Attorney General Bonta: Evaluation of ESG Factors is Necessary for Smart, Profitable Investment Strategy

OAKLAND – California Attorney General Rob Bonta and 16 other state attorneys general today expressed their strong support for the consideration of environmental, social, and governance (ESG) factors in investment decisions. In a letter to members of Congress, the attorneys general pushed back against recent commentary that argues that the use of ESG factors is inconsistent with prudent investing. The consideration of ESG factors, like many other material factors that affect the value of a potential investment, can provide significant financial benefits to investors. For example, investors would be wise to consider the financial consequences of investing in a company that fails to take climate-change risks into account. In the past five years alone, extreme weather events caused or exacerbated by climate change, such as hurricanes, wildfires, extreme heat, and extreme drought, have cost U.S. companies more than $760 billion — a figure that is only expected to rise.

“More than half of all American households have money invested in the stock market, whether it be through retirement accounts, college funds, or other life savings,” said Attorney General Bonta. “If investors ignore ESG factors, they will be at a disadvantage — and it’s hardworking Americans whose money will be on the line. The reality is: ESG factors are material factors that affect the current and future value of a company and consideration of ESG factors is a necessary part of any smart investment strategy.”

The average cost per year resulting from climate disasters increased from $19.5 billion in the 1980s to $89.2 billion in the 2010s; in 2021, the cost to the U.S. economy was a whopping $148 billion. This does not include indirect costs associated with climate change, such as short-term and long-term healthcare costs resulting from wildfire smoke inhalation. These economic impacts pose serious concerns for more than 50% of U.S. households with money invested in the stock market. Last year, Americans held $7.3 trillion in 401(k) plans and $13.2 trillion in IRAs, and the majority of Americans over the age of 65 receive some sort of income from pension funds. California alone has $336 billion invested in pensions for the state’s teachers, firefighters, and other public servants.

Today's letter builds on Attorney General Bonta's ongoing efforts to increase disclosure requirements and consideration of ESG factors and climate change-related financial risk in investment decisions. Earlier this year, Attorney General Bonta led a multistate coalition in a letter supporting the SEC’s proposal to require U.S. companies to provide accurate and detailed information about the financial risk they face from climate change. The Attorney General also led a multistate coalition in urging the SEC to finalize rules that would require investment companies and advisors to disclose information about how they use environmental, social, and governance criteria in investment products labeled as “ESG.” And last year, Attorney General Bonta led a multistate coalition in urging the U.S. Department of Labor to finalize rules clarifying that fiduciaries of private-sector employee retirement plans, such as 401(k) plans, can consider ESG factors when making investment decisions.

Attorney General Bonta joins the attorneys general of the District of Columbia, Connecticut, Delaware, Illinois, Maine, Maryland, Massachusetts, Minnesota, Nevada, New Jersey, New Mexico, New York, Oregon, Rhode Island, Washington, and Wisconsin in sending today's letter.

A copy of the letter is available here.