A skirmish has broken out on the pages of The Wall Street Journal over Principles for Responsible Investment (PRI), the London-based campaign body persuading investors to embed ESG in their investment strategies.
On one side sits Paul H Tice, a New York professor and “veteran of the fixed income and credit markets”, accusing PRI of forcing its agenda on US corporates; on the other is PRI’s Nathan Fabian claiming Tice has a “flawed understanding” of ESG.
Once again, the tussle illustrates how ESG has become a highly politicised issue in the US, where there is now a vocal opposition to the use of its principles in investment decisions. There is an even more vociferous backlash to the idea that regulators should introduce mandatory climate risk reporting.
This latest clash began with an OpEd from Tice, lambasting the use of ESG criteria by BlackRock, the world’s biggest fund manager, and then moving on to claim PRI leads a campaign that could be viewed as “choking off capital to energy companies” and redefining fiduciary duty. Tice lauds opposition to the introduction of climate risk reporting as the “tomorrow war” that dissenters need to “start waging today”.
But he singles out PRI, taking a pop at the legitimacy of a campaign body registered in Britain playing an active role in US business. “In addition to more legal pushback on the regulatory front,” Tice writes, “there needs to be greater scrutiny of the undue influence that sustainability-focused non-governmental organisations such as PRI exert on the financial markets.”
Fabian, PRI’s chief responsible investment officer, strikes back in a strident letter to The Wall Street Journal, not only arguing that Tice’s understanding of ESG is “flawed” but also that he “mischaracterises” the role of PRI. He adds there is no secretive force behind companies taking on ESG as a guiding principle.
“The widespread embrace of ESG investing isn’t the result of a hidden hand pulling the strings of the financial market. Investors increasingly recognise that ESG factors are material to their investments and that climate change exposes companies to risk.”
‘Access to data’
He insists PRI is transparent about its “aims and ambitions” in promoting sustainable investment practices. But that means investors need to be “informed”, says Fabian, a thinly veiled suggestion that those opposing ESG would rather restrict data flow to fund managers.
“We want investors to have access to the data they need to make choices about where to direct capital. By contrast, trying to prevent investors from accessing information and limiting the ways in which they can practice sustainable investing does exactly what Mr Tice accuses ESG’s proponents of doing—it undermines investors’ ability to make their own decisions.”
The Wall Street Journal has run a succession of articles targeting ESG and the decision to introduce mandatory climate risk reporting for US companies.
Other anti-ESG personalities have emerged in the US press too, including Vivek Ramaswamy, an author and fund manager, who has appeared on Fox News and at CPAC, an annual gathering of conservative supporters, decrying ESG. Ramaswamy argues ESG makes companies “less effective” and “sucks the lifeblood out of democracy”.
Alison Taylor, executive director of Ethical Systems, a US consultancy offering advice on issues such as sustainability and human rights, told Board Agenda: “[Vivek Ramaswamy] has little to no expertise in the topic at hand. Indeed, despite having written a book called Woke Inc, he cannot define wokeness other than as having something to do with racism and ‘maybe climate change’.
“Anti-ESG investing makes no sense conceptually. It is either investing which does not take into account intangible factors or the long-term reality of climate change, or it is investing on E and S criteria. What he is actually doing is ESG investing, but with a particular ideological stance.”
ESG is not a perfect concept. But rather than focus on refinement, debate in the US centres on whether it should exist at all. That does not bode well for tackling climate change.