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.


6 Trends Shaping the Future of Impact and ESG Investing

By Roraj Pradhananga

The Impact and ESG investing space is growing and changing rapidly. These are a few of the emerging trends that we are paying close attention to at Veris Wealth Partners. 

1. The Mainstreaming of Impact and ESG Investing

Environmental, Social and Governance (ESG) and impact funds/investments have performed very well, and interest in impact investing is growing at a tremendous rate. Globally speaking, ESG assets are expected to grow to $41 trillion by 2022 and $50 trillion by 2025. The United States has now surpassed Europe in ESG growth. ESG assets in the US are on track to grow to $20 trillion in 2022.1 According to the Global Impact Investing Network (GIIN) survey, impact investing assets under management (AUM) increased from $502 billion2 in 2019 to $715 billion in 2020.3 The IFC estimates the impact investing market to be even larger at $2.3 trillion including $1.3 trillion that are managed by publicly owned Development Financial Institutions (DFIs) and national/regional development banks. Of the $2.3 trillion in AUM, $636 billion represented core AUM managed by privately owned asset managers and DFIs where intent, contribution and impact measurement are identified. This is an increase from $505 billion in 2019.4

It is really exciting to see our sector headed towards the mainstream, but we aren’t there yet. My inner skeptic sees interests in ESG and impact investing that are driven solely by increasing consumer demand and not by intentionality, which is important for cohesiveness and long-termism – qualities that define our industry. A recent survey by HSBC found that of 528 institutions with $12.6 trillion in AUM indicated that 33% of respondents said attracting capital or inflows is the strongest reason for integrating ESG followed by 26% stating competition or peer pressure, not because of their convictions or commitment to environmental and social sustainability.5 I believe not all of these assets represent authentic ESG or impact focused investments or full ESG integration. Not all of these are hundred percent ESG integrated and some are exclusionary only.

Veris is an impact focused wealth management firm, and we take extra steps to determine authenticity. We believe the fund managers we invest our client assets with do care. For them it is not just about growth in assets under management. We believe there is a difference between what our clients are invested in and the overall market. 

2. Greenwashing and Impact Washing

We believe more firms are claiming to do impact investing without the intentionality and/or additionality. People have valid concerns about greenwashing and impact washing, but I believe we also need to worry about losing the concept of authenticity, accountability and why we truly believe in impact investing. Nowadays, it feels as if everyone is claiming to have an impact – how do we differentiate and truly validate those claims?

I believe our industry must push for verification of impact, measurement and management – which is a huge challenge due to lack of data. Despite the challenges, many of us are clamoring for more standardization and definitions. I believe mandatory disclosures, reporting and regulatory changes like the EU’s Sustainable Finance Disclosures Regulation (SFDR)and similar regulatory changes that are being considered by the SEC would help.

On the public equities and fixed income side of the investing – I’m paying close attention to challenges around data. We are asking, how can we best utilize the ESG data that we have and how can they be forward looking instead of backward looking? How do we truly integrate ESG factors in the investment process and measure and manage impact?

On the private investment funds, how do we truly define and assess whether the investments have concretely contributed to additional social and environment impacts? However, all these questions shouldn’t take away the focus and spotlight from the great work many impact investors are doing and the need to do more.

3. Innovation and Intersectionality

While the push for standardization is much needed, I also believe the field must continue innovating on better ESG, sustainable and impact investing solutions. I believe we need targeted solutions that focus on overlooked impact themes and especially those where capital flow is very minimal today.

I also believe we need more focus on intersectionality, especially with complex challenges that are often intertwined – climate change, health and wellness, mental health, wealth building, employee ownership, etc. I see lots of discussion around environmental/climate justice but our industry doesn’t have targeted investable solutions yet.

4. Active Ownership and Policy

Even with increasing numbers of people – especially younger generations – supporting action on climate, racial inequities, impact and ESG investing, there appears to be a huge partisan divide in this country, with one party seemingly holding back policy changes.

I believe we need sound government policies and a friendly policy environment to scale impact and ensure the progress we make will not be lost if future administrations change the rules.

I believe we need to amplify the voices of the communities that are directly impacted and engage with portfolio companies on various ESG topics and challenges and help guide them to be agents of impact and change.

5. Commitments and Authenticity

Many organizations have made public commitments around net zero7 and equity, diversity and inclusion in the last couple of years.8 What is missing is the details as to how these organizations plan to get there.9 This is further supported by our conversations with our approved managers as they analyze policies and data of the companies they invest in.

I believe we need a heavy lift on these issues now – we don’t have until 2050 or later to get to net zero based on our current trajectory. We also need to ensure that EDI is not an exercise in box checking. 

6. The Changing Role of Impact Investors

I believe our industry is facing some existential questions, including:

  • What does it really mean to be an impact investor?
  • Are we perpetuating extractive practices through what we currently call impact investments and various financial instruments we use?
  • What is the role of impact investors in providing catalytic and patient capital? Do we wait for government and quasi government entities to de-risk projects before we move in or do we become the de-riskers?

As we think about these important questions and have conversations about the answers, I believe our industry must continue doing the important work we are doing. We need to create innovative financial instruments to provide capital to emerging solutions to ensure individuals, communities and solutions who need access to capital the most have access to it.

Roraj Pradhananga is a Partner and the Senior Research Analyst at Veris Wealth Partners. He leads our Investment Research team, is a voting member of the Investment Committee and Chair of the Equity, Diversity & Inclusion (EDI) Committee.



The information contained herein is provided for informational purposes only, represents only a summary of the 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 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.

Veris Partner Spotlight: Roraj Pradhananga

Roraj Pradhananga, Senior Research Analyst at Veris Wealth Partners, was named a Veris Partner in December of 2021. Roraj leads our Investment Research team, is a voting member of the Investment Committee and Chair of the Equity, Diversity & Inclusion (EDI) Committee. We asked Roraj to answer a few questions about his life, career, and vision for the future of impact investing. 

Why impact? What led you to focus on impact investing?

Roraj Pradhananga: When I was in the fourth grade, I met the groundbreaking Black documentary filmmaker and author William Miles while he was on a visit to Nepal, where I was born and lived for many years. Miles gave me a copy of his book Black Stars in Orbit which is about the first Black American astronauts. He signed it, “Roraj, reach for the stars.” Those words have continued to reverberate throughout my life. As impact investors we must seek bold innovations – always reaching for the stars. But to be effective we must do so while keeping our feet firmly rooted in the realities of life here on earth.

I experienced firsthand the impact of the climate crisis on communities in Nepal, which is one of the most vulnerable countries to the negative impacts of climate change. I’ve also witnessed the positive impact that increased access to education and inflow of capital and investments to healthcare and other sectors can have in communities in Nepal.

Early in my career I spent many years in more traditional financial services roles in NY. I learned a lot, but the work left me feeling hollow. I wanted to give back to the community that had given me so much. After business school in Switzerland, I took the leap and joined an asset management firm, RobecoSAM, one of the pioneers in sustainable investing. I haven’t looked back. I was lucky to have been introduced to Veris, a 100% impact wealth management firm whose vision and mission is to create an equitable, just and sustainable world through financial markets, when I moved back to the U.S. in 2019.

How has your life experience shaped how you approach your work as an impact investor?

My experiences as an immigrant in the U.S. fueled my perseverance and my desire to change the world for the better. I started off with nothing, worked three jobs in high school and supported myself through college. I appreciate the opportunities that this country has provided me, but I am also keenly aware of the challenges of those facing obstacles to survive and thrive here – especially inequality and lack of opportunities and access in many low and moderate income (LMI) communities and communities of color. These life learnings drive my passion for impact investing.

I’ve also worked in various roles in many verticals of financial services – banking, insurance, asset management and wealth management at large-, mid-, small-sized companies and startups. My experiences as a former advisor/consultant to large corporate clients, an auditor, a banker as well as an sustainable investment analyst, have provided me insight into how sustainable companies should be run and also how they shouldn’t be run, which is critical in performing due diligence of investment opportunities for our clients.

Besides having very diverse work experiences, I’ve had the opportunity to live in four different countries and cultures and traveled to many more, which helps me bring a different perspective on how to analyze risks and opportunities. 

I have many interests – I’m curious and I like learning. All these experiences help me do what I do, understand the opportunities and challenges of the impact investing industry, help our clients invest in the right opportunities and also help the firm grow.

What is inspiring you most in your work right now?

Veris is a firm where all employees have a voice and everyone makes a genuine effort to walk the talk. I’m inspired by the collaboration and co-creation with my colleagues at Veris, our values-aligned clients and innovative investment partners who are constantly thinking about how to scale their impact and meaningfully contribute to the advancement of the impact investing industry. It is also important to highlight the decision of the Partner Group to remain majority employee-owned and independent, when many of our peers in the industry are being acquired by larger companies. This allows us to focus on our mission and vision, what’s important for clients and implement our theory of change, which is very inspiring.

I’m inspired by our firm’s leadership on equity, diversity, inclusion and devotion to creating the sense of belonging. Differences are embraced here – it isn’t just a pledge or commitment on paper. Many in our industry are talking about it but not doing much. Veris’ unwavering support of underrepresented emerging managers and underserved and underrepresented founders through them and underserved populations through Community Development Financial Institutions (CDFIs) is very important. We are also constantly looking to partner with others in helping create investable and impactful financial products and ensuring they get off the ground.

Impact wealth management has a big role to ensure that we allocate capital to the investments that are best stewards of capital and in areas where capital is needed most. So I’m grateful that being part of Veris has given me the opportunity to walk this path with some of the pioneers of socially responsible investing and impact investing – pioneers like Patricia Farrar-Rivas, Michael Lent, Steve Fahrer, Anders Ferguson and David Hills, who founded Veris right before the financial crisis and never wavered.

What is your vision for the future of the impact investing industry?

In order to achieve an equitable net-zero future and a just transition in which global warming is limited to 1.5℃ and all humans treat each other with compassion and care and have equal access to opportunities, we need systems level change where we incorporate all stakeholders and community voices are taken into account.

The impact investing industry has been more collaborative than other sectors of the investment and financial service industry. However, there is still more that we can do to ensure we do not perpetuate inequities and exacerbate disparities. I would like to see more co-creation of solutions – where the impact investing industry truly comes together as a unit to tackle challenges head on and also brings along the traditional financial services on this journey. We will all need to work together to develop and catalyze intentional, innovative solutions that will concretely contribute to additional positive social and environmental impact outcomes. I also hope to see more collaborative efforts to tackle greenwashing and impact washing and ensure that the interrelationship of financial and impact outcomes we achieve can be appropriately measured and verified, which will provide further credibility and validity to impact investors.

I see opportunities for collaborative partnerships on various topics like climate crisis – reliance away from fossil fuel (the Ukraine invasion has shown why this is even more important today, not only the need to tackle climate change but also from a humanitarian and geopolitical stability perspective), the need for sustainable and regenerative farming practices, racial & gender inequity, and the lack of opportunities and wealth building in LMI communities and communities of color.

Everything we do is interconnected – the food we eat, the products we use and the waste we generate, the electricity we consume, the impact of our experience in the U.S. on the rest of the world. We have to remember that we only have one earth. I’m excited about being involved in developing innovations designed for intersectionality and the ways we might use new technologies to tackle challenges like environmental/climate justice that are complex and intertwined.

There are lots of conversations happening about conscious capitalism, stakeholder capitalism, regenerative finance and practices and double and triple bottom line. How do we ensure that these succeed? Let’s take a step back and focus on why we are in the impact investing space in the first place. It is to have a positive social and environmental impact. We sometimes get too hung up on the miniscule details while forgetting the crises at hand. We need to use our voices and capital to fight against injustice, eliminate bias and discrimination and work towards an equitable, just and sustainable world together.