LEILA FADEL, HOST:
President Biden has vetoed his first bill.
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PRESIDENT JOE BIDEN: Legislation passed by the Congress would put at risk the retirement savings of individuals across the country.
FADEL: The bill would stop retirement fund managers from considering environmental, social and governance factors, or ESG. To help us understand why ESG-conscious investments are now political, we'll turn to Jeffrey Sonnenfeld. He's a professor of management at Yale University. Good morning.
JEFFREY SONNENFELD: Good morning. Thanks for the invitation.
FADEL: Thanks for being here. So first, Jeffrey, if you could just briefly define what it means to consider environmental, social and governance factors around finances.
SONNENFELD: Well, thanks, Leila. I've been studying corporate social impact work for about, oh, almost 50 years, and it's grouped together different types of corporate social performance. The environmental has to do with sustainability, of course, and what we used to call conservation. Social has to do with dealings with race and gender and other factors such as that in the community. And then governance has to do with who's in control and the transparency and the independence and the integrity of the leadership, the oversight of the company.
FADEL: So why has this become a political issue? I mean, this is a rule at the Department of Labor, and now something - it's something lawmakers, mostly Republican, want to change.
SONNENFELD: It's bewildering. It catches our attention today just because this is Biden's first veto, and his three predecessors each vetoed about perhaps 12 bills during their terms. And Ronald Reagan was the high watermark, almost 80 that he vetoed. But it was unusual 'cause this is Biden's first. But the idea of - it's also called stakeholder capitalism, considering others in addition to shareholders - that's not new. In fact, 50 years ago, the Business Roundtable was created of business leaders just to focus on the fact that doing good is not antithetical to doing well. What's new is the backlash against it. And there's a lot of GOP political grandstanding trying to use this term of woke, or being, you know, awakened to social impact. And that's how this has become kind of a rallying cry. Even in tortured use into the Silicon Valley Bank collapse, where it has zero relationship, they try to invoke it. And right now it's been trying to invoke it in how pension money is invested.
FADEL: So how does ESG affect the financial performance of companies or investments?
SONNENFELD: Well, doing good, as I said, is - often corresponds with doing well. There's a great deal of research that shows there's no trade-off. And in fact, many times the environmentally responsible or the ESG, the - oriented firms have performed better. Some of the hard part is there's been a confusion of terms and definitions, so I'm so glad you asked for it. But there are about 836 registered investment companies claiming ESG missions. It has become a bit of a fad. And some of it's legitimate, and some of it's a little bit confusing. But it's - we're approaching $53 trillion of - you know, almost a third of all global assets are coming under this term. And it has a lot of GOP legislators concerned because of what they argue is political overtones and issues they don't like on race, gender, environment and the like. But, you know, we have shown that of the 1,500 companies pulling out of Russia - that those who pulling out did actually much better. And you see that in a lot of dimensions.
FADEL: Professor Jeffrey Sonnenfeld at Yale University, thank you so much.
SONNENFELD: Thank you.
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