Faculty and researchers from more than 60 institutions say the use of environmental, social, and governance metrics is crucial to safeguard the financial system
More than 130 faculty and academic researchers are joining the growing calls from hundreds of institutional investors, companies, policymakers, state financial officers, thought leaders and others in calling on U.S. policymakers to protect the freedom to invest responsibly. In a new statement released today, the signatories emphasized that the latest science and data information around climate pollution, supply chains, workforce, and other metrics are needed for investors to protect money from mounting material financial risks.
The signatories said the collection and release of environmental, social, and governance information — or ESG — is not political, but rather paramount for markets to function properly.
“Critics argue that investors should not have access to ESG information about companies they invest in,” they wrote.”We think they should. Opposing disclosure makes it more likely markets will fail, because real costs and risks are not priced in.”
These academic leaders have spent decades researching how best to protect investors from the risks presented by financial material impacts caused by climate change, water scarcity, and economic inequality. They note the economic consequences of climate change are already detrimental, with extreme weather damages in the U.S. totaling more than $165 billion in 2022 alone.
“Our research with companies in all types of industries — from automotive to apparel to food and beverage — finds that sustainability drives operational efficiencies, risk mitigation, and innovation and growth,” said Tensie Whelan, director of NYU Stern Center for Sustainable Business. “ESG for investors is a way to understand how companies are managing the risk or opportunities presented by pollution, water scarcity, and worker welfare, and improve their assessment of a company’s financial performance–exactly what is expected of them as fiduciaries.”
The statement comes amid mounting attacks on sustainable investing. A number of the academic signatories come from states like Texas, Alabama, Florida, and Missouri, where officials are leading the charge against sustainable investing at the expense of their constituents. In Texas, for example, taxpayers could face up to $532 million in higher interest costs within a year from anti-sustainable investing legislation.
“There is a lot of political theater in the anti-ESG campaign being driven by a number of Republican politicians. It is effective for fund-raising, to the economic detriment of their own citizens,” said Bob Eccles, professor at Saïd Business School, University of Oxford and retired tenured professor at the Harvard Business School. “At the same time, I’m having very constructive conversations with a number of Republicans who see ESG the same way I do. An approach to managing material risks. Economic reality will ultimately triumph over political ideology.”
Despite the threats to the economy and the American public, efforts to restrict sustainable investing have been initiated in 37 states as of mid May. Many of these efforts are being delayed, however, due to the ample financial analyses demonstrating the potential financial harm resulting from restrictive investment policies.
“There can be healthy debates about how to measure ESG impacts, but there should be broad agreement that more information about corporate risks and opportunities benefits everyone,” said Daniel Vermeer, associate professor at Duke University. “For companies, transparency brings attention to vulnerabilities created by social and environmental challenges, and highlights opportunities for innovation and value creation. For investors, rigorous information disclosure provides a more complete picture of a company’s performance enabling better resource allocation and returns. For society, ESG information fosters better alignment between corporate and other stakeholder priorities. ESG is not a coercive political agenda; rather, it is the basis for a richer fact-based conversation about societal expectations and corporate performance. As it matures, ESG can be a powerful tool for navigating an increasingly complex environment.”
The faculty and researchers that signed the statement are affiliated with more than 60 institutions from 24 states. They join a growing list of professionals concerned over efforts to curtail the use of ESG considerations in managing money. Insurance and banking groups across the country agree that science-based efforts examining climate-related risks are essential for asset managers to carry out their fiduciary duty and maximize shareholder returns.
The academic statement comes one month after hundreds of investors and companies called on policymakers to protect the freedom to invest responsibly.