On climate change, Republicans need a crash course in capitalism
Republican critics of ESG have mostly focused on the “E”, arguing that climate change should not be factored into investment decisions. Texas has passed a law prohibiting state, localities and pension boards from doing business with financial companies that seek to limit their exposure to fossil fuel companies. Even companies that invest heavily in fossil fuels are barred if they dare attempt to incorporate climate risk into their portfolio allocations. Oklahoma has enacted a similar law and other Republican leaders are moving in the same direction. Last month, Republican Florida Governor Ron DeSantis backed a resolution banning pension fund managers from considering ESG factors.
All of these anti-ESG crusaders position themselves as defenders of the free market. But they are trying to use the government to stop private companies from acting in the best interests of their clients, including retired police officers, teachers and many others who depend on public pensions. And in doing so, they overturn the most basic investment rules.
Any responsible fund manager, particularly one with a fiduciary duty to taxpayers, seeks to build a diversified portfolio (including energy); identifies and mitigates risks (including risks associated with climate change); and considers macro trends that shape industries and markets (such as the steady decline in the price of clean energy).
It’s investing 101, and either the Republican ESG critics don’t get it, or they’re serving the interests of fossil fuel companies. It may be both. Either way, they stand in the way of the most powerful force we can mobilize in the fight against climate change: the private sector. And the stakes couldn’t be higher.
Every day brings new stories of climate-related extreme weather that is wreaking havoc in communities across the country and around the world. Drought conditions are so bad in some places that falling water levels reveal everything from ghost towns and Nazi-era warships to Neolithic monuments and dinosaur tracks. Rivers like the Danube are drying up and struggling to transport goods, compounding global supply chain problems.
In other places, flooding forced people from their homes, killing more than three dozen people in Kentucky last month and leaving much of Jackson, Mississippi, without clean water. In Pakistan, floods killed more than 1,100 people. The death and destruction caused by record heat waves and wildfires has been no less severe.
The American people know that climate change is real and, as polls consistently show, a large majority want to tackle it, and not just through government action. A survey last year found that two-thirds of investors support their pension funds offering ESG options. Investors are also strongly in favor of greater carbon emissions transparency, and for good reason.
In a world rapidly shifting to clean energy, companies that rely on fossil fuels pose greater risk to investors. Financial companies, and increasingly individual investors, want to know what these risks are, so they can incorporate this information into their capital allocation decisions.
An effort I help lead, called the Task Force on Climate-Related Financial Disclosures, has recruited thousands of companies who have voluntarily agreed to provide data on their emissions and exposure to climate risks, such as supply chain disruptions. These companies and others want to be able to incorporate climate risk into their investment decisions, and without accurate and reliable data, they cannot.
Given this market-driven demand for data and strong bipartisan public support for climate action, the Securities and Exchange Commission is in the process of adopting reporting requirements that build on the framework we created, as other countries have also done.
The fact is that climate risk is financial risk. The costs of climate-related weather events now exceed $100 billion a year – and that only counts insured losses. Accounting for these and other losses is not social policy. It’s a smart investment. And refusing to allow companies to do so comes at a significant cost to taxpayers.
A recent study of Texas’ anti-ESG law found that its taxpayers could pay an additional $532 million in interest on borrowing costs, based on the first eight months of 2022 alone. This is hardly surprising: when states limit the supply of eligible companies to finance their debt and manage their pensions, the remaining companies can charge higher rates and levy higher fees.
Of course, we will all pay far greater costs if we continue to allow elected officials to block the private sector from acting on climate change. The good news is that the next generation of Republican leaders seem to understand that the market has a crucial role to play. According to a recent poll, three-quarters of Republicans between the ages of 18 and 39 think the country should do more to prioritize clean energy, including passing a carbon tax.
Hopefully their seniors in office will get the message soon. Until then, maybe we should send them all to a financial literacy course. Or, better: send them on a cruise on the Danube.
Michael R. Bloomberg is the founder and majority owner of Bloomberg LP, the parent company of Bloomberg News, the United Nations Special Envoy for Ambition and Climate Solutions, and Chairman of the Defense Innovation Board.
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