LEILA FADEL, HOST:
Republicans are going to control the House of Representatives in 2023. They plan to use their majority to investigate environmental, social and governance investing. It's known as ESG, and it's at the center of a debate over how businesses that control trillions of dollars should respond to climate change. Michael Copley is with NPR's climate desk, and he's following the issue.
Hi, Michael.
MICHAEL COPLEY, BYLINE: Hey, Leila.
FADEL: OK. So I think people have started to hear this acronym, ESG, more and more. But what exactly are we talking about here?
COPLEY: Yeah. I think it gets misunderstood or mischaracterized by supporters and opponents. And what we're talking about is the practice of evaluating risks and opportunities related to environmental, social and governance issues that companies face. The big one right now is climate change. And so the idea is if you can identify the risks and opportunities related to climate change that different companies face, you can find better long-term investments.
FADEL: OK. So what does that look like in practice?
COPLEY: Example I hear a lot is if you're investing in beachfront property in South Florida, what are you doing to deal with the threat of rising sea levels? If you're investing in a fossil fuel company, what is it doing to deal with the risk of stricter environmental regulations or competition from stuff like electric vehicles and renewable energy? Now, supporters will say ESG isn't perfect, that investors need better data and that some companies have overpromised and underdelivered on their commitments but that at its core, it's about putting a price tag on risk to help investors decide whether they think companies are making good decisions.
FADEL: OK. So Republicans don't think investors should be making those sort of calculations.
COPLEY: I think what we're seeing is that Republicans will often characterize ESG as an attempt to impose liberal or so-called woke policies with the main goal of kind of killing off the fossil fuel industry. Lawmakers in Texas held a hearing on ESG investing in December. Texas has been leading the charge against ESG, and so the hearing did feel like a preview of what we might see from Republicans in Congress.
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BOB HALL: I think this issue of ESG is something that has floated underneath the radar way too long. And I think it's probably one of the existential threats to our economy here in Texas and to the U.S.
COPLEY: That's Bob Hall, a Republican state senator in Texas. And, you know, we've heard similar comments from Republicans in Congress. ESG has been described as this cancer within the U.S. economy.
FADEL: I mean, that's really strong words. Are the political attacks having an impact on where money is being invested or the questions investors are asking?
COPLEY: You know, I think a lot of big investors genuinely see climate change as a real financial threat. And I don't think these attacks have changed that. Now, what it could do is have a chilling effect on the kinds of positions that companies are willing to take publicly. I spoke to Witold Henisz, the faculty director of the ESG initiative at the Wharton Business School.
WITOLD HENISZ: I think there is a risk of less vocal leadership, and that can have real-world and tangible impacts, particularly on something that is, you know - existential threat like climate.
COPLEY: Henisz says leadership is important here because dealing with climate change is going to require bold action, and the threat of political blowback could make companies less willing to do big, ambitious stuff to deal with this complicated problem.
FADEL: So how are supporters of ESG responding?
COPLEY: Some want to see companies' investors do a better job of explaining just what it is. They think if ESG is explained in concrete terms, voters will see it as a reasonable way to approach investing. They're also trying to show that these attacks are part of a long-running effort to keep the U.S. from taking action to deal with climate change.
FADEL: NPR climate correspondent Michael Copley, thanks.
COPLEY: Thanks, Leila.
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