During a recent House Financial Services Committee meeting, Rep. Katie Porter, D-Calif., confronted SEC Commissioner Hester Peirce, a Republican, on critical remarks she had previously made. Peirce had called environmental, social and governance investors “shrill,” “self-appointed” and “self-righteous.”
Porter demanded an explanation of Peirce’s comments and questioned whether the Securities and Exchange Commission shared those same sentiments.
The exchange is as follows:
Porter: Commissioner Peirce, you’ve compared ESG disclosures to scarlet letters, in the vein of the high school novel, The Scarlet Letter, in which an unwed, pregnant woman named Hester is marked with a red letter ‘A’ for adulteress. You’ve said and I quote, ‘As with the scarlet ‘A’ the ESG letters over-simplify complicated facts.’ Do you remember making that comparison between ESG disclosures and The Scarlet Letter?
Peirce: I do.
Porter: You actually said, and this is colorful, ‘We ought to be wary of shrill cries from a crowd of self-appointed, self-righteous authorities even when all they are crying for is a label.’ So, in your opinion those who support ESG disclosures, the requirement that companies give investors information about, for instance, their environmental impact or their gender diversity — those people are shrill, self-appointed and self-righteous.
The conversation raises a question: Is there a division over socially responsible investing similar to other areas in American life? Many advisors with ESG offerings describe such investing as a way for investors to “democratize their values.”
In late September, Greta Thunberg, a 16-year-old Swedish climate activist, spoke at the United Nations, calling on its members to address global climate change. Thunberg has no stake in American politics; she simply finds value in addressing the issue. That same week, 200 major investors with $6.5 trillion in assets under management urged 47 publicly traded U.S. corporations to align their climate lobbying with the Paris Agreement.
Reaction to these events tended to fall along political lines.
Socially responsible investing is closely linked to values like few other areas in investing. An Allianz study found that the main reason investors cited for getting onboard with ESG investment strategies was to support companies that support the same causes as they do (56%). Fifty-one percent of respondents said ESG investing made them feel they were using their money for good and 31% said that the strategy adds necessary diversification to their portfolio. None of the investors surveyed said that it furthered their political interests.
Despite the demand for SRI, many firms and advisors have yet to adopt the approach, dismissing it as “fad.”
“From a business perspective, companies need to pay attention to the fact that ESG is not some passing fad,” said Todd Hedtke, chief investment officer for Allianz Investment Management. “Companies that view this as an opportunity to make changes are likely to realize a positive impact in both the near- and long-term.”
When investing becomes politicized, important considerations such as fiduciary responsibility and portfolio performance fall to the wayside, said Zach Conway, a financial advisor and Forbes contributor.
Conway believes advisors acting in a fiduciary capacity should consider values-based planning as part of their fiduciary standard, removing any political leanings one way or the other. Advisors following a holistic approach will also need to see the values and motivators of the whole person to fulfill their obligations as an advisor.