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| Republican anti-ESG push complicated faith-based impact investing |
Amid scorching heatwaves that gripped the U.S. throughout July, a period eventually designated as the hottest month ever recorded, Republican members of the House engaged in a series of hearings centered around investment practices guided by environmental, social, and governance criteria, collectively known as ESG.
These month-long inquiries, driven by conservative legislators and their affiliates, who decry what they term "woke capitalism," led to an unforeseen focus on the Seventh Generation Interfaith Coalition for Responsible Investment. This alliance comprises 40 faith-oriented institutions, primarily Catholic religious congregations, consisting of both men and women.
Letters dispatched by the House Judiciary Committee demanded access to all correspondence and documents shared between the world's largest proxy advisory firms — namely Institutional Shareholder Services and Glass Lewis — and the Seventh Generation Interfaith Coalition, along with fellow organizations committed to engaging shareholders. The allegations were grounded in suspicions of collusion and potential breaches of U.S. antitrust legislation. These groups had been advocating for American companies to divest their assets from carbon-intensive industries and transition towards net-zero greenhouse gas emissions within their operations.
Interestingly, this wasn't the first instance in the past six months that Seventh Generation Interfaith Coalition had been named in relation to Republican investigations into ESG-guided investing. In March, a letter signed by Republican attorneys general from 21 states categorized this faith-based investment coalition among "some of the most radical ESG activists." These groups were accused of utilizing shareholder resolutions to compel companies to align themselves with the objectives of the Paris Agreement on climate change, pushing for global net-zero emissions by 2050 and the reduction of fossil fuel dependence.
The hearings conducted by the House, along with the letter from the attorneys general and the plethora of bills introduced in conservative-leaning state legislatures, contribute to an increasingly coordinated campaign that aims to counteract the growing prominence of ESG investing and the principles underpinning socially responsible investment. This latter approach has long been endorsed by religious institutions.
Reports investigating the financial backing behind the anti-ESG campaign have identified the fossil fuel sector as a primary supporter, in addition to right-wing and libertarian groups, including those linked to Catholic conservative activist Leonard Leo.
Cathy Rowan, the Director of Socially Responsible Investments at Trinity Health, a Catholic health system headquartered in Michigan, noted, "It's a sign of the impact we've been having, and it's obviously upset some people."
Despite the pushback, faith-based investors and their supporters in the realm of socially responsible investment remain concerned. They attribute the opposition to a variety of factors, including a reduced level of support for several shareholder proposals this year, particularly those addressing climate change. The fear is that the surge of anti-ESG sentiment within legislatures could potentially slow down the momentum required for the significant global financial shifts necessary to tackle climate change. This concern becomes more critical as the window of opportunity to avert severe climate impacts narrows.
Timothy Smith, a senior policy adviser with the Interfaith Center on Corporate Responsibility, with almost five decades of experience in corporate engagement, commented, "The attacks have grown… They've grown in intensity, and from my point of view, most of them are based on faulty premises."
**Faith Groups Leading the Way in Impact Investing**
While the term "ESG" is relatively modern, the notion of incorporating non-profit considerations into investment practices has roots dating back decades, with religious communities at the forefront of this endeavor.
This September will mark the 50th anniversary of the Seventh Generation Interfaith Coalition. Over this span, the coalition has actively participated in investor campaigns addressing issues such as the tobacco industry's practices, concerns surrounding baby formula, and opposition to apartheid in South Africa. One of the co-founders, Capuchin Fr. Mike Crosby, played a pivotal role in introducing the first shareholder resolution on global warming at Exxon back in 1997.
Christopher Cox, the Executive Director of Seventh Generation Interfaith Coalition, drew attention to the dual purpose of their religious congregations' investment pursuits: "Our religious congregations are seeking, indeed, a return on their investments to care for their elderly [and] to help continue their mission. But at the same time, they're committed to Gospel-based efforts that are to protect people and planet." The coalition's name is derived from the Great Law of the Iroquois, a concept that takes into account the impact of decisions on both the current and seven future generations.
A distinction between ESG and socially responsible investing, as emphasized by Cox and other proponents of faith-based investment, lies in the fact that while ESG seeks to aid companies in evaluating and mitigating risks to enhance returns, socially responsible investing incorporates an ethical dimension into the equation. As Cathy Rowan stated, "We look at [investments] in terms of the risks, as I think an ESG investor does, and also as a way to work for positive change."
The term "ESG" gained its first notable usage in a 2004 report from the United Nations Global Compact. Over the last decade, it has progressively permeated mainstream investment practices. Major asset management firms like BlackRock, State Street, and Vanguard have all integrated ESG principles in varying capacities.
The Principles for Responsible Investing, a network endorsed by the United Nations that promotes ESG strategies, boasts a collective $120 trillion in managed assets. In the United States, sustainable investing reached a pinnacle of $17.1 trillion at the beginning of 2020 but dipped to $8.4 trillion in 2022. This decline was partly attributed to the U.S. Securities and Exchange Commission's stricter disclosure regulations concerning ESG funds and assets.
A comprehensive report conducted in 2021 by Rockefeller Asset Management and New York University's Stern Center for Sustainable Business scrutinized over 1,000 studies conducted between 2015 and 2020 on the intersection of ESG and financial performance. This analysis indicated that around 60% of the studies demonstrated that ESG strategies either outperformed or matched conventional investing, while only 14% fared worse. These statistics remained consistent for climate-specific strategies.
In their 2021 revised guidelines for socially responsible investment, the U.S. Conference of Catholic Bishops echoed Pope Francis's sentiment, asserting that economic progress should not be solely defined by increased profits and production. The guidelines advocated for active engagement with companies through dialogue, proxy voting, and shareholder resolutions to adopt social and environmental responsibility guidelines.
