ESG Developments This Week
In Washington, D.C.
Republicans map out their agenda on ESG and antitrust
The Republican Party’s majority in the House of Representatives will take office in January, and some members and committees have already started laying out their ESG agendas for the new Congress. Among those are members of the Judiciary Committee, who have indicated that they would like to understand better how ESG and ESG-related organizations fit into the existing body of antitrust legislation and regulation:
“Six Republicans on the House Judiciary Committee have launched an investigation looking into whether major climate groups are violating federal antitrust laws in their effort to push the “environmental, social, and governance” (ESG) agenda.
Their concerns were raised in a letter dated Dec. 6 to two executives on the steering committee for investor group Climate Action 100+ in which the Republicans argued that ESG, at its core, was “merely partisan politics masquerading as responsible corporate governance.”
The ESG agenda has now included “stifling investment in oil and gas,” gun control, abortion access, and “fake news dissemination,” according to the letter.
The lawmakers likened the climate action investor group to a “cartel,” whose job is to “ensure the world’s largest corporate greenhouse gas emitters take necessary action on climate change,” quoting from the group’s website….
The letter was signed by Reps. Jim Jordan (R-Ohio), Dan Bishop (R-N.C.), Matt Gaetz (R-Fla.), Tom McClintock (R-Calif.), Scott Fitzgerald (R-Wis.), and Cliff Bentz (R-Ore.). Jordan, currently the ranking Republican member of the House Judiciary Committee, will be the committee’s chairperson in the Republican-led House in January.
“Corporate America’s collusion in pursuit of ESG goals may violate federal or state antitrust laws,” the lawmakers wrote, pointing out how antitrust law is usually “skeptical of cooperation among competitors.”
“When enterprises like Climate Action 100+ or Ceres invite or facilitate collusion to achieve progressive policy goals, that activity can aid anticompetitive and unlawful agreements and behavior.”
Ceres is a nonprofit organization and a co-founder of Climate Action 100+….
The letter was addressed to Mindy Lubber, CEO of Ceres, and Simiso Nzima, managing investment director of global equity at the California Public Employees’ Retirement System.
The Republicans want the two executives to turn over all documents from Dec. 1, 2016, to the present showing how the organization has played its role in “facilitating and coordinating companies’ efforts to achieve ESG-related goals.””
House Financial Services Committee members plan legislation on ESG and ERISA-governed pension plans
Over at the House Financial Services Committee, congressmen Andy Barr (R-Ky.) and Mike Braun (R-Ind.) have already launched an effort to address one of the issues at the heart of the intersection of the federal government with ESG-world, namely the question of ESG usage in ERISA (the Employee Retirement Income Security Act of 1974)-governed retirement plans.
In 2020, the Trump Administration’s Department of Labor issued a rule limiting the use of ESG factors in ERISA-governed plans and only allowed such considerations if investment managers needed to decide between otherwise equally financially sound investments. Early in the Biden presidency, that rule was overturned and replaced by an ESG-friendly rule. Barr and Braun have introduced legislation to oppose the Biden Labor Department’s rule:
“Driving the news: Sen. Mike Braun (R-Ind.) and Rep. Andy Barr (R-Ky.) are attempting to dismantle a recent Department of Labor rule allowing retirement plan fiduciaries to consider climate change and other environmental, social and governance (ESG) factors in their investment actions.
That DOL rule, issued on Nov. 22, followed an executive order signed by President Biden in May 2021 that directed federal agencies to consider ESG policies.
Braun and Barr are introducing a joint Congressional Review Act measure that would nullify the DOL rule and prevent future, similar rules from taking effect.
Be smart: The CRA legislation won’t pass in a divided Congress, or with President Biden in office, but is designed to raise the issue’s profile and force lawmakers to go on the record about where they stand.
“By finalizing rule-making allowing plan fiduciaries to consider ESG factors, Biden’s Department of Labor is steering capital away from the American energy sector, discriminating against oil and gas producers, driving up prices at the pump, and preventing investors from reaping returns from high-performing energy stocks,” Barr told Axios.
What they’re saying: The move is already gaining support from conservative groups eager to sink their teeth into the ESG fight.
“Taking on Biden for attempting to make it easier for companies like BlackRock to put politics ahead of profits is only the beginning of what will be an ongoing effort to bring to light and take action against ESG, the biggest racket happening in America today,” Will Hild, executive director of the conservative Consumers’ Research Group, told Axios.
Between the lines: In a wide-ranging interview on Thursday, Barr — who will be a senior member of the House Financial Services committee in the new House GOP majority next year — dove into some of Republicans’ anti-ESG plans.
“We’re going to have a very fulsome agenda combatting ESG, highlighting ESG for the fraud that it is,” Barr said, calling the climate-focused approach “a cancer within our capital markets.”
Barr said there will be two phases of oversight — one focused on regulators, including bank regulators, the Federal Reserve and the Securities and Exchange Commission; and the second targeting the private sector, including banks and asset managers — paired with a legislative agenda.
Barr explained his philosophy is that these ESG policies are not a market-driven phenomenon, which is the opposite of how firms like BlackRock and Vanguard describe them.”
Senators send Biden letter over ESG regulations
In the Senate, 12 Republican members sent a letter to President Biden asking him to consider what they deem the negative effects of his administration’s approach to ESG:
“President Biden’s push to impose environmental, social and governance standards (ESG) on companies is imposing significant costs on companies and hurting families, Sen. John Thune warned Biden in a letter on Wednesday.
“While businesses may elect to pursue their own ESG agendas as part of a free-market society, the heavy-handed imposition from the federal government will have (and in some cases, already has had) negative real-world impacts on our economy and American families, especially by deepening the ongoing energy and inflation crises,” wrote Thune, R-S.D., in a letter reviewed exclusively by Fox News Digital.
“These efforts, though sold by administration officials as steps necessary to mitigate climate risks, are solely an attempt to strong-arm financial institutions and other firms into choking off capital to industries that are foundational to our nation’s economy, yet are continually villainized by the far left,” he wrote.
Thune said one example of overreach is the Securities and Exchange Commission’s proposed climate-disclosure rule that would not only require registrants to disclose information about their own greenhouse gas emissions, but, in many cases, report indirect emissions “from upstream and downstream activities (i.e., their suppliers and customers)” in their value chain – known as scope 3 emissions….
Thune said the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation and the Federal Reserve have all published draft principles for climate-related financial risk management for large banks. The Department of Labor just finalized a rule that would require pension fiduciaries to consider climate change and ESG factors in making investment decisions, regardless of their financial relevance.
“And last, but certainly not least, the National Credit Union Administration published a since-rescinded strategic plan that seemed to recommend credit unions need to alter their field of membership and loan offerings in farming communities,” Thune said.
Thune warned Biden that while his ESG push is generally aimed at big banks on Wall Street, the president needs to recognize the “trickledown effect” those policies have on local community banks and credit unions which are “feeling the pressure from Washington” to comply.
Thune says that those community financial entities are worried about how the Biden administration’s environmental agenda “could impede their ability to lend to their clients and foster the growth necessary to steer our economy away from a recession.””
On Wall Street and in the private sector
American assets in sustainable investments down 51% from 2020
The U.S. SIF (formerly the Social Investment Forum), a trade group that monitors sustainable investment in the United States, released a report last week showing that American sustainable investments contracted this year – although much of the decline can be attributed to re-classification matters:
“Assets in U.S. sustainable investments plummeted to $8.4 trillion at the beginning of 2022, down 51% from $17.1 trillion at the start of 2020, a trade group for the sustainable investment industry reported.
The number represents 12.6% of the $66.6 trillion in U.S. assets under management, says US SIF.
The figures are part of a widely watched survey measuring sustainable investing that the group releases biannually. US SIF said the sharp fall in AUM was because of two factors: a change in methodology and new proposals from the Securities and Exchange Commission that are designed to crack down on greenwashing, or misleading claims about environmental credentials….
US SIF said that of the investments in its report, $7.6 trillion were held by institutions that practice so-called ESG incorporation, or applying various environmental, social and governance, or ESG, criteria in their investment analysis. Another $3 trillion in assets were held by investors who filed shareholder resolutions on ESG issues. The $8.4 trillion figure accounts for eliminating double counting assets involved in both ESG incorporation and filing ESG shareholder resolutions.
The group said money managers and institutional asset owners reported that climate change and carbon emissions was the top issue to address. Exchange-traded funds, or ETFs, represented the biggest share of ESG assets.”
In Europe, oil and gas are becoming ESG friendly
With climate change driving much of the ESG discussion among investors, it would seem unlikely that ESG advocates would consider owning oil and gas companies. Nevertheless, as The Financial Times reports, the realities of the Russia-Ukraine war have changed some ESG calculations:
“Russia’s invasion of Ukraine has made the immense task of reducing the global economy’s addiction to fossil fuels even more daunting. Existing pledges to cut carbon emissions to net zero by 2050 were already challenging enough. Now, governments and companies are scrambling to balance their green ambitions with the new imperatives of energy security.
Just as the Ukraine war has sparked intense debate over whether defence companies should be considered suitable for sustainable investment strategies, the conflict has also prompted discussion about the role of oil and gas producers in investors’ portfolios….
European funds that employ environmental, social and governance (ESG) metrics as a group are heavily “underweight” in oil and gas stocks but some tentative signs of a shift in positioning have appeared.
Six per cent of European ESG funds now own Shell, compared to zero per cent at the end of last year, according to Bank of America. Holdings have also risen modestly this year in other energy companies, including Galp Energy, Repsol, Aker BP and Neste, across the 1,200 European ESG active and passive funds monitored by BofA.
“We believe [some] ESG funds are revisiting the cost of exclusion [of energy companies] given their underperformance in the first half of 2022 or waiting for regulations to be finalised amid greenwashing fears,” says Menka Bajaj, an ESG strategist at BofA.”
A new law designating gas and nuclear energy as sustainable was approved this month by the European parliament, following months of debate.