Sustainability chief: ‘Vladimir Putin not a long-term value driver’
Three leading sustainability figures suggest that the US anti-ESG movement is not based on long-term investment decisions, as the ‘energy sector has only overperformed recently due to the war in Ukraine’.
The senior vice president for sustainable investing at Impax Asset Management has warned that “Vladimir Putin is not a long-term value driver” for investments following the US pushback on environmental, social and governance (ESG) issues.
Julie Gorte told a webinar organised by the Forum for Sustainable and Responsible Investment (US SIF) that the anti-ESG movement led by Republicans in the US was “politically motivated” and not based on long-term investment decisions and financial returns. This was because the energy sector had only recently overperformed “because of a person named Vladimir Putin” and the war in Ukraine.
Gorte stated that prior to the war, the energy sector had underperformed the S&P 500 every year from 2008 to 2021, , and now represents just 3% of the index’s market capitalisation, compared to 11% in 2008.
She said: “So, it underperformed for all these years, and now it outperforms for one year, and then you have a bunch of state treasurers saying, ‘okay, we're not going to do business with your investment manager if you don't invest in fossil fuels’.”
Sustainable investing, Gorte continued, is “about value” as the reason pension funds avoid investing in fossil fuels was because the World Energy Outlook 2022 is forecasting peak oil in 2030, “not because of some political persuasion”.
“I think the losers are going to be the people in the states who require their pension funds to hold fossil fuels, because Vladimir Putin is not a long-term value driver,” she added.
Anti- ESG legislation
This follows a wave of anti-ESG bills that have been proposed or adopted in multiple Republican states. The bills prohibit or significantly limit their state governments from adopting ESG-focused investments or from doing business with financial institutions that adopt specific ESG policies.
In August, anti-ESG legislation was proposed by Florida governor Ron DeSantis that eliminated ESG considerations from pension funds in the state. The resolution directs fund managers to prioritise the “highest return on investment” without considering the “ideological agenda” of climate change.
However, Bryan McGannon, US SIF’s director of policy and programs, suggested that these states are not prioritising the financial security of pensioners or the fiduciary duties of pension funds.
“It's just crystal clear that these attacks on ESG are not about investment decisions. These are political decisions that are happening largely across the states but we're starting to see it in the national figures as well as in Congress,” he said.
McGannon claimed that political attacks by the Republicans had not changed behaviour in the investor marketplace.
“Some folks [are] maybe kind of dancing around the issues if they've got business in these states. But for the most part, the demand is there for these [ESG] products. And asset managers, by and large, are committed and moving forward because the market is so big for these products,” he said.
Echoing this sentiment, Jon Hale, Morningstar’s global head of sustainability research, said that despite huge net fund outflows over the last year, sustainability funds have seen quite significant inflows in the US.
He said: “Through September, funds had outflows of about $195bn, according to our estimates, if we took the subset of sustainable funds out of that, by contrast, they've had inflows of $8.6bn. Same story for the third quarter, sustainable funds in the third quarter have had net inflows of $459m.”