Welcome to the Climate Nexus finance newsletter – a regular update that looks at the big stories and players at the intersection of climate change, finance, regulation, and energy, with tips for the week ahead.
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Reframing ESG
After 2023’s right-wing outrage at companies over ESG investing policies, some business leaders are rethinking their approaches. Despite some discouraging headlines, the actual strategic changes amount to little more than neutralizing their terminology (e.g. reframing ESG as "responsible business"), seeking to avoid offending anyone at all. ESG investing itself is realigning under increased investor scrutiny of greenwashing and regulations, while hedge fund managers continue to increasingly integrate environmental and social metrics into their investment decisions. As money flows into and out of these funds, ESG is sure to remain an area of conflict in American politics and a new financial risk for companies to navigate as key trends emerge in 2024.
DEI in conservatives’ crosshairs
Companies and investors might see a temporary reprieve from the anti-ESG inflammatory rhetoric from at least one vocal opponent after notorious anti-woke presidential candidate Vivek Ramaswamy ended his campaign following an abysmal Iowa caucus performance. Notwithstanding Ramaswamy’s underwhelming performance, right-wing political attacks on companies, responsible investing, and the use of ESG metrics are poised to continue even as costly state-based boycotts ensnare their fossil fuel allies.
Another target is percolating to the top of conservative agendas this year: diversity, equity, and inclusion policies. Conservative activists decrying corporate, academic, and government DEI initiatives were emboldened after claiming victory for successfully chastising Ivy League presidents, which eventually led to the ousting of Harvard’s leader. The anti-DEI pushback is the beginning of a long fight according to right-wing activists and groups, even though people of color and women hold less than 14% of Fortune 500 and S&P 500 companies' C-suite roles and diverse companies tend to outperform their less diverse peers on profitability.
Escalating insurance woes in 2024
The insurance crisis spills into 2024 as Americans ponder how to afford skyrocketing home and auto insurance premiums. U.S. property-casualty insurers are trying to offset $32.2 billion in net underwriting losses for the first nine months of last year, leading to premium jumps like never before. In North Carolina, insurers asked the state to approve an average increase of 42.2% for homeowners insurance, with some beachfront properties slated to pay 99.4% more for coverage. Nationally, auto insurance jumped 20% over 2023.
Not all hope is lost. In Miami, about 100,000 residents will see a 35% discount in their national flood insurance premiums, potentially saving customers $12 million a year. In addition, a new federal bill could establish a public reinsurance program, which would require insurers to provide coverage to disaster-vulnerable properties, for example in California.
BlackRock’s big acquisition
In a big bet on infrastructure, BlackRock made a seismic move by acquiring Global Infrastructure Partners (GIP) for $12.5 billion, its largest takeover in 15 years. This acquisition notably includes a major stake in the controversial Rio Grande LNG terminal in Texas, a project that has faced substantial community and legal opposition due to its significant environmental impact. GIP holds at least 46% ownership in the Rio Grande LNG project, which, if completed, is expected to generate annual emissions equivalent to 44 coal power plants (about 163 million tons of carbon dioxide equivalent). The project has also been criticized for its potential detrimental effects on local industries and sacred indigenous lands, with several local entities actively opposing it.
This acquisition by BlackRock reinforces a significant change in their approach towards ESG. The firm, attacked for being too ‘woke,’ has substantially reduced its support for ESG resolutions — with CEO Larry Fink refusing to even use the term. In 2023, their voting in favor of these resolutions dropped to just 8%, a steep fall from 40% in 2021.