In the opening act of his tenure as the Conservative Party of Canada’s new leader, Pierre Poilievre has been busy selling hope and optimism. But given his fondness for a good political scrap, it’s only a matter of time before he drops the gloves and starts throwing punches again. One of the first places he’ll probably do that is the growing pushback against so-called “ESG” investing, a punch-up already happening in the United States.
ESG is short for “environment, social and governance,” and it’s part of an effort by large banks and financial institutions to more effectively manage non-financial risks like climate change and corporate governance. They do this by evaluating companies on a series of performance metrics, from greenhouse gas emissions to labour practices and pay equity, and directing investors towards the ones that do the best. It’s no small effort, either — according to Bloomberg, ESG-oriented investments by big banks and asset managers could total more than $50 trillion by 2025.
But that’s coming under fire from places like Texas, West Virginia and Oklahoma, whose fossil fuel industries have been subject to significant ESG-related scrutiny from banks and other capital providers. In West Virginia, for example, five major banks were barred from doing business with the state because of their pro-ESG policies, while Texas now has a law that bans municipalities from doing business with banks that have ESG policies targeting its fossil fuel companies.
This pushback fundamentally (and almost certainly deliberately) misunderstands the point of ESG investing. Reducing greenhouse gas emissions or increasing the diversity of a company’s senior leadership team isn’t an act of virtue signalling, as some conservatives seem to think. Instead, it’s about reducing exposure to key operational risks and improving the efficiency and effectiveness of the people charged with managing them.
Companies that ignore things like climate change or the importance of diversity aren’t just behind the times — they’re materially harming the long-term interests of their shareholders. As Alison Taylor, a professor at New York University’s Stern Business School, told E&E News, “Anti-ESG investing is not really a thing, unless you’re saying, ‘We’re going to deliberately invest in poorly governed companies.’”
This anti-ESG pushback doesn’t just affect shareholders, either. According to a recent paper from a pair of Wharton finance professors, in the first eight months alone, Texas’s law forbidding municipalities from doing business with certain banks cost taxpayers an additional $303 million to $532 million in interest on municipal bonds due to the decreased competition from said banks. “It’s a really substantial increase in borrowing costs,” co-author Daniel Garrett said.
That sort of price tag is unlikely to deter Texas’s efforts to protect its oil and gas industry from greater climate-related scrutiny. It’s even less likely to deter conservatives here in Canada, who appear ready to embrace the same sort of approach.
Calgary Conservative MP Tom Kmiec is reportedly drafting a private member’s bill that would crack down on so-called “woke capital” — in other words, companies that deign to care about something other than their near-term bottom line. It proposes to amend the Canada Business Corporations Act (CBCA) to “ensure that officers and directors prioritize the interests of shareholders above political agendas that are unrelated to the company’s business purpose.”
Addressing and adapting to climate change is, of course, very much a business purpose. Just ask the major oilsands companies that have all very publicly pledged to reach net-zero greenhouse gas emissions by 2050. But these sorts of facts have no purchase on the feelings of the anti-ESG crowd. As conservative columnist Jamil Jivani wrote, “The proposed changes to the CBCA [Canada Business Corporations Act] promise to loosen the grip that woke liberals have over corporate Canada….Big businesses have been getting away with social activism for far too long. The Canadian backlash against woke corporations has only just begun.”
On that, at least, Jivani is correct. Even if Poilievre doesn’t embrace Kmiec’s ham-fisted idea, Danielle Smith — the likely next premier of Alberta — almost certainly will. That will raise an interesting dilemma for these “woke corporations”: do they go along with the ride and avoid angering the sort of politicians who might also cut their taxes and lighten their regulatory load, or do they stand their ground and protect the long-term interests of their shareholders and employees? Who, exactly, do they have a duty to serve: their political friends or their professional responsibilities?
When Pierre Poilievre is ready to throw punches again, he’ll probably start with the growing pushback against so-called “ESG” investing, writes columnist @maxfawcett. #cdnpoli #ESG
Ironically, these sorts of anti-ESG efforts could end up harming the very companies and industry that politicians like Poilievre and Smith say they want to defend. And there’s another deeper irony at work here: the politicians who make the most noise about freedom are the ones proposing to take it away from Canada’s companies and the people who work for them.
Telling big businesses to keep their mouths shut about climate change is just the latest example of this hypocrisy. As Witold Henisz, the vice-dean and faculty director of Wharton’s ESG Initiative, told E&E News, “It may create some self-censorship. It may create some sense that ‘Well, we don’t want to publicize what we’re doing, because now it’s political to do sophisticated financial analysis. It’s kind of frightening.”
The good news is that none of this silliness will stop global financial behemoths like BlackRock from continuing to identify and manage the risks posed by climate change to the companies they invest in, and it won’t meaningfully slow the energy transition that’s underway. But it could easily cost Alberta, and Canada, if our conservative politicians interfere with their ability to adapt to it. If nothing else, it will expose just how provisional their support for freedom really is.