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How Americans' investment accounts are being pulled into culture wars

MARY LOUISE KELLY, HOST:

The investment accounts of millions of Americans are being pulled into the country's culture wars. Here's what's happening. In more than a dozen states, Republican politicians want to stop financial firms from considering environmental, social and governance issues when they are deciding where to put their clients' money. They say firms are embracing, quote, woke capitalism instead of trying to maximize profits. Now Democrats and even some big investors are pushing back. NPR's climate and corporations correspondent Michael Copley is here to explain. Hey, Michael.

MICHAEL COPLEY, BYLINE: Hey, Mary Louise.

KELLY: All right. I suppose we should start with the definition - environmental, social and governance investing. This is a thing. It has a name, ESG. What is it exactly?

COPLEY: It's a framework that investors are using to try to understand risks and opportunities that haven't been accounted for in traditional financial models. So they want to know about diversity on corporate boards. They want to know how companies treat their employees. The area that's getting the most attention right now is around the E - the environmental issues, and specifically climate change. Investors really want to know about physical risk companies face from things like rising sea levels and worsening drought. They also want to know how companies are likely to perform as governments try to limit greenhouse gas emissions and as demand grows for things like batteries and renewable energy.

KELLY: All right. And so the issue that a lot of Republican politicians have is what, they say that this is financial firms trying to impose a liberal agenda?

COPLEY: Exactly. They say it's a distraction, that it's distracting companies and investors from trying to make as much money as they can right now. And by doing that, they aren't acting in the best interests of the people who trust them with their money. Here's Florida Governor Ron DeSantis at a press conference in July. The tape's courtesy of the governor's office.

(SOUNDBITE OF PRESS CONFERENCE)

RON DESANTIS: We've got retired teachers, law enforcement that rely on these pension funds. And they're putting in all these other criteria rather than just what's the best investment.

COPLEY: So Florida recently barred investment fund managers from considering social, political and ideological interests when they're making decisions for the state's retirement system. GOP leaders in Texas and West Virginia have said they'll withhold state business from investors who supposedly boycott the fossil fuel industry. More than a dozen other states are considering similar measures.

KELLY: So as you report and ask people about this, what kind of response do you hear?

COPLEY: Critics say they're misguided. One recent study found anti-ESG laws in Texas have limited competition there among financial firms, which is raising interest costs for taxpayers. Critics also say that the risks from climate change are just too great to ignore. That said, investors deny that they're boycotting the fossil fuel industry. I spoke to Witold Henisz, the faculty director of the ESG initiative at the Wharton Business School. Here's how he described ESG investing.

WITOLD HENISZ: It's just about factoring this into the investment calculus. It's about looking at a business and think, are they prepared for the climate transition that's coming? And some companies are, and some companies aren't. And then that tilts your portfolio. It shifts your investment strategy.

KELLY: I'll stay with that shift. You've been telling me about what some states are doing. What about at the federal level? Any moves there?

COPLEY: There are. So there are a lot of concerns about greenwashing generally, so the idea that the ESG label is being put on funds that really don't deserve them. So the Securities and Exchange Commission has proposed a couple of rules. They're really aimed at providing more transparency around how these ESG funds operate. Meanwhile, Republican politicians have said that if they retake Congress, they'll pursue federal anti-ESG legislation.

KELLY: NPR's climate and corporations correspondent Michael Copley. Thank you.

COPLEY: Thanks, Mary Louise. Transcript provided by NPR, Copyright NPR.

Michael Copley