ESG developments this week
Economy and Society is Ballotpedia’s weekly review of the developments in corporate activism; corporate political engagement; and the environmental, social, and corporate governance (ESG) trends and events that characterize the growing intersection between business and politics.
In the states
State Financial Officers Foundation launches two anti-ESG organizations
The State Financial Officers Foundation (SFOF)—a nonprofit organization that opposes ESG in state finances, especially among state treasurers, comptrollers, and auditors—last week announced the formation of two new affiliated organizations: SFOF Action and the Public Fiduciaries Network.
SFOF Action is a 501(c)(4), meaning it can engage in political lobbying and political campaign activities:
SFOF Action is the new 501(c)(4) announced on Tuesday. The group’s executive director, Noah Wall, told the Washington Examiner that the entity has two specific goals: providing a “full defense” of state treasurers and state auditors who are “coming under attack” from firms like BlackRock.
“There has been a dramatic uptick in their state-level lobbying, and we believe that’s a direct result of the work that our members and others have done to divest because of their approach to ESG,” he said during an interview.
Wall also said that the new political arm is focusing on preventing “the Left” from taking over state financial officer positions. He said that has already occurred at the local and state level with officials like prosecutors and secretaries of state, and that SFOF Action would work to combat any of those efforts.
The Public Fiduciaries Network will aim to educate public fiduciaries on ESG considerations in public pension funds and oppose political investing strategies, according to SFOF Executive Director Noah Wall:
The State Financial Officers Foundation announced on Tuesday a new effort, joined by Utah Treasurer Marlo Oaks (R), to push back on the use of pension funds to back leftist political causes.
The foundation launched the Public Fiduciary Network, chaired by Oaks, to raise awareness about the use of public pension funds to push politicized Environmental, Social, and Governance (ESG) initiatives. According to the group, there are about 5,000 state and local pension funds across the United States that control trillions of dollars in assets.
“Our goal is to provide education and resources for to them to understand the scope of the problem in the financial industry, the level of politicization of these funds, and to understand very clear ways that they can protect the fiduciary duty with respect to how they’re managing and overseeing these pension funds,” Noah Wall, the executive director of the State Financial Officers Foundation, said at a press conference in Florida.
Oklahoma adds Barclays as restricted business
Oklahoma Treasurer Todd Russ (R) announced on May 3 that Barclays boycotted fossil fuel companies under the state’s legal definition and was therefore restricted in its ability to do business with the state:
The Republican treasurer’s office justified the move by saying the British bank has “publicly committed to boycott fossil-fuel companies,” according to an emailed statement. Barclays’ 2024 climate change statement says the bank does not provide project financing, or other direct financing to energy clients, for upstream oil and gas expansion projects or related infrastructure.
According to the 2022 Republican-backed law, Oklahoma state agencies and political subdivisions can’t contract with a company unless it provides a written verification that it doesn’t boycott energy companies.
Russ’ list of firms that his office considers to engage in a boycott already included BlackRock Inc., Wells Fargo & Co., JPMorgan Chase & Co. and Bank of America Corp. The companies on the list have seen their public finance businesses dwindle in Oklahoma since the legislation went into effect.
Around the world
World Economic Forum holds meeting in Riyadh
The World Economic Forum (WEF) held a meeting last week in Riyadh, Saudi Arabia, where more than 1,000 attendees, including BlackRock CEO Larry Fink, discussed goals and policies related to ESG:
Inclusive growth, global collaboration and energy for development were the three core themes of the World Economic Forum’s Special Meeting. More than 1000 global leaders and experts came together to address some of the most pressing global issues, including highlights involving sustainability policy and green energy transition. …
“Inclusive growth is not just a lofty ideal, it is a categorical imperative,” said Faisal Alibrahim, Minister of Economy and Planning of Saudi Arabia, steering the importance of a global economy that works for all. “This means investing in people, in their skills, in their education, and in their well-being.”
“With the geopolitical and socio-technological churn underway today, companies are being asked to fill the void on social and other issues that policy has not dealt with”, said Peter Orszag, Chief Executive Officer of Lazard. He called for better policy-making to deal with the social challenges and economic twists of the energy transition. “It is going to be expensive and it is going to be hard,” he added.
On Wall Street and in the private sector
Bloomberg launches ESG compliance tool
Bloomberg Professional Services launched a new tool last week that it argues will help investors better comply with ESG/sustainability regulatory requirements:
According to Bloomberg, the new tool aims to help investors make investment decisions and meet regulatory compliance, amidst a diversification of sustainable investment strategies, and as regulators globally require investors to assess if the companies they invest in are meeting sustainability thresholds. …
Using the new tool, investors are able to select from a wide range of criteria and input precise thresholds from categories including sustainability targets, exclusion or “no harm” criteria, and good governance requirements, with the solution calculating a percentage figure that reveals how much of the portfolio, fund or index is aligned with the criteria, and providing a detailed list view of all holdings to detect outliers.
The tool also enables investors to check whether funds align with regulatory obligations, including the EU’s MiFID II suitability rules and Sustainable Finance Disclosure Regulation (SFDR), the UAE’s new sustainable finance framework, the UK FCA’s forthcoming sustainability disclosure requirements, and future SEC guidance on ESG disclosures and fund labelling. According to Bloomberg, the tool could be used to help assess whether a fund meets classification under the SFDR framework, and the percentage of sustainable investment reported by the fund itself.
In the spotlight
Bloomberg’s editorial board argues against corporate engagement by passive investment funds
Bloomberg’s editorial board argued in a May 2 opinion piece that passive investment funds should not actively vote the shares they hold or engage with corporate executives. The editors wrote that funds should allow end investors (who own shares of the fund) to vote their own proxies or default votes to mirror the preferences of company management or other shareholders:
[S]uspicions have emerged that the “Big Three” firms might be meddling too much in the companies they own. Criticism escalated after BlackRock Chief Executive Officer Larry Fink started advocating for more corporate involvement in fights over climate change, human rights and more. Republicans attacked the “woke” agenda, with some states blackballing BlackRock and others. Whatever one’s position on such issues, it became harder to see the companies’ “investment stewardship” teams as purely passive. …
For their part, the fund companies insist that they refrain from influencing or controlling the companies in which they own shares. But they continue to vote in corporate elections and to “engage” privately with boards and management, prompting questions about the role they’re playing on behalf of millions of Americans who are simply looking to hold a broad spectrum of stocks. Meanwhile, regulators disagree on what passive shareholders should be allowed to do.
Congress should strictly limit the role of any asset manager that’s claiming to act as a “passive” shareholder. Voting decisions should be devolved to end investors as much as possible; the rest should default to either supporting management or else be cast at the last minute as “mirror votes” that simply replicate the voting patterns of all other stockholders. Engagement with company leaders should be restricted to ensuring effective corporate governance and rigorously documented and disclosed.