270 companies, major pension funds join pro-ESG 'Freedom to Invest' campaign

Author Karin Rives S&P Global

Wall Street has come under fire for its investment policies. A new coalition of financial firms and businesses wants policymakers to uphold their right to "invest responsibly."

For more than a year, Republican-led states and the influential groups backing those officials have been running a vocal campaign to restrict fund managers' ability to consider environmental, social and governance factors when making investments.

Now, 270 businesses, banks, advocacy groups and public retirement funds are pushing back. Two of the nation's largest state pension programs — the $306 billion California State Teachers Retirement System and the $242 billion New York State Common Retirement Fund — were among signatories to a "Freedom to Invest" initiative launched March 23 by the investor advocacy network Ceres.

The signatories urged federal and state lawmakers to protect their fiduciary duties and ability to make investment decisions that best serve their shareholders and beneficiaries for the long term.

Boston Trust Walden Co., Trillium Investments LLC, Franklin Templeton, a subsidiary of Franklin Resources Inc., and several other financial firms joined the effort.

"When you're an investor, you have something old-fashioned and a really important thing to do, and it's called fiduciary duty," Anne Simpson, global head of sustainability for the asset management firm Franklin Templeton, said at a Ceres media briefing. "We're trying to take care of close to $1.4 trillion. That's not our money; it belongs to the people who put their trust in us. There is no situation in which we can ... ignore something that might be relevant to risk or return."

The initiative was unveiled at Ceres' three-day flagship conference held in New York City and comes as red states escalate their criticism of ESG policies. A week earlier, 19 Republican governors issued a statement pledging to "protect individuals from the ESG movement that threatens the vitality of the American economy."

Even so, some Republican-led states have already pulled back or revised their ESG restriction bills after learning they could result in millions of dollars in losses for state taxpayers and pension savers.

A chilling effect

At the opening night of the Ceres conference, leaders of several major banks and asset managers mingled at a reception, but their company names were absent from the initial list of signatories — an indication that the ESG debate has had an impact.

Some elected officials in Kentucky, Texas, West Virginia and other states contend that financial firms are engaging in a boycott of fossil fuels and catering to "woke" ideologies because they include ESG criteria in investment decisions. Nine in 10 large companies worldwide use some ESG metrics today and have for years, according to a recent survey by the Association of International Certified Professional Accountants.

The anti-ESG backlash has left some companies reluctant to speak up, Ceres CEO and President Mindy Lubber acknowledged during a March 23 media briefing.

"Where we're seeing some hesitancy, and certainly not across the board, is in the willingness to stand up and ... push back against an argument that is not based in fact, science or economics," Lubber said, noting that the initiative only just launched.

Practically speaking, the focus on ESG has also turned into a headache for companies that must now adapt their messaging and sales pitches to what has essentially become two separate Americas: red states that will not do business with companies that use ESG metrics and analysis, and blue states that make doing so a priority.

"We're seeing tailoring of messages in terms of what investment alternatives they offer, or how they pitch," Joshua Lichtenstein, an attorney with Ropes & Gray whose team is tracking state ESG legislation, said in an interview. "We're beginning to see that awareness."

Still, corporate science-based climate targets remain in place, and transition plans in the private sector are on the rise, Anne Kelly, Ceres' vice president of government relations, said in an interview.

"We have a record number of companies engaging on climate and energy policy," Kelly said. "Nothing has changed."

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