The Exodus from Climate Action 100+: A Reflection of America’s Political Climate
In recent months, a notable trend has emerged among major American asset managers: a series of high-profile departures from Climate Action 100+, a global investor initiative aimed at compelling the largest corporate greenhouse gas emitters to take meaningful action against climate change. This exodus has coincided with a growing political backlash against sustainable investing in the United States, particularly from Republican lawmakers who have labeled these efforts as part of a “climate cartel.”
The Landscape of Climate Action 100+
Climate Action 100+ is a coalition of over 600 financial institutions that collectively manage more than $68 trillion in assets. The initiative was established to engage with companies on climate-related issues, urging them to reduce emissions and commit to net-zero targets. Despite the recent departures of prominent American firms such as JPMorgan Chase, State Street, and Goldman Sachs, the initiative continues to grow internationally, with 87 new financial institutions joining since June 2023—over double the number of departures. Notably, nearly 60% of these new members are based in Europe, highlighting a stark contrast in attitudes toward climate action across the Atlantic.
Kirsten Spalding, vice president of the investor network at Ceres, emphasized that Climate Action 100+ remains the largest investor collaboration focused on climate risk globally. This resilience suggests that while American asset managers may be retreating, the global commitment to addressing climate change is gaining momentum.
The Political Backlash Against ESG Investing
The recent wave of departures from Climate Action 100+ has been fueled by a politicization of Environmental, Social, and Governance (ESG) investing in the United States. Republican politicians have increasingly criticized ESG initiatives, framing them as “woke capitalism” that prioritizes liberal social goals over financial returns. This narrative has gained traction, particularly in light of a letter sent by Republican chairmen of the House Judiciary Committee to 130 U.S. companies, demanding documentation regarding their ESG goals and involvement in Climate Action 100+.
This inquiry followed a report alleging that financial firms were colluding to force American companies to decarbonize, raising concerns about potential antitrust violations. While the investors involved have not explicitly cited this inquiry as a reason for their departures, the mounting political pressure surrounding ESG practices cannot be overlooked.
A Divergence in Global Perspectives on Climate Collaboration
The political climate in the U.S. stands in stark contrast to that of Europe, where collaboration on climate initiatives is generally viewed more favorably. In the U.K. and the European Union, regulators have issued guidance to ensure that antitrust laws do not hinder companies from engaging in sustainability efforts. This proactive approach has fostered an environment where climate collaboration is not only accepted but encouraged.
Lisa Sachs, director of the Columbia Center on Sustainable Investment, noted that the legal arguments against climate collaboration in the U.S. are unlikely to succeed under current antitrust laws. However, the ongoing inquiries and political scrutiny are creating significant challenges for American financial institutions, complicating their ability to engage in climate action without fear of backlash.
The Role of Investor Engagement
Despite the challenges posed by the political landscape, many U.S. signatories of Climate Action 100+ have reaffirmed their commitment to the initiative. Asset owners, including pension funds, universities, and religious organizations, continue to support the alliance, with a letter signed by asset owners representing $5.5 trillion globally in July 2023. This commitment underscores the importance of investor engagement in driving corporate accountability on climate issues.
A study conducted by Morningstar Sustainalytics revealed a significant divide in how U.S. and European fund managers approach shareholder proposals related to climate action. European fund managers supported 85% of these proposals, while their U.S. counterparts backed only half. This discrepancy reflects the differing regulatory environments and cultural attitudes toward sustainability in the two regions.
The Future of Climate Action 100+
As Climate Action 100+ evolves, it faces the dual challenge of maintaining its momentum amid political scrutiny while continuing to engage effectively with companies on climate issues. The initiative has expanded its focus to include lobbying transparency, urging companies to disclose their lobbying activities related to climate policy. This shift recognizes that corporate engagement alone is insufficient; strong policy interventions are also necessary to facilitate the transition to a sustainable economy.
Ben Pincombe, head of climate change stewardship at Principles for Responsible Investment, emphasized that while Climate Action 100+ is fundamentally a corporate engagement initiative, the broader context of policy intervention is critical. The initiative aims to create a framework where investors can engage with companies in a manner that aligns with their values and financial goals.
Conclusion
The recent departures from Climate Action 100+ by major American asset managers highlight the complex interplay between finance, politics, and climate action in the United States. As the political landscape continues to evolve, the commitment of global investors to sustainability remains strong, particularly in Europe. The challenge moving forward will be to navigate these political waters while maintaining a steadfast commitment to addressing the urgent threat of climate change. The future of sustainable investing may depend on finding common ground between financial interests and the pressing need for environmental stewardship.