Republicans are fighting a social movement in the financial sector meant to address systemic issues like climate change.
Government initiatives in Florida, West Virginia and Texas are targeting big Wall Street companies that they say engage in environmental, social and governance (ESG) investing, which they see as harmful to the economies of their states.
Letters dated August 10 were sent this month by the Texas Senate Committee on State Affairs to Wall Street firms Blackrock, Vanguard, Institutional Shareholder Services and State Street, requesting details of the companies’ ESG practices and about how they might affect the state’s public. pensions, including pension funds for teachers and state employees.
The letter to Blackrock requested “all documents and communications relating to the actual or potential effects of ESG integration practices on the financial outlook, risk/return profile, performance or profitability of any of your funds, portfolio companies or institutional ESG integration accounts practices.”
Texas State Affairs Committee Chairman Bryan Hughes (right) said in an interview with The Hill that many public pension funds, endowments and retirement accounts could all be affected by the practices ESG investing.
“The Texas Teachers’ Retirement System and the Texas Employees’ Retirement System, all of our college endowments and various other pension funds, and the millions of investors who trust these companies with their 401(k ), and then of course all the businesses in Texas that are being bullied and manipulated by those businesses — for all of these reasons, it’s important that the Texas Legislature do something about it,” he said.
“The people of Texas are finding out that a handful of Wall Street companies are using other people’s money to advance a narrow agenda and we’re pushing back,” he said.
Although ESG does not have a precise and quick definition, it generally aligns with the United Nations Sustainable Development Goals (SDGs), a broad international agenda of environmental and social equality goals agreed by the all 193 UN member states, including the United States.
“As of December 2020, more than two-thirds of global GDP was generated in places with actual or projected goals of ‘net zero by 2050,’ covering more than half of the world’s population and emissions,” an article on the latest SDG status report from the UN statistics agency, referring to the goal of achieving net zero carbon emissions, which are produced in abundance by the fossil fuel industry.
The United States Environmental Protection Agency states that “the primary human activity that emits CO2 [carbon dioxide] is the burning of fossil fuels (coal, natural gas and oil) for energy and transportation.
Fossil fuels are a major industry in Texas, where oil and gas make up more than a third of the state’s economy, according to Texas Railroad Commissioner Christi Craddick.
A representative for Blackrock said the company received the letter requesting documents and “[plans] to respond,” but did not provide further details.
“Blackrock is not boycotting fossil fuels – investing more than $100 billion in Texas energy companies on behalf of our customers proves it,” the company said in a statement, adding that “elected and appointed public officials have the duty to act in the best interests of the people they serve Politicizing public pension funds, restricting access to investments and impacting the financial returns of retirees, is not consistent with this duty.
Fossil fuels are also a big industry in West Virginia, where coal mining has long played a prominent role in the state’s economy. Similar moves by state officials there have also targeted ESG investing.
“There is a campaign being waged across ESG on multiple fronts – rating agencies, asset managers, big banks. They’re all pushing their agenda into our capital markets,” West Virginia State Treasurer Riley Moore (R) said in an interview with The Hill.
“It’s coercive capitalism and market distortion. They push policies they can’t achieve at the ballot box, and they use the power of their capital to achieve their goals in other ways.
“It’s all related to the fossil fuel industry,” he added.
In July, West Virginia blacklisted Goldman Sachs, JP Morgan Chase, Blackrock, Morgan Stanley and Wells Fargo by adding them to the state’s list of restricted financial institutions. They would not be removed from office until they “ceased all energy company boycott activity”, according to a proclamation signed by the treasurer.
“I am the tip of the spear in this area, but there is an army behind me. Texas, Kentucky, Oklahoma, Tennessee. Their own lists will probably come out this year or next. There are fifteen states with upcoming legislative sessions. We are proud to be in the lead, but we are not the only ones. We are also considering proxy voting within our pension boards,” Riley said.
On Tuesday, Florida Governor Ron DeSantis (right) banned ESG investing by state pension funds, voting for a resolution requiring investment decisions “be based only on pecuniary factors” . [which] do not include consideration of the promotion of social, political or ideological interests”.
“We reaffirm the authority of Republican governance over corporate dominance and prioritize the financial security of the people of Florida over fanciful notions of a utopian future,” the governor said in a statement Tuesday.
While ESG may be in the Republican crosshairs, it’s not clear that the corporate finance initiative is making a difference when it comes to tackling the causes of climate change.
The latest UN SDG report revealed that fossil fuel emissions rebounded to a record high in 2021 as the global economy rebounded from the coronavirus pandemic, erasing pandemic-related declines.
The report revealed that “With the phasing out of COVID-related restrictions, the demand for coal, oil and gas has increased. As a result, energy-related emissions for 2021 increased by 6%, reaching their highest level ever and completely erasing the pandemic-related reduction seen in 2020.”
Economists are unsure whether market dynamics and targeted investment practices are even able to cope with climate change. Former World Bank chief economist Nicholas Stern wrote in 2007 that “greenhouse gas emissions are externalities and represent the greatest market failure the world has ever seen”.
“Emissions are not ordinary, localized externalities. Global risk is at the heart of the matter,” he wrote in an academic paper. “These fundamental characteristics of the problem must shape the economic analysis that we bring; failure to do so will produce, and has produced, policy approaches that are deeply misleading and even dangerous.
Yet, the ESG trend in the private sector looks set to continue.
A March report from the Harvard Law School Forum on Corporate Governance said recent proxy voting seasons, which are times when activist investor shareholders can act to influence how companies are run , were “unpredictable” and “unprecedented, with record shareholder support”. proposals on environmental and social issues, growing opposition to director elections and strong support for governance proposals.
“Major institutional investors, especially those with large passive index funds, have embraced these shifts towards an ESG focus and a multi-stakeholder model, and this is reflected in their support for E&S. [environmental and social] shareholder proposals,” the school report said.