Confronting the Truth

In a time where it is of utmost importance to address the challenges imposed by climate change, states in the US are issuing regulations to backstop the country’s efforts to progress with their net-zero agenda. To me, as a European citizen, considering the significant efforts that my region has made on this matter, it seems, to say the least, surprising, that such a great power like the United States would be in the midst of a civil fight, which, if failed to correctly be addressed could end in disastrous consequences.

States like Florida and Texas have issued ESG boycotting regulations preventing investment in companies that boost sustainability practices; therefore, asset owners – and thus funds – have been compelled to divest in green efforts. The fact is that – surprising or not – regardless of the lack of regulation, investors in these regions were actually moving towards more sustainable models. For instance, while doing research on one of the major pension funds in Texas, with circa 180 billion assets under management, I came across a heartbreaking article that stated that this pension fund had massively divested into 10 firms following 2021 Texas law, and after the Office of the Comptroller singled out last August these firms and additional funds with climate change focused investment strategies determined to be “boycotting” the oil and gas industry and prohibiting state funds from contracting with or investing in them. This is after I learned that it was one of the ESG leaders in the region for a while now, stronger since 2020, and had been progressing in these matters since. Now, their Head of ESG had left – whether resigned or not – and the article stated that the pension fund’s plan to replace them was still unclear.

Since I came to SIPA, I have been extremely focused on ESG and impact investing, basically putting all of my eggs in the same basket. I have consulted for an impact investment advisory firm, for a VC focused on sustainable investing, and have done quite a lot of research in the ESG space. Among others, I am doing my Capstone on the pension funds landscape and their progress toward a greener system. From this, I have been able to see how most of the funds, especially leaders in the industry, from almost every region in the world are willingly pushing in the same direction, the majority of times in a voluntary manner, with little pressure of regulation, as it has only been in the last couple of years that more stringent regulation has been issued.

I truly feel that ESG and impact investing are the future of investing – if we want to have a future at all. In other words, investing needs to take into consideration the interdependencies and connections between investment per se and addressing the world’s most pressing issues, recognizing the significant potential of the latter, both in terms of social and financial returns: i.e. sustainable returns. Therefore, it is quite discouraging to become aware of how the challenge is not to improve regulation, standardize standards and reporting frameworks, or even to bring cynics of whether this would work onboard – which can be at times challenging - but that there is actually a group of people who want to fight against it for their own interest and for such a short-term return. Despite this, I do not regret having focused the two past years on this topic, quite the opposite. I strongly believe it is the only way forward and I feel now more empowered, and well-informed to be able to significantly contribute to winning this over. In fact, it has given me perspective and has triggered the passion I feel for policy. Maybe we are not there yet, and maybe not everybody understands how important this is for the future of our planet; maybe the way to contribute today is with advocacy efforts and changing things from the inside.