Friday, November 10, 2023

Follow the Money

Today, I am at the ILEP conference that Joan blogged about, honoring the career of Jill Fisch.  In keeping with the ESG theme of the conference, this week, I’ll make a brief observation.

For the past couple of years, there has been a rising anti-ESG backlash on the right, accusing Disney and Target and Bud Light of engaging in “woke” marketing, and seeking to bar the likes of BlackRock and other large asset managers from taking ESG factors into account.  The latest salvos are taking place in Congress, where subpoenas are being issued to groups like As You Sow, accusing them of antitrust violations, and another hearing was just held to criticize ESG investing – this time, focusing on the Department of Labor’s new rules.

Now, the thing about the anti-ESG push on the right is, it’s not making headway with voters.  Which isn’t surprising; most people don’t think much about corporate law or investing guidelines, so I’d honestly be more surprised if the anti-ESG push was getting political traction.

So when politicians continue to ostentatiously push this line, the obvious question is – why?  And my instinct has always been, despite the attention paid to DEI initiatives and trans rights and so forth, this is all originating with oil money.  The oil companies are, it seems, putting real resources behind a push to stop fossil fuel divestment initiatives and considerations of climate change in investing.

The reason that is intriguing is that the usual line is that taste – like, divestment as a means of boycott and so forth – can’t affect public stock prices.  Which means, you would think, if climate change-aware investing is not financial, it should be having no affect on oil company stock, and the oil companies would not waste all this money campaigning against it.  And if it is financial, then all the campaigning in the world won’t actually change anything – and oil companies are still wasting their campaign donations.

I tend to think that companies spend money rationally, which means, one way or another, they think campaigning can affect asset pricing.

Which is why I found this article, Voice Through Divestment, rather interesting.  Authors Marco Becht, Anete Pajuste, and Anna Toniolo conclude that divestment initiatives do affect stock prices, but it’s not just the fact of divestment.  The campaign itself raises awareness, puts pressure on companies to reduce their emissions, and thereby increases regulatory risk for oil companies – which causes even purely financial investors to adjust their risk-benefit calculations and devalue the stock.

In other words, there is a neat story here of how “financial” ESG and “profit-sacrificing” ESG interact with each other.

Ann Lipton | Permalink


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