Economy and Society, October 18, 2022: South Carolina to divest BlackRock funds over ESG

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.

ESG Developments This Week

In Washington, D.C.

Editorial argues against proposed SEC climate disclosure rule 

On October 15, The Hill carried a guest editorial by Rupert Darwall, a climate author and researcher and senior fellow at the RealClear Foundation. In it, Darwall argues that the Securities and Exchange Commission’s proposed environmental disclosure rule will be bigger, more expensive, and more intrusive than proponents argue:

“Although Democrats hail passage of the Schumer-Manchin Inflation Reduction Act, far more consequential is the Securities and Exchange Commission’s proposed climate-risk disclosure rule, currently being finalized. It will operate at the nexus of the administrative state, Wall Street and politically motivated institutional investors. The Net Zero Asset Managers initiative, part of the Glasgow Financial Alliance for Net Zero (GFANZ), has 273 signatories with $61.3 trillion in assets under management.

SEC Chair Gary Gensler tries to downplay the significance of the SEC climate-risk disclosure rule. It is essentially a bit of housekeeping, he would have us believe, that would help corporate issuers more efficiently and effectively disclose their climate-related risks. But if this really were a mere tidying-up exercise, it wouldn’t need more than 500 pages of rule-making. 

In reality, the proposed rule is about climate policy. Its practical effect would be to facilitate the ability of institutional investors and climate activists to impose, monitor and enforce climate targets on publicly traded companies, without obtaining explicit authorization from Congress.

The reason the SEC’s proposed rule is so lengthy is that it incorporates the climate-reporting framework developed by the Taskforce on Climate-related Financial Disclosures (TCFD), established by Michael Bloomberg and former Bank of England governor Mark Carney. In February 2020, as the COVID-19 pandemic was exploding, Bloomberg posted a video on Facebook. “Climate change. It’s the biggest threat to America and the world. Full stop,” Bloomberg asserted. How do you replace dirty energy, he asked? “Stop rewarding companies from making it.” Welcoming the SEC proposal, Bloomberg said it will “accelerate the transition to clean energy and net-zero emissions.” 

Carney also has been clear about the purpose of disclosure in driving climate action, tweeting in May 2021: “What gets measured gets managed. That’s why reporting climate-related financial info is critical if we are to achieve #netzero.” 

Former SEC chair Mary Schapiro, current head of the Secretariat for the TCFD and vice-chair of GFANZ, explains TCFD’s motivation: “Disclosure is at the heart of reaching net zero, and the TCFD has provided a solid foundation to support the private sector’s net zero commitments through transparency and accountability.” 

Four years ago, Schapiro was appointed vice chair of Bloomberg and a special adviser to its founder and chairman. In its comment letter to the SEC, Boyden Gray & Associates notes that Bloomberg owns the proprietary tools that are the preferred means for the financial sector to obtain data and would be the preferred tool to comply with the SEC’s proposed rule — virtually guaranteeing Bloomberg’s revenues would increase by billions of dollars. 

The SEC climate proposal demonstrates a fundamental truth: ESG is the pursuit of politics by other means. This incurs costs.”

In the States

South Carolina latest state to divest BlackRock funds over ESG

On October 9, South Carolina became the latest in a string of states to confirm that it will be removing its investments from BlackRock Inc.’s asset management because of the firm’s dedication to ESG and what the states calls its sustainability investing. On October 11, The Washington Examiner broke the story:

“South Carolina will be divesting all of its BlackRock holdings by the end of the year, the latest instance of backlash from Republican state officials over the investment firm’s stance on fossil fuels.

State Treasurer Curtis Loftis’s office confirmed the plan to the Washington Examiner on Monday. His office said Loftis has already been removing BlackRock-managed funds over the past five years and is in the process of divesting the final $200 million of BlackRock holdings by year’s end.

“I will not allow our financial partners to undermine my fiduciary responsibility to maximize investment returns while accepting a prudent level of risk for the benefit of our citizens. It is imperative that we stand up to BlackRock and resist the pressure to simply fall into line with their leftist worldview,” Loftis said….

In addition to South Carolina and Louisiana, Utah State Treasurer Marlo Oaks said he has yanked about $100 million in state funds from BlackRock, and Arkansas State Treasurer Dennis Milligan divested some $125 million out of money market accounts managed by the firm, which is the largest money manager in the world.

In total, the actions by the state treasurers will equate to more than $1 billion in divested funds by year’s end….

On Friday, BlackRock launched a webpage committed to “setting the record straight” about how it handles investment decisions and disclosure and its pursuit of ESG. BlackRock claims its views on climate risk aren’t unique, and its new webpage noted that an overwhelming majority of companies in the S&P 500 publish sustainability reports.”

On Wall Street and in the private sector 

UBS downgrades BlackRock over ESG investing risks

Last week, an analyst at UBS downgraded BlackRock Inc. stock, “based on environmental pressure to earnings and risk from the firm’s ESG positioning”:

“BlackRock’s focus on the latest Wall Street craze—environmental, social, and governance (ESG) investing—has turned into a risky affair for the world’s largest asset manager, a UBS analyst recently stated.

Brennan Hawken, an analyst at the bank, downgraded the stock of BlackRock, Inc. (NYSE:BLK) from Buy to Neutral and slashed the stock price target from $700 to $585 over growing pushback to its ESG efforts.

“We are downgrading BLK to Neutral based on environmental pressure to earnings and risk from the firm’s ESG positioning,” he said in a note, adding that BlackRock could face increased regulatory inspection and the possibility of diminished fund management business.

“BLK’s early and energetic adoption of ESG principles in its fund management and shareholder proxy activities have positioned the firm as an ESG leader in our view. However, as performance deteriorates and political risk from ESG has increased, we believe the potential for lost fund mandates and regulatory scrutiny has recently increased.”…

Despite the pushback from a whole host of Republican-led states, a recent report from PricewaterhouseCoopers argued that the demand for ESG investments outstrips supply. The study learned that nearly 90 percent of institutional investors think asset managers should be more proactive in manufacturing new ESG products. Additionally, close to 80 percent of American investors plan to bolster their allocations to ESG financial products over the next two years.

BlackRock shares were down about 2.7 percent on Friday to trade below $551. Since the beginning of the year, the firm has lost 40 percent of its market value.”

From the ivory tower

Wharton announces two new ESG/DEI majors

Last week, the Wharton School of Business at the University of Pennsylvania announced that it has, in response to high demand, decided to offer two new ESG and DEI concentrations/majors to its students:

“Over its nearly 150 years as the global leader in business education, the Wharton School’s continued curricular evolution remains a cornerstone by which the School’s excellence is sustained. This month, as the University of Pennsylvania’s fall semester unfolded, Wharton again applied this philosophy in acknowledgement of the rising relevance of two burgeoning industry priorities.

Wharton’s Curriculum Innovation and Review Committee (CIRC) voted to approve the introduction of two official curricular designations to the School’s existing fold of robust and renowned educational opportunities: 1) Environmental, Social and Governance Factors for Business (ESGB), and 2) Diversity, Equity and Inclusion (DEI). Both ESGB and DEI are available to function as either a concentration at the undergraduate level or a major at the MBA level, and will see its first students graduate in May 2025. This decision came in response to the extensive undergrad and graduate-level interest in coursework devoted to these developing areas in business. As Deputy Dean Nancy Rothbard puts it: “We are proud and delighted that Wharton will be offering these new concentrations and majors, supported by the School’s world-class evidence-based curriculum. We look forward to seeing what our graduates accomplish.””

This announcement was foreshadowed last month by Bloomberg News, which noted that the trend toward stakeholder and ESG studies is on the upswing at American business schools:

“On the role of business in society, the trend lines are clear: Shareholder primacy is out and stakeholder inclusion is in. Chief Executive Officers Jamie Dimon of JPMorgan Chase & Co. and Larry Fink of BlackRock Inc. were among the scores of corporate luminaries who in 2019 publicly made “a fundamental commitment to all of our stakeholders,” including the environment, employees, suppliers, and communities, as members of the Business Roundtable. Similar pledges now pop up everywhere, from global gatherings of the business elite to advertisements for the Australian toilet paper company Who Gives a Crap Ltd., which uses recycled materials and spends half its profits on building toilets and improving sanitation in the developing world: “Wipe your bum, change the world.”

Business schools have been slow to reflect this zeitgeist, but they’re rapidly making up for lost time. This month, the University of Pennsylvania’s Wharton School is becoming the first large MBA program to offer a major in environmental, social, and corporate governance, standards used by socially conscious investors to vet companies. Harvard Business School offers courses that ask students to question the very purpose of capitalism. And Columbia Business School has set an ambitious goal to become the nation’s top generator of leadership in the burgeoning field of social entrepreneurship….

Today’s B-school students want a career with meaning, says Witold Henisz, vice dean and faculty director of Wharton’s ESG Initiative. “They want to stand for something,” he says. “They don’t want to be part of the next scandal, whether it’s opioids or teenage depression from social media. They want to feel they’re creating value and doing good.” To serve such students, the school offers more than 30 courses dealing with sustainability, ethics, and stakeholder theory, double the number five years ago.”

In the spotlight

Dimon addresses ESG, argues conventional energy is important

The New York Post recently highlighted JPMorgan CEO Jamie Dimon’s comments on ESG and his views about the economy and energy policy in general:

“Jamie Dimon told clients this week that “some investors don’t give a s–t” about “ESG,” the woke investing approach that US companies increasingly have embraced under political pressure, sources told The Post.

The hard-charging JPMorgan CEO emphasized the importance of conventional energy sources as the nation invests in green energy, telling attendees at a company “fireside chat” that “pumping more oil and gas and using energy security” is critical for the US to maintain its financial stability and independence, according to a source briefed on the comments.

Dimon also blasted companies for “ceding governance to do-gooder kids on a committee” whose members are selected for their bona fides in so-called ESG, or environmental, social and governance.”