- Key insight: The "ESG" label may have become a political flashpoint, but Climate Week panelists said investors should focus on underlying risks and what matters to clients.
- What's at stake: Fiduciaries must consider which ESG-related risks matter to the people they serve, and how those risks align with investing decisions.
- Expert quote: "The question isn't, 'What's your impact objective?' The question is, 'What are you investing for?'" — Julianne Zimmerman, board advisor and stewardship strategist
Julianne Zimmerman has spent more than two decades advising companies on environmental, social and governance matters — long enough to notice a pattern: What "everybody" thinks about ESG changes about every two years.
Zimmerman is a board advisor and stewardship strategist who got her start with clean energy in the early 2000s, when "that wasn't a thing yet," she said. "We didn't have that language. We didn't have the social trend and many people said I was a hippie and a communist and I didn't understand how finance [and] industries worked."
Zimmerman spoke at the Climate Week panel "Fiduciary Duty has a Conscience: Building Climate and Social Justice into Fund Governance" on Sept. 24 alongside Osahon Okundaye, founder of Okundaye Legal, which specializes in structured finance. The discussion was moderated by Emad Ansari, founder of Ansari Legal.
For firm leaders and fiduciaries, the shifting consensus Zimmerman describes presents a real challenge. During the panel discussion, Zimmerman and Okundaye argued that, despite political pushback against ESG, is important for fiduciaries to identify which risks matter to the people they serve, and then build those considerations into fund governance.
For advisors, that can mean asking clients what they are actually investing for.
Among other topics, Zimmerman and Okundaye discussed various myths around ESG.
The myth: You can't make money in clean tech
Early in her career, Zimmerman said she frequently encountered what she described as "'everybody knows that'" assertions, which she dismissed as nonsense.
"It was just a kind of belief," she said. "'Everybody knows that you can't make money in clean tech.'"
Founders, she added, were also expected to fit a certain mold. For years, prominent VC partners told entrepreneurs, "It's too much work to build a company. Don't distract yourself with anything other than making money."
This line of thinking and advice "is terrible," she said. "Most founders don't create a company just to make money. [They do it] because there's something they care about."
Yet Zimmerman said that emphasis on making money above all else is "even antithetical to what venture partners would say," because investors also want founders to be passionate about their work.
Interest in the social impact of investing has a long history. A precursor to the ESG movement was socially responsible investing (SRI) in the 1970s and '80s,
The myth: Fiduciary duty means returns only
For firms looking to fulfill their fiduciary duty, the current social and political climate poses challenges. Okundaye said his views on ESG evolved during his earlier career in structured finance on the legal side.
He said his perspective shifted as he began considering finance through a broader social and cultural lens, particularly during political and social crises around the world. "Like, you think that's what the markets are doing? Isn't there something more fundamental?" he said.
Okundaye added that since Trump took office, a culture war has spread beyond its traditional territory and into markets. Some now argue that considering issues like justice, diversity and climate is "antithetical to what a responsible investment [or business] manager is supposed to do," he said. "I feel it in my bones that this is wrong. Having studied it for a while, it's super wrong."
Regardless of those debates, Zimmerman said an increasing number of firms and investors have begun to recognize the severity of climate risks over the past decade.
A universal owner is an investor, like a large pension fund, so broadly diversified that it effectively owns a slice of the entire market. These institutional owners, along with broader society, bear the costs of those risks, she said.
"You're bearing the costs that are created by companies maximizing their financial performance on a quarterly basis by ignoring things like toxicity or racial injustice," she said.
Some social and environmental harms cannot be offset by financial gain, she said.
"You cannot name a number big enough. There's not a number big enough in existence to compensate you for the death of two family members," Zimmerman said. "There's not a number big enough that you can name that will compensate you for the pollution of your community… [or] the shredding of the social fabric. When you think about profit maximization, it's actually opposed to the investor's own interest."
The myth: ESG is over
The pandemic-era surge in ESG investing has passed, and the label itself has become a political flashpoint. Several states, including Texas and Florida, have passed laws around ESG, with proponents of those laws arguing that social and environmental goals harm the financial bottom line.
But the panelists argued that fixating on labels misses the point.
"The question isn't, 'What's your impact objective?' The question is, 'What are you investing for?' 'What outcomes do you seek?'" Zimmerman said.
Conversations with limited partners, who think within a fund's fixed life, differ from those with public-market clients, whose horizons are open-ended, according to Zimmerman. The core client question becomes one about what the future looks like.
"How can we align the concerns … to make sure you are actually on track to that future?" she said.
Consensus on ESG will likely keep swinging, but as Zimmerman said, the question for investors doesn't change: "You're purchasing a future, so what is the future that you want to buy?"
