IEEFA U.S.: Campaign to undermine ESG principles is about power—not good investment policy

September 28, 2022 (IEEFA)—The growing backlash against considering environmental, social, and governance (ESG) issues when making investment decisions—arguments made most recently by former Attorney General William Barr—are not based on facts, according to a new Institute for Energy Economics and Financial Analysis (IEEFA) analysis.

In a recent Wall Street Journal op-ed and other media appearances, Barr offers a poorly reasoned defense of heavy-handed efforts by 19 attorneys general and others to stop finance professionals and fiduciaries from considering ESG issues, especially climate change criteria, when making investment decisions. Barr and his allies seek a major power shift within the U.S. system of checks and balances. If they are successful, the current legal consensus on investment principles and fiduciary duty could be stood on its head. Their strategies will spark upheaval and chaos in energy and finance markets. 

Barr claims investment trustees and corporate board directors who take ESG principles into account when making investment decisions are contravening their obligations as fiduciaries. To accept Barr’s anti-ESG logic, one must deny climate risk is a financial risk, an act which is a breach fiduciary duty.

A recent commentary by Martin Lipton, a founding partner at Wachtell, Lipton, Rosen & Katz (WLRK), one of the leading corporate law firms in the world, makes it clear that ESG issue consideration is solidly grounded in law and precedent In their memo, WLRK points out that consideration of ESG risks rests well within long-established legal principles of corporate fiduciary duties.

“An investor looking to put money into fossil fuel companies today is stepping into a dilemma wrapped in a quagmire,” said Tom Sanzillo, IEEFA director of financial analysis and author of the analysis. “Similar scenarios are likely to play out in the PJM region when it comes to coal, so investors should proceed with caution.”

IEEFA also notes that Barr’s assertion that ESG funds underperform financially is not supported by his examples. Barr picks and choses examples to make his point, leaving out that an analysis in the Harvard Business Review shows positive correlations between ESG and financial performance. 

“Investors should be free to base their decision-making on longstanding principles of prudent investment analysis and fiduciary duty, not on fear of attack by politicized forces of government,” said Sanzillo. “The ESG movement is about persuasion. But the anti-ESG movement, as represented by Barr and his allies, is about the unconscionable use of political power. Investors and fund managers should place themselves on high alert: They are in danger of losing control over their own decision-making.”

Full Report: Campaign to Undermine ESG Principles Is About Power—Not Good Investment Policy

Author Contact
Tom Sanzillo ([email protected]) is IEEFA director of financial analysis

Media Contact 
Susan Torres ([email protected]), +1 908-565-3451

About IEEFA
The Institute for Energy Economics and Financial Analysis (IEEFA) examines issues related to energy markets, trends and policies. IEEFA’s mission is to accelerate the transition to a diverse, sustainable and profitable energy economy.