Congressional Republicans have launched a new battle against capitalism. Their latest expression of disdain for the free market was a resolution blocking the consideration of climate, governance and other risks in retirement plan investing. In response, President Biden’s first veto was necessary to defend sensible and long-standing investment principles that congressional Republicans now deride as “woke capitalism.”
Let’s be clear what they mean: capitalism is “woke” when it’s not going the way of the fossil fuel industry and its well-funded enablers in Congress. Look behind the fossil fuel curtain and you’ll see why congressional Republicans want to block fiduciaries’ ability to recognize risks. One hint is that the objection is often to the risk from fossil fuel emissions.
What’s actually happening is normal. Companies consider various factors in investment decisions as part of their well-established fiduciary duty to evaluate material risks. Climate effects long forecasted by science are now so real and so immediate that prudent investors and their fiduciaries must now consider climate risk when investing.
Risk abounds. Treasury Secretary Janet Yellen warns that climate change may lead to losses that ‘cascade’ through the entire economy. The Financial Stability Oversight Council — created by Dodd-Frank to monitor risks to financial stability — has identified climate change as an emerging and increasing threat to U.S. financial stability. Economic literature and the reports of central banks, including the Fed, are rife with warnings of climate risk.
Even those who don’t accept the fact of climate change should understand that in a free market, investors get to make that determination for themselves. Capital markets are shifting capital away from fossil fuels. Last year, for the first time ever, investments in clean energy equaled those in fossil fuels. Even investors in oil and gas are skeptical of the industry’s future, preferring companies to pay out cash now and hold off on expansion plans. Investors and asset managers understand the systemic economic risks if we don’t rapidly reduce our greenhouse gas emissions, and are seeking safer options. Global sustainable investment funds attracted $22 billion of net new money in the third quarter of 2022 alone.
So fossil fuel fights back the way it knows how — with the same political muscle it has used to deny climate change. Only now it’s out to rob investors of the freedom to make their own investment decisions, while embracing protectionism, cronyism, and anti-competitive practices that undermine the foundations of the American economic system. We are prepared to bet that you can trace fossil fuel funding into the campaigns and political organizations of every elected Republican official on the “woke” capitalism crusade.
What’s more, states and retirees are already bearing the cost of climate risk. Banning banks with sustainability goals from doing business in state bond markets results in less competition for bonds that build things like roads and schools, and forces the state’s taxpayers to pay more to borrow money. Banning money managers from state pension funds potentially takes billions of dollars from retirees.
This is why bankers, business associations, and pension funds even in deep-red states are pushing back against the latest GOP overreach. Wall Street has determined that its exposure to climate risk is a material risk and that political pressure against disclosure of that risk violates fiduciary and free market principles — and is bad business, given consumer demand.
President Biden’s veto of this short-sighted resolution was not just the right thing to do, but the capitalist, free market thing to do. Yet fossil-fuel-funded Republicans aren’t going away. Next up are other challenges to commonsense federal regulations like the Securities and Exchange Commission climate risk rule. The merits don’t matter to a Republican House that cares little for details and is out to serve its big polluter donors. Most congressional Republicans don’t admit that climate change is real, immediate and dangerous, and caused by the emissions from burning their big donors’ product.
Protecting investors’ freedom to make informed decisions is essential, both for responsible capitalism and a sustainable future. That freedom sends a clear message that America stands for economic growth and innovation through vibrant, competitive markets. Those who denounce sustainable investing are not defending the free market; they’re attacking it. It’s time for politicians to put aside their political donors’ agendas and instead focus on protecting pension funds and the retirement security of millions of Americans.
Sheldon Whitehouse is a member of the Environment and Public Works Committee. Sean Casten represents Illinois 6th District and is a member of the Financial Services Committee.