving clients from across the political spectrum. From my perspective, these condemnations and policies designed to defend the fossil fuel industry show a deep misunderstanding of ESG investing and lack of knowledge about important megatrends that are shifting the views of Republicans and Democrats alike and shaping a future that will look very different from today.

These anti-ESG positions are, in my view, dangerously on the wrong side of history.

ESG Critics’ Biggest Mistake: Ignoring Stranded Assets

I believe the greatest mistake of policymakers enacting bans on ESG investing is that they are ignoring the risk of “stranded assets.” 

Lloyd’s defines stranded assets as those that “have suffered from unanticipated or premature write-downs, devaluation or conversion to liabilities” typically because of environmental changes caused by climate change.6  

By continuing to invest in fossil fuels, the pension systems of West Virginia, Texas, and Florida – and the pensioners who depend on them – will continue to be exposed to oil and gas and the risk of stranded assets.

Though fossil fuels continue to dominate the global energy system today, we are about to experience a sharp decline in their use because of new government regulations, sharp changes in consumer behavior, and the potential for legal action against emitters. Researchers have forecasted that 60% of oil and fossil methane gas, and 90% of coal will remain in the ground for the planet to not exceed a 1.5 °C carbon budget.7 These “assets” will remain stranded.

Stranded asset risk is not fully reflected today in the value of companies that extract fossil fuels. If this risk was priced in, as I think it will be in the future, this would result in a sudden drop in value that would affect investors and shareholders.

Whether you believe in climate change or not — as an investor, it is a dangerous bet to continue to invest in an industry which has a high probability of becoming obsolete. Returns to pensioners will most probably suffer as a result.

Error #2: Ignoring that Energy Companies are Making Net-Zero Commitments and Transition Plans

Several energy companies have now made Net-Zero commitments. Exxon-Mobil pledged net-zero carbon emissions from operations by 2050.8 Shell’s target is to become a net-zero emissions energy business by 2050.9 Why would policymakers force their states’ pensioners into investments in soon outdated energy, even while the energy companies are making these commitments and embarking on the energy transition?

In contrast, the states of Texas and Florida have yet to make a Net Zero commitment.

Error #3: Misreading *Republican* Opinion

The Republican politicians that are taking action against ESG are apparently not paying attention to the shifting views of their own voters. A Pew research study found that 88% of Republicans are supportive of specific policies to reduce climate change, such as planting a trillion trees to absorb carbon emissions, while 73% of Republicans are supportive of providing a tax credit to businesses to develop carbon capture and storage.10 My own experience supports polling data indicating that a vast majority of right and left-wing asset owners want to combat climate change.

Anti-ESG politicians should take note that voters from the opposing parties are not as far apart on this issue as it might seem. Another Pew study indicates that 77% of all Americans (including Democrats, Republicans and Independents) wish to prioritize renewables over fossil fuels.11

If we look at Pew’s findings broken down by political affiliation and gender, 66% of Republican women wish to move away from fossil fuels and 60% of Republican men agree.12 This data suggests that Republican women are more concerned about climate issues than Republican men. It is notable then that McKinsey projects that more than two-thirds of wealth in the US will be held by women by 2030.13 I believe this massive wealth transfer to women will cause a tidal wave of ESG investing — especially in climate solutions. Conservatives may now attack ESG investing as “woke,”14 but the data suggests that wealthy Republican women will increasingly invest in the clean energy transition.

A Majority of Americans Want Climate Solutions – More of our Leaders Need to Get on the Right Side of History 

Partisan voters and investors obviously still have polarized views on many issues, but all evidence suggests that they are now largely in agreement on climate change.

I believe that these myopic bans on ESG investing in Texas, Florida and West Virginia pose real world risks, not only to the pensioners of these state systems, but to all humanity – by supporting policies that exacerbate global warming and its catastrophic consequences.

I call on every American voter and every investor who agrees with me to send a message to the leaders who are on the wrong side of history – both with your votes and with your dollars.


Stephanie Cohn Rupp is the CEO of Veris Wealth Partners. She has worked globally in Impact and ESG investing since 2001 and is a Board Director of US SIF. Read Stephanie’s full bio.

The above article was originally published on the Medium.com website on August 31, 2022.

References

1 https://www.cnbc.com/2022/05/24/sen-ted-cruz-blasts-larry-fink-over-woke-shareholder-votes-on-climate.html

2 https://www.nytimes.com/2022/08/24/business/dealbook/desantis-florida-esg-investing.html

3 https://www.texastribune.org/2022/08/24/texas-boycott-companies-fossil-fuels/

4 https://www.nytimes.com/2022/07/28/business/west-virginia-fossil-fuel-banks.html

5 https://www.pewresearch.org/science/2022/03/01/americans-largely-favor-u-s-taking-steps-to-become-carbon-neutral-by-2050/

6 https://www.lloyds.com/strandedassets

7 https://pubmed.ncbi.nlm.nih.gov/34497394/

8 https://corporate.exxonmobil.com/News/Newsroom/News-releases/2022/0118_ExxonMobil-announces-ambition-for-net-zero-greenhouse-gas-emissions-by-2050

9 https://www.shell.com/powering-progress/achieving-net-zero-emissions.html

10 https://www.pewresearch.org/fact-tank/2021/07/23/on-climate-change-republicans-are-open-to-some-policy-approaches-even-as-they-assign-the-issue-low-priority/

11 https://www.pewresearch.org/science/2019/11/25/u-s-public-views-on-climate-and-energy/ps_11-25-19_climate-energy-00-014/

12 https://www.pewresearch.org/science/2019/11/25/u-s-public-views-on-climate-and-energy/ps_11-25-19_climate-energy-00-014/

13 https://www.pnc.com/insights/wealth-management/business-continuity-and-succession-planning/preparing-for-the-great-wealth-transfer-to-women.html

14 https://www.bloomberg.com/news/articles/2022-09-01/woke-inc-author-s-firm-targets-blackrock-esg-investing


The information above is provided for informational purposes only and reflects the views of the authors. Additionally, this document contains information derived from third party sources. Although we believe these third-party sources to be reliable, we make no representations as to the accuracy or completeness of any information derived from such third-party sources and take no responsibility, therefore.