The top executive at one of the globe’s largest asset managers and proponents of ESG investing says the push by Democrats and environmentalists to divest from fossil fuels is a flawed approach to influencing oil and natural gas companies to go green.
State Street Chairman and CEO Ron O’Hanley said engagement-style investing — meaning pumping more money into high-polluting industries to increase leverage — is the way behemoth firms like his with trillions of dollars under management can wield influence and force change.
“Divestment makes people feel good, but it has nothing to do with atmospheric decarbonization,” Mr. O’Hanley said Tuesday during Greenfin23, a sustainable finance and investing event in Boston. “If I sell Exxon out of my portfolio or I sell oil and gas out of my portfolio, that’s great. I have a decarbonized portfolio, but the air you and I are all breathing hasn’t changed. The amount of carbon in the atmosphere hasn’t changed.”
“The reality is,” he continued, “that if you want to get at the problem, you have to identify the high-emitting industries, and you have to invest in them, so they become low-emitting industries.”
Mr. O’Hanley’s remarks struck at the core of Republicans’ fierce opposition to ESG, or environmental, social and corporate governance investing. Republicans have accused State Street and other major pro-ESG asset managers like Vanguard and BlackRock of using their deep pockets and proxy-voting power over corporations to push a liberal agenda.
Conservatives argue the climate change and social justice politics that are factored into ESG investment decisions hurts fossil fuels and increases energy prices. Republican-controlled states have cumulatively divested billions in state pension funds from these and other companies over assertions they’re boycotting fossil fuels to promote ESG.
Asset managers have rebuffed boycott accusations by noting they still invest in oil and natural gas on behalf of clients.
Conversely, blue states like California and climate activists have accused investment managers of not going far enough and want state money completely divested from fossil fuels.
ESG proponents like State Street, which at the end of last year had $3.5 trillion in assets under management and another $36.7 trillion in assets under custody and/or administration, say the hot-button financial strategy takes additional long-term risk factors into consideration, such as the transition to clean energy.
“Divestment is almost the opposite of what we need to do, and the second reality of all this is that transition takes time,” Mr. O’Hanley said. “Given that we’re long term, we’re very concerned not just about what happens next quarter, but over the next decade. What are you — company — doing to actually make sure that you’re thriving and that your activities are leading to a better world? The only way to get there is through engagement.”
He went on to emphasize what he described as an issue of fairness when transitioning away from fossil fuels. He noted that the impacts of climate change have disproportionately impacted poorer countries that have polluted less and argued it’s unfair to expect developing countries not to reap the economic benefits of fossil fuels.
“Is it really appropriate for the developed world to be saying, ‘you can’t go and use coal, we don’t want you using power plants, we don’t want you building power plants. When you’re ready for renewables, go ahead, but in the meantime stop your development until you get there.’ It’s not realistic,” Mr. O’Hanley said. “If you really were thinking about what’s the single best thing you can do to decarbonize the atmosphere — because remember it knows no borders — help India skip over coal, help India skip over fossil fuels.”
• Ramsey Touchberry can be reached at rtouchberry@washingtontimes.com.