While the anti-ESG backlash heats up and investors retreat from their initial net zero commitments, some state plans like the $101 billion Oregon Public Employees Retirement Fund are still committing to making their portfolios carbon-free.
Shortly after Texas and 10 other states sued BlackRock and other managers for allegedly violating antitrust statutes through climate activism, Oregon released its first annual progress report on OPERF’s path to a net zero portfolio by 2050. The plan has so far established a beneficiary advisory group, evaluated public equity holdings for clean energy readiness, and worked with managers on corporate sustainability. Oregon’s new Treasurer Elizabeth Steiner has confirmed continuing this initiative.
Oregon isn’t alone in seeking to decarbonizing their investment portfolios. Several states still have net zero goals to meet by 2045 or 2050. Many plans, backed by statutes and state initiatives, are still investing in carbon-neutral projects. The $58 billion Maryland State Retirement and Pension System in December approved the formation of a climate advisory panel to help develop a sustainable investment portfolio. The $275 billion New York State Common Retirement Fund, which aims to be net zero by 2040, has restricted investments in eight energy companies (including Exxon Mobil), reached climate-related agreements with five portfolio companies, and added $2 billion to the MSCI World ex-USA Climate Change Index strategy.
OPERF publicly committing to decarbonizing its portfolio comes when other investors are pulling back from their net zero commitments. Facing pressure from anti-ESG advocates, BlackRock withdrew from the Net Zero Asset Managers initiative, a coalition of roughly 325 asset managers overseeing $50 trillion in assets committed to net zero goals. Its exit led NZAM to suspend operations indefinitely.
And earlier this month, JPMorgan Chase became the latest bank to leave the U.N.-convened Net-Zero Banking Alliance, leaving only three small banks at the climate-focused coalition. New York City Comptroller Brad Lander called BlackRock’s and JPMorgan’s decisions “shortsighted,” “weak-kneed,” and “a stark betrayal of the responsibility that they have in addressing the climate crisis.”
“BlackRock and JPMorgan are fiddling while Los Angeles burns,” Lander added. “By absconding from their responsibilities to combat climate change, these financial institutions are yielding to the authoritarian tone set by the ... Trump Administration.”
One public asset owner argued that the ESG debate has become a distraction, since the industry was never deeply committed to environmental investing beyond rebranding and charging more for ESG products. Still, the core constituency of ESG investors isn’t going anywhere. States like Oregon or New York “doing ESG for mandated reasons will continue to do so,” the source said. “I don’t see any reason to believe ESG is going away.”
The allocator added that attacking BlackRock is misguided, since it’s the cheapest passive investment option out there, and going after the asset manager would only force fiduciaries to seek more expensive products. Complaints about BlackRock’s proxy voting are also misplaced, as investors can now set their own voting preferences. Ultimately, the speaker sees the debate as a waste of time and resources that benefits neither side of the argument.
While ESG and sustainable investment managers are under pressure from the new administration, pensions in blue states can still pursue their goals. Red states like Texas, meanwhile, can police state pensions (though have little sway over private college endowments).
But despite the political theater, some say it’s full of sound and fury, signifying nothing, since even the most vocally anti-ESG advocates understand the opportunities within clean energy investing. Jason Scott of Spring Lane Capital sees a long-term upward trajectory in sustainable investment, driven by falling costs for clean technologies and rising demand.
“The cost of solar panels, batteries, energy storage, wind, and EVs are going down,” Scott told Institutional Investor. “And the demand for such things as clean energy, clean food, and sustainable agriculture is rising. What’s changing is what people are calling it and what they’re saying about it publicly.”
Scott also doesn’t expect to see an interruption to Inflation Reduction Act-related funds, since they are heavily benefiting red states, keeping even the loudest anti-ESG politicians engaged. He also points to gaps in mid-stage financing as an opportunity, particularly as reshoring efforts gain momentum.
“There’s definitely some downsides to the capriciousness of an administration that doesn’t believe in climate change, but these trends are happening,” Scott said. “Investing in solar is not going to stop. But the noise is going to be a distraction for a little while.”
