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.
Biden vetoes Congressional Review Act resolution that aimed to block ESG retirement plan rule
President Joe Biden (D) issued the first veto of his presidency on March 20, blocking Congress’s attempt to rescind the Labor Department’s rule allowing for ESG investing by managers of ERISA-governed retirement plans:
President Joe Biden issued the first veto of his presidency Monday in an early sign of shifting White House relations with the new Congress since Republicans took control in January. He’s seeking to kill a Republican measure that bans the government from considering environmental impacts or potential lawsuits when making investment decisions for Americans’ retirement plans.
It’s just the latest manifestation of the new relationship, and Biden is gearing up for even bigger fights with Republicans on government spending and raising the nation’s debt limit in the next few months.
The measure vetoed by Biden ended a Trump-era ban on federal managers of retirement plans considering factors such as climate change, social impacts or pending lawsuits when making investment choices. Because suits and climate change have financial repercussions, administration officials argue that the investment limits are courting possible disaster.
Critics say environmental, social and governance (ESG) investments allocate money based on political agendas, such as a drive against climate change, rather than on earning the best returns for savers. Republicans in Congress who pushed the measure to overturn the Labor Department’s action argue ESG is just the latest example of the world trying to get “woke.”
Biden, in a video released by the White House, said he vetoed the measure because it “put at risk the retirement savings of individuals across the country.”
Manchin pushes back against Biden’s veto
Sen. Joe Manchin (D-W.Va.), one of the two Senate Democrats to vote for the bill blocking the ESG rule, argued that the Biden administration “continues to prioritize their radical policy agenda over the economic, energy and national security needs of our country, and it is absolutely infuriating”:
Sen. Joe Manchin (D-W.Va.) teed off on President Biden’s decision earlier on Monday to veto a bill that would have nixed a Labor Department rule on environmental, social and governance (ESG) investing.
Manchin, who was one of two Senate Democrats to vote with Republicans to overturn the rule on March 1, called Biden’s decision “absolutely infuriating” in a statement and panned the administration for putting its “radical” and “progressive agenda” ahead of the country’s needs.
“This Administration continues to prioritize their radical policy agenda over the economic, energy and national security needs of our country, and it is absolutely infuriating,” said Manchin, who is up for reelection next year. “West Virginians are under increasing stress as we continue to recover from a once in a generation pandemic, pay the bills amid record inflation, and face the largest land war in Europe since World War II.”
“The Administration’s unrelenting campaign to advance a radical social and environmental agenda is only exacerbating these challenges. This ESG rule will weaken our energy, national and economic security while jeopardizing the hard-earned retirement savings of 150 million West Virginians and Americans,” Manchin continued. “Despite a clear and bipartisan rejection of the rule from Congress, President Biden is choosing to put his Administration’s progressive agenda above the well-being of the American people.”
Opposition group campaigns against veto
Consumers’ Research, an advocacy group that opposes ESG investing, ran a mobile billboard campaign ahead of Biden’s expected veto criticizing ESG and the Biden administration’s approach to ESG policy:
An advocacy group that opposes environmental, social and governance (ESG) investing on Tuesday launched a mobile billboard campaign around Washington, D.C., ahead of President Biden’s expected veto of legislation targeting the investment practice.
Consumers’ Research, a leading anti-ESG group, is funding mobile billboards and a targeted digital ad campaign criticizing the use of the principles among major money managers such as BlackRock. The mobile billboards will circulate around Capitol Hill and downtown D.C.
The mobile billboards will feature images that say “What does ESG really stand for?” with acronyms like “Erasing Savings Growth” and “Elitists Socialists Grifters,” according to images first shared with The Hill.
“I applaud House leadership and the bipartisan efforts in the Senate that pushed this legislation to the finish line,” Will Hild, director of Consumers’ Research, said in a statement to The Hill. “Unfortunately, President Biden is going to use his first veto to further the progressive agenda instead of putting the interest of the American people first.”
In the states
DeSantis leads 19 states in ESG pushback
Florida Gov. Ron DeSantis (R) announced on March 16 that he and the governors of 18 other states had agreed to join forces to push back against ESG investing and what they view as pro-ESG federal policies:
Florida Gov. Ron DeSantis (R) on Thursday announced an alliance with 18 other states to push back against President Biden’s support for environmental, social and corporate governance investing, known as ESG.
The states argue that Biden’s backing for socially-conscious ESG investing, under which investors weigh sustainability and ethical considerations, is a threat to the U.S. economy.
DeSantis joins with the governors of Alabama, Alaska, Arkansas, Georgia, Idaho, Iowa, Mississippi, Missouri, Montana, Nebraska, New Hampshire, North Dakota, Oklahoma, South Dakota, Tennessee, Utah, West Virginia and Wyoming in what his office called “an alliance to push back” against Biden’s ESG “agenda.”
“The proliferation of ESG throughout America is a direct threat to the American economy, individual economic freedom, and our way of life, putting investment decisions in the hands of the woke mob to bypass the ballot box and inject political ideology into investment decisions, corporate governance, and the everyday economy,” the states wrote in a joint statement.
The 19 states in their joint statement said they plan to lead state-level initiatives “to protect individuals from the ESG movement,” including potentially blocking ESG at the state and local levels and withholding state pension funds and state-controlled investments from firms that use ESG.
“We as freedom loving states can work together and leverage our state pension funds to force change in how major asset managers invest the money of hardworking Americans, ensuring corporations are focused on maximizing shareholder value, rather than the proliferation of woke ideology,” the states wrote.
Kansas legislature considers proposals to restrict ESG considerations in public pensions
Kansas state lawmakers have been trying to develop a bill restricting ESG considerations in public pensions. In an effort to slow or amend such legislation, some businesses and others cited a report suggesting that banning ESG could hurt Kansas public pensioners:
Conservative Republicans who want to thwart socially and environmentally conscious investing are now being pushed to water down their proposals after backlash from powerful business groups and fears that state pension systems could see huge losses.
In both Kansas and Indiana, where the GOP has legislative supermajorities, bankers associations and state chambers of commerce criticized the strongest versions of anti-ESG legislation currently under consideration as anti-free market.
In Kansas, their opposition prompted a Senate committee’s chair to drop the toughest version of its bill — applying anti-ESG rules to firms handling private investments — before hearings began this week. He also canceled a Thursday discussion of a milder version of an anti-ESG bill after the head of the state pension system for teachers and government workers warned that it could see $3.6 billion in losses over 10 years if the bill were passed….
“This is the underlying political nature of this,” said Bryan McGannon, acting CEO and managing director for US SIF: The Forum for Responsible and Sustainable Investment. “They really aren’t thinking about the consequences of the kind of the real world impacts of what this means in the financial system.”
About one-eighth of U.S. assets being professionally managed, or $8.4 trillion, are being managed in line with ESG principles, according a report in December from US SIF, which promotes sustainable investing.
At least seven states, including Oklahoma, Texas and West Virginia, have enacted anti-ESG laws in the past two years. GOP Govs. Ron DeSantis of Florida and Greg Gianforte of Montana also have moved to ensure their states’ funds aren’t invested using ESG principles.
Discussions about the responsibilities of managers handling private investments are also slowing ESG opposition efforts in Kansas:
Republican lawmakers pushing to prevent Kansas from investing its funds using socially and environmentally conscious principles disagree about also imposing rules for investment managers handling private funds, complicating their efforts to thwart what they see as “woke” investing.
Committees in the Kansas House and Senate this week approved competing versions of anti-ESG legislation, and the two chambers could debate them as early as next week. ESG stands for environmental, social and governance and those considerations have become more prominent in investing in recent years, sparking a nationwide backlash from conservative Republicans.
The Kansas Senate’s version of the anti-ESG measure would require private money managers to get their clients’ written consent before investing their funds along ESG principles. The House bill contains no such provision.
The issue of requiring managers of private funds to disclose their ESG activities to clients or to get clients’ verbal or written consent to use them appears to be the last major sticking point among Republicans in the GOP-controlled Legislature. They’ve already backed off the toughest version of the anti-ESG legislation because of opposition from powerful business groups, and have rewritten both bills to prevent projected investment losses of $3.6 billion over 10 years for the pension fund for Kansas teachers and government workers.
In the spotlight
BlackRock CEO writes open letter to investors
BlackRock CEO Larry Fink is known for his annual open letters to the CEOs of corporations and for his letters to investors. This year, Fink sent only one letter— to investors. Among other things, Fink highlighted efforts at BlackRock that he says will make it easier for investors to vote their stock shares:
In recent years, I have written two letters each year – one on behalf of our clients to CEOs and the other to BlackRock shareholders. In November, on the anniversary of BlackRock introducing Voting Choice, I wrote to both CEOs and our clients to share my views on the transformative power of choice in proxy voting.
As we start 2023, it is clear to me that all of our stakeholders – BlackRock shareholders, clients, employees, partners, the communities where we operate, and the companies in which our clients are invested – are facing so many of the same issues. For that reason, this year, I am writing a single letter to investors….
We continue to innovate in a variety of areas to expand the choices we offer clients. Some of our clients have expressed interest in a more direct role in the stewardship of their capital, and we have sought to deliver solutions that enable them to vote their shares. As I wrote last year to clients and corporate CEOs, I believe that, if widely adopted, voting choice can enhance corporate governance by bringing new voices into shareholder democracy.
BlackRock has been at the forefront of this innovation for years, and we have seen other asset managers follow our lead and adopt similar efforts. Nearly half of our index equity assets under management are now eligible for Voting Choice. This includes all the public and private pension plan assets we manage in the U.S., as well as retirement plans serving more than 60 million people around the world. Clients representing over $500 billion in AUM have chosen to participate in Voting Choice to express their preferences.
When I first started writing letters to the CEOs of the companies in which our clients are invested, my entire focus was on stewardship and ensuring engagement that centers on creating long-term value for our clients. We set out to build the best global stewardship team in the industry – to engage with companies on corporate governance not just during proxy season, but year-round because we didn’t think that the industry’s reliance on just a few proxy advisors was appropriate. We believed that our clients expected us to make independent and well-informed decisions about what was in their best financial interest. And we still do.
Making these decisions requires understanding how companies are responding to evolving risks and opportunities. Changes in globalization, supply chains, geopolitics, inflation, monetary and fiscal policy, and climate all can impact a company’s ability to deliver durable value. Our stewardship team works to promote better investment performance for our clients, the asset owners. The team does that by understanding how a company is responding to these factors where financially material to the company’s business, and by advocating for sound governance and business practices. For many of our clients who have entrusted us with this important responsibility, BlackRock’s stewardship efforts are core to what they are seeking from us.
At the same time, we believe that adding more voices to corporate governance can further strengthen shareholder democracy.