Comment: Investing in ESG isn't a matter of political ideology. It makes sound business sense, says Ceres boss Mindy Lubber

Imagine you are an investor, and a business comes to you with an opportunity. A beverage company, perhaps, whose facilities are running out of water. A clothing company whose cotton is all dying. A ski resort that is seeing less snow each year. A logistics company that is struggling with melting runways and buckled infrastructure, snarling already-strained supply chains across the economy. And imagine these companies aren’t doing anything to address these issues.

You would probably want to put your money somewhere else, right? Maybe into the competing companies that you know are taking action to prevent these kinds of problems. Or maybe, since there is such a clear business need, you would invest in those working on building the technology to solve them.

Now, let’s say the government, or somebody who wants to use its power, has decided that you shouldn’t make those smarter investments — or even that you couldn’t.

Naked interference with the free market is playing out in certain parts of the U.S.

This naked interference with the free market is playing out in certain parts of the U.S. A growing number of government officials at the state and federal levels — often with the support of fossil fuel interests — are working to undermine investments and loans to companies that are seeking to address the severe business risks related to the climate crisis, water scarcity and pollution, and other sustainability threats.

Texas, West Virginia, Idaho, Oklahoma and other states have either implemented or are considering policies to punish investors, banks and pension funds that are backing the companies acting on climate change and moving away from businesses that put their assets at greater risk.

These ill-advised policies are taking many forms. But together they amount to a bitter backlash against the growing level of investment in addressing the clear near- and long-term challenges of the climate crisis, and in taking advantage of the many business opportunities to solve them.

An aerial view shows the California aqueduct amid ongoing drought. (Credit: Aude Guerrucci/Reuters)

At the heart of this attack lies a blatant fiction: that climate-smart business practices are somehow a secondary, ideologically driven sideshow to the real financial concerns facing investors and companies. These state officials would have you believe that drought, crop failure, weakened infrastructure and worsening public health don’t stand as serious financial threats to business interests and our economy at large.

Try telling that to any of the hundreds of S&P 500 companies that are developing robust climate transition plans because they are well aware that climate change isn’t some "woke” political project but an incredibly real financial risk that grows more obvious by the week. Tell it to the investors that manage trillions of dollars on the promise of long-term growth, and who see a lot of danger in failing to act on climate risk.

The sustainability nonprofit I lead, Ceres, has worked for more than three decades with investors and companies to address exactly these issues, both by improving businesses’ own internal practices and governance and by advocating for public policy to support a more sustainable economy and capital markets.

Investors and companies know they have a fiduciary duty to address their climate risks

We have always known — and it has only grown clearer with time — that sustainable business practices aren’t just about protecting people and the planet. As virtuous as those goals are, and as much as they drive our mission, corporate sustainability is also about building strong financial returns that benefit investors and grow the economy in the long run.

As a result, we have had a front-row seat to the groundswell of momentum around these issues over the years. Investors and companies know they have a fiduciary duty to address their climate risks, and as climate change forces much of the nation into drought, there is growing awareness that they must take similar action to value water.

That's why we are seeing the nation’s largest investment and finance leaders — including asset managers that oversee trillions of dollars, large banks and some of the most successful companies in the U.S. — increasingly prioritise sustainability, develop action plans to dramatically lower climate pollution, and direct money to the industries and locations at the forefront of the clean energy transition.

A specialist trader works at the post where BlackRock is traded on the floor of the NYSE. (Credit: Brendan McDermid/Reuters))

By the way, those investment opportunities are only going to grow more pronounced and attractive now that Congress has approved an historic package of clean energy investments and incentives.

It’s about business, not politics. Firms like Morgan Stanley, Bank of America, and BlackRock are not trying to orchestrate some sort of covert ideological takeover of the financial system. These are the kinds of businesses that think first and foremost about their bottom lines.

And the bottom line is that the effects of climate change will mean one of two things for companies’ long-term outlooks. Either their resources and assets will be put at severe risk, or they will avert the worst of that risk because our society shifted to a cleaner economy. That means the investors and companies that are best prepared to literally weather the eventual storms and facilitate the energy transition are the ones that will win out in the coming decades.

But those that remain committed to an older, dirtier model will be caught flat-footed, with investors — including millions of future retirees banking on long-term success — standing to lose the most. It’s bad business in its own right, but using the power of government to direct these losing investments makes for even worse public policy. 

Mindy Lubber is CEO and president of the sustainability nonprofit Ceres, and a founding member of the global steering committee for Climate Action 100+ and The Investor Agenda.

Main picture credit: Carlo Allegri/Reuters
ESG investing  climate change  Ceres  sustainable business  climate risk 

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