A Republican makes a case for ESG and sustainable investing

Sustainable investing is one of the most polarizing topics in Washington – but it hasn’t always been that way, and there is hope that Republicans will back off from a years-long campaign against ESG, a former House representative says.

A major reason for that, Republican Carlos Curbelo said, is that many in his party care about the environment, despite the political rhetoric and attacks on “woke” investing.

And it isn’t lost on incumbents in Congress that their states and districts stand to benefit significantly from the roughly $369 billion in clean-energy and climate change provisions of the Inflation Reduction Act, which is set to channel funds to rural communities. That legislation passed on a party-line vote in 2022, with all Republicans in Congress rejecting it.

“They know that a lot of this investment is going to their districts and their states,” Curbelo said, speaking Tuesday at the US SIF Forum in Chicago. That is even as Republicans widely support the idea of undoing the massive climate package, he said.

“There is a lot of opportunity to identify and encourage Republicans to understand that rolling back the entirety of the IRA would be very disruptive to a lot of sectors and the economy. And it would obviously do some damage to the environment,” he said. “I believe the core of the IRA can definitely be protected.”

The act “presents us with a once-in-a-generation opportunity” for climate policy, and the investments in rural communities could help ease political tensions, he said.

“The environment does not belong or should not belong to either party,” said Curbelo, who represented Florida's 26th district until 2019. “We need to treat this issue with that kind of respect and elevate it in a way that actually releases it from being part of either ideology or either party. This is something that everyone should be for.”

Of course, Republicans in the current Congress have been actively opposing sustainable investing and ESG. There have been numerous hearings on the topic, and there were so many packed into last summer that July became informally known in the party as “ESG month.”

Legislators have targeted asset managers, industry groups, and proxy advisors, with hours of testimony at hearings marked by the kind of grandstanding by politicians now common in the culture wars.

Numerous states have also restricted business with or blacklisted financial institutions dubbed ESG friendly.

“The ESG backlash is a testament to our success,” said Matt Patsky, CEO of Trillium, at the US SIF event. “We are having an impact.”

Among those who were grilled in Congress last year was Illinois State Treasurer Michael Frerichs, who oversees an investment portfolio totaling $56 billion.

Using environmental, social, and governance data to inform investment decisions is about “value” not “personal values,” although there is often overlap, Frerichs said at US SIF.

“Anyone who is not looking at this is missing out on opportunities,” he said, citing the energy transition and climate initiatives. “We don’t invest for the next quarter… We look for the next quarter century.”

Evidence of the potential for using ESG data is seen by asset managers, many of which incorporate it in various ways in their investment processes, even if it isn't sustainable investing, he said.

“Who would want to reduce competition and transparency in investing?” he said. “Maybe if you feel that you’re an industry that’s under attack, like the fossil fuel industry.”

Pressing public companies to provide ESG data – some of which the SEC will soon require – is not an easy process, and efforts to reduce disclosure requirements or block shareholder resolutions complicates that, he said.

“I want to be optimistic … As shareholders, we’re the owners of these companies,” he said. “We should prevail, but we shouldn’t just take it for granted that the truth will win out.”