This post is authored by Eli Kasargod Staub, executive director of Majority Action.
A heightened awareness of the material risks that racial inequity, attacks on workers rights and inaction on climate change pose to investor portfolios has led to increased shareholder activism.
Leading institutional investors recognize their fiduciary duty to their clients and beneficiaries requires them to take actions that lead to a more sustainable future by mitigating risks that affect their portfolios.
Racial inequity has unfairly held back communities of color, preventing entire segments of our society from fulfilling their individual and collective potential. Systemic racism and the resulting economic disparities have produced outsized harm for impacted people and society as a whole. They have also negatively impacted the long-term, broad-based economic growth upon which investors depend. A 2021 Brookings study found that racial inequality had cost the economy $22.9 trillion over the previous 30 years.
Climate denial is just as costly. A 2022 report from the Deloitte Center for Sustainable Progress (DCSP) “indicate[d] that left unchecked climate change could cost the global economy $178 trillion over the next 50 years, or a 7.6% cut to global gross domestic product (GDP) in the year 2070 alone.” That same report also found that “if global leaders unite in a systemic net-zero transition, the global economy could see new five-decade gains of $43 trillion, a boost to global GDP of 3.8% in 2070.”
Right-wing political attacks on environmental, social and governance initiatives (ESG) present a false choice between investment returns and responsible corporate stewardship that does nothing to protect regular people’s retirement savings. It’s a false flag planted by their anti-”woke capital” crusade to protect fossil fuel companies and negate movements that promise to advance the interests of communities of color. It’s nothing short of pure political opportunism.
They’re counting on the public falling for their same, tired playbook, one that demonizes obscure terms like “ESG.” It’s the same strategy they turn to every time the rules of the game start working to advance equity, sustainability, and justice – change the rules and intimidate the players.
Congress has the opportunity to do more than debunk the boogeyman that far-right elected officials have been standing up. The House Financial Services Committee has lined up a sweeping set of hearings that could shine a spotlight on the real questions facing institutional investors, particularly the role of asset managers like BlackRock and Vanguard that are entrusted with managing trillions of dollars on behalf of American workers and communities.
To achieve this, Democrats will need to do more to push back against Republican narratives that ESG is bad for business. It’s time for Democrats to take a more assertive stance by holding asset managers accountable for the proxy votes they make which enable big businesses to evade corporate responsibility for climate change and racial equity.
Asset managers should not be allowed to place their own institutional self-interests above those of their clients. ESG is good for investors because it mitigates and accounts for long-term risks to entire portfolios. Democrats need to understand and agree that it’s a critical component of asset managers fiduciary responsibility. Only then will we see meaningful change.
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