Jon Hale, Ph.D., a columnist for Morningstar.com, joined Cheddar News to explain why some Republican state leaders are starting to take an anti-ESG (environmental, social, and corporate governance) position regarding how companies do business, and how it might affect business and investment in their states. 

Opening Bell

GOP States Pushing Back Against ESG Investments

joining us now to discuss this further is john hale, director of sustainability research at Morningstar, john just want to start off with with those anti E. S. G. Steps, what they are exactly, you know, the ones that were taken by leaders in texas and in florida. And what's behind this broader anti E. S. G push? Yeah, well, in texas, what we've seen is kind as they attempted blacklisting of asset managers that supposedly uh are boycotting fossil fuels. Uh It's based on a law that was passed last year that required texas comptroller Hager to send letters essentially to asset managers asking them what their position is on that issue. And the results have come back. And last week controller Hagar announced that I think 10 asset managers would be forbidden from doing business with Texas, you know, pension plans and other investment plans run by the state or for the benefit of state participants like former employees and so forth. Now, Governor de Santis on the other hand, is just pushed through a rule that would ban um you know, the use of E. S. G. Criteria in florida at their pension plans and other state type of investment plans and also restrict their ability to vote on E. S. G. Related proxy votes in favor of those issues. Do you think this is something that could come back to kind of bite Republican leaders more broadly sooner than later, especially when you think of the context that E. S. G. Is the future, that this is one of the fastest growing sectors, especially for investors. Well, you know, that's the thing, it's it's this is really just kind of a rearguard action to protect fossil fuel interests on the one hand. And in the case of Governor de Santis, especially, it's kind of a, you know, a salvo against, uh, so called corporate America. You know, and I think what's really happening here is that investors, almost all investors and, and, and by that, I mean, both and investors, individuals institutions that own, uh, foundations or run foundations and endowments as well as professional investors want to see climate risks, you know, incorporated in the investment decision. That's really all this is about. In fact, there's not, uh, there is a divestment movement out there among some investors to avoid fossil fuels completely. But it's not really the stance of the asset management industry in general. That stance is that we want to know how you're thinking about the risks to your business that are posed by climate change. So in terms of states that are seeing this the most, what are those states? Well, mostly red states. We're seeing it in texas and florida. We're seeing also efforts in, I think West Virginia Oklahoma Utah, but this is the kind of thing that could spread essentially to any and all republicans states because a lot of the impetus for it comes from, you know, organizations, dark money organizations frankly, that help disseminate this kind of information to policymakers and officeholders in all those states. When we look at E. S. G. Right now, we know that investors pay a premium, um, you know, for shares of companies with the best TsG scores over those with the worst E. S. G score ratings. And as you noted a moment ago, a lot of that factoring risk that can be costly. That can have dramatic effects on the company and profitability kind of moving forward. But when you look at the rhetoric from republicans, republicans have, have also kind of accused investors to try to that they're trying to force companies to follow these liberal agendas at the expense of a pursuit of profit. Can you talk about the veracity of that argument and perhaps how antiquated that thought process is that you try to mutually exclude profits and TSG efforts? Yeah, it's it's really, nothing could be further from the truth. I mean, really, what's happening here on the just taking the sort of climate issue first is that, you know, investors just very reasonably want to see climate considered in their investment decision making. And and so investors are asking companies, what are the, what do you think are the effects of climate change? What are those gonna be on your business? You know? But both in terms of how you operate and the demand for your products going forward and in terms of the your assets, your plants and equipment and customers and employee base, what are they going to be the effects of climate on on them as well? And you know, they just want answers for this. They want companies to um to to come to grips with that and companies are doing that. I mean partly because of so much investor pressure for them to do so now on the broader issue of let's just call it diversity like diversity, equity and inclusion because this is something that's really, you know, often railed against by republicans. Um diversity isn't an ideology, it's a fact, it's the facts on the ground. The american workforce is almost half women today. Women get earn more college degrees than men. There's more workers that are L G B T. Q plus out at work. They don't want to hide that fact anymore. There's more hispanic workers, asian black people of color. That is a fact and all companies want to do today is recognize that fact in the way that they run their human resources departments. You know, they understand that to be competitive in a global economy, they need to attract the best the most talented workforce and retain that workforce because it does, it does matter to the bottom line. There has been data that has proven this time and time again yet we can't have this conversation data that has debunked the idea that E. S. G. Is not a profitable strategy. In fact it is, and to your point earlier, it really focuses on risk and having companies assessed that risk so that investors can make a better decision in investing in a company. JohN really appreciate your time and your insight, john hale, director of sustainability research at Morningstar.