Republicans to probe Wall Street’s climate friendly investments

Kiran

Less than a week before the midterm elections, Republican lawmakers on Capitol Hill are poised to investigate what they see as “woke capitalism,” a reference to Wall Street firms that treat climate change as an economic risk.

Polls suggest the GOP will retake the House, and Republicans are there are preparing to grill the chief executives of large financial firms as well as Gary Gensler, Democratic chairman of the Securities and Exchange Commission, about their efforts to curb climate change. In the Senate, where polls show a toss-up battle for control of the chamber, key senators are pushing legislation to punish businesses that prioritize environmental, social and governance causes – known as ESG – over pure profit.

Those moves will certainly escalate the war ESG investing has a further chilling effect on Wall Street, where some CEOs are scrambling to emphasize that their firms are still investing in fossil fuels.

Rep. Garland “Andy” Barr (R-Ky.) said in an interview that ESG principles “will be one of the main focuses of the Republican majority’s oversight” in the House Financial Services Committee, which oversees the nation’s banking, insurance. real estate sector.

“My view is that ESG investing is a cancer in our capital markets,” Barr said. “This is a fraud on American investors.”

The SEC “is the target of our oversight because of this 534-page monstrosity of climate disclosure regulations,” he added, referring to proposed rules that would require all publicly traded companies to disclose their greenhouse gas emissions and the risks they face. climate change.

Not everyone is convinced that Wall Street firms face a real threat from the Republican incumbents of Congress. Some see the GOP movement as political theater meant to appease the party’s base and fuel the nation’s culture wars.

The GOP is involved in “A lot of them are making political hay,” said Ivan Frishberg, chief sustainability officer at Amalgamated Bank, which does not do business with fossil fuel companies. “But I don’t think that this changes what asset managers or banks do in terms of their approach to managing assets in a changing climate, or their participation in climate initiatives that they are a part of.”

Yet sustainable investment advocates are up for intense scrutiny if Democrats fare badly in the midterms, leading to high-profile investigations and grilling of administration officials.

Rep. Frank D. Lucas (R-Okla.) said he would prefer to seek the testimony of Gensler and other Biden administration officials before bringing in chief executives of major financial firms such as BlackRock, the world’s largest asset manager. Lucas said he would recommend this approach to Rep. Patrick T. McHenry (RN.C.), who will become the chair of the Financial Services Committee if the chamber changes hands.

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And Rep. Blaine Luetkemeyer (R-Mo.) said he hopes to call on the heads of three big investment advisers – BlackRock, Vanguard and State Street – who have used their economic power to curb climate change and advance other popular causes. in liberal circles.

McHenry was not immediately available for an interview. The SEC did not respond to a request for comment.

SEC proposes landmark climate disclosure rule. Here’s what to know.

‘Drifting towards wokeism’

If the Republicans take the House in the midterms but the Democrats keep the Senate, the chief executives of large financial firms may face climate whiplash. Conservative House lawmakers can criticize the firm for its “ESG political bias”, as former vice president Mike Pence recently described sustainable investments, while on the other side of the Capitol, liberal senators can criticize the company for not doing enough to reduce greenhouse gases. emissions that cause climate change.

“We have become a loud noise in their right ear after all the screaming in their left ear,” said Sen. Kevin Cramer (RN.D.) firms Wall Street.

In a statement, Senate Banking Committee Chairman Sherrod Brown (D-Ohio) said he would and hold on Big bank CEOs are accountable for how they serve their customers and treat their employees, and will bring it to Capitol Hill to answer for themselves.

“We know when Wall Street neglects communities of color and ignores long-term risks like climate change, it’s workers, small investors, and consumers who pay the price,” Brown said.

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An official in the banking industry, who spoke on condition of anonymity because he was not authorized to comment publicly, said it was ironic that Republicans are trying to talk businesses out of embracing climate-conscious investment, even though the GOP usually extols the virtues of the free market.

“Historically, progressives have been more comfortable encouraging the private sector to support their initiatives, while many conservatives have thought that the private sector should be free to make the decisions they want,” the official said. “It’s definitely turned around in the last few years. And I think that’s because some conservatives feel like they’re losing the battle and these companies are going into wokeism.

Fossil fuel companies have aggressively lobbied to water down the SEC’s climate disclosure rules, putting pressure on Republicans to stand up for the interests of the industries they champion.

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“Banks and investors should not use ESG as a premise to just differentiate categorically against one sector,” said Aaron Padilla, vice president of corporate policy at the American Petroleum Institute, a powerful trade group that represents the oil and gas industry.

Cramer says he sees no inconsistency between championing free market capitalism and researching sustainable investing. He added that conservatives often strive to take a collaborative – not combative – approach to discussing sustainable investment. with banking industry executives.

After he introduced the bill in the spring of 2021 To prevent banks from discriminating against the fossil fuel industry, Cramer said he had interesting calls with five bank CEOs: Jamie Dimon of JPMorgan Chase, Jane Fraser of Citigroup, Brian Moynihan of Bank of America, Charlie Scharf of Wells Fargo and David Solomon of Goldman Sachs. A few months later, Solomon flew to North Dakota to participate in a town hall with senators.

Sen. Dan Sullivan (R-Alaska), who has introduced separate legislation to push back climate risks consideration in BlackRock, Vanguard and State Street – which manages more than $ 20 trillion in combined assets – has also discussed the bill with industry executives, said his spokesman. “I fully expect that conversation to continue into next year,” Sullivan said in an emailed statement.

Sen. Tom Kapas (R-Ark.) has accused BlackRock and other Wall Street firms of “acting like a climate cartel” and contributing to high gas prices. But there is no evidence that sustainable investment has affected gas prices, which are rising for various reasons, including the tightening of the global oil market and Russia’s invasion of Ukraine.

Larry Fink, chief executive of BlackRock, has defended his firm’s push to hold companies accountable for environmental and social progress. In his annual letter to corporate America in January, he said that focusing on ESG principles is not at odds with making money.

BlackRock’s Larry Fink tells fellow CEOs that businesses are not the ‘climate police’

“We focus on sustainability not because we are environmentalists, but because we are capitalists and fiduciaries to our clients,” Fink wrote in his letter, adding, “Capitalism has the power to shape society and be a powerful catalyst for change. But business cannot do this alone , and they cannot be the climate police.

At the same time, BlackRock has pushed back against accusations from conservative state officials that the company is diversifying away from fossil fuels. In Texas, for example, a new law prohibits state pension and investment funds from doing business with companies that declare a “boycott” of the oil and gas sector.

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“We are not boycotting the energy industry,” BlackRock said on its website in response. “On the contrary: BlackRock’s clients are some of the largest investors in the energy industry. In the US alone, we have invested $170 billion on behalf of our clients in American energy companies, including pipelines and power generation facilities.

Dimon has also defended JPMorgan’s investment in fossil fuels, even after the company announced in 2020 that it would end loans to new coal mines or coal-fired power plants.

At a House Oversight Committee hearing in September, Rep. Rashida Tlaib (D-Mich.) pressed Dimon on whether he would commit to ending the financing of new oil, gas and coal projects with massive carbon footprints that threaten the world’s climate goals.

“Absolutely not, and that would be the road to hell for America,” Dimon shot back.

Contrary to the view of most Republicans, Democrats and climate activists argue that fossil fuel investments are becoming riskier as the world transitions toward cleaner energy. The International Energy Agency predicted last week that demand for coal, gas and oil will rise in the near term, despite the energy crisis triggered by Russia’s war in Ukraine.

Liberals and activists also point to the growing economic toll global warming causes through strong storms, rising seas and raging wildfires. The United States was hit by 20 weather and climate disasters last year that cost at least $1 billion each, according to the National Oceanic and Atmospheric Administration.

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In California, massive wildfires have caused huge losses for insurance companies, prompting many insurers to withdraw from fire-prone parts of the state. And in Florida, Hurricane Ian could be the costliest hurricane in the state’s history, with insured losses of up to $67 billion, according to modeling firm RMS.

“You have an insurance crisis going on in Florida and California that is directly related to the climate,” said Frishberg of Amalgamated Bank. “To deny climate risk in a financial context at this time is essentially a climate denier.:

Jon Hale, head of sustainability research at financial services firm Morningstar, said businesses in Europe and other countries have recognized the risks that climate change could pose to their investments, making the issue almost inevitable for US-based firms.

Private sector research into climate risk, Hale said, “isn’t something that the American political right is really going to be able to stop.”

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