Tennessee joins open letter opposing 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 the states

What have states done on ESG?

The Daily Signal (a publication of the Heritage Foundation) on April 14 published an outline of the state actions taken so far in 2023 related to ESG:

“The governors of Utah, Kentucky, West Virginia, and Arkansas have so far in 2023 signed legislation into law aimed at combating environmental, social, and governance policies.

More than a dozen states have introduced or are considering taking action on similar bills, including Montana, Kansas, and Florida….

Republican Utah Gov. Spencer Cox signed two bills into law on March 14.

SB 96 “addresses fiduciary duties for funds managed by public entities.”…

The law will take effect on May 3.

SB 97 relates to economic boycotts and “addresses public entity contract requirements.”…

The law also takes effect on May 3.

Republican Kentucky Gov. Andy Beshear signed HB 236 into law on March 24.

“Kentucky now has the strongest anti-ESG legislation in the nation. For many years, pension investments were about maximizing returns,” Kentucky State Treasurer Allison Ball, a Republican, told The Daily Signal in an emailed statement. “Recently, however, there has been a destructive shift in investment methodology to use the savings of Americans as financial muscle to push ideological causes through the ESG movement.”…

Republican West Virginia Gov. Jim Justice signed HB 2862 into law on March 28.

“The purpose of this bill is to ensure that all shareholder votes by or on behalf of the West Virginia Investment Management Board and the Board of Treasury Investments are cast according to the pecuniary interests of investment beneficiaries,” a summary of the bill says….

Republican Arkansas Gov. Sarah Huckabee Sanders signed HB 1307, which is “concerning the regulation of environmental, social justice, or governance scores; and to authorize the treasurer of state to divest certain investments or obligations due to certain factors,” into law on March 30.

Other states that have introduced or are considering similar bills include South Carolina, Iowa, Oklahoma, Indiana, Texas, Tennessee, Ohio, Missouri, Arizona, and Alabama.”

New Hampshire joins ESG pushback

New Hampshire Gov. Chris Sununu (R) signed an executive order last week directing state executive agencies to invest their funds based on expected financial returns (not based on ESG investing criteria), making the state the latest to push back against ESG in public investments:

“Just weeks after the Biden administration imposed new rules promoting ESG investing by retirement fund managers, Gov. Chris Sununu issued his own order blocking state agencies under his control from joining in the “woke” investment movement.

“Executive branch agencies shall prioritize investment decisions that maximize financial returns and minimize risk, as part of their fiduciary duty to act in the best interest of the State and the beneficiaries of the state’s trust funds,” Sununu’s order read in part. By mandating “maximizing returns,” Sununu is effectively banning the “environmental, social, and corporate governance” (ESG) investment criteria.

“The most important responsibility we have is getting the best return for our retirees. And this ESG stuff doesn’t get the returns,” Sununu told NHJournal Tuesday. “It hurts returns, it increases risk, and it doesn’t fulfill the mission.”

Sununu’s executive order also instructs relevant state agencies to review their policies to ensure “no funds or state-controlled investments are invested with firms that invest New Hampshire funds in accounts solely based on ESG criteria.” And it instructs State Treasurer Monica Mezzapelle to “report on an annual basis” to the governor and legislature “regarding compliance with the duty to make investment decisions based upon the fiduciary duty to maximize short or long-term financial benefits for the state.”

The order is just the latest action the Sununu administration has taken to oppose the new ESG rule. Last month, Sununu joined 18 fellow GOP governors in a letter to the Biden administration, pledged to fight the move….

And his Attorney General, John Formella, is part of a lawsuit attempting to block the new rule from being applied.”

South Carolina House advances bill opposing ESG

A bill in South Carolina that would require the state pension system to consider only pecuniary factors in its investments and to exercise its shareholder proxy rights has passed the state House and moves now to the Senate:

“[I]n South Carolina, the state’s House of Representatives passed the ESG Pension Protection Act. The bill requires South Carolina’s retirement system to consider only “pecuniary factors” when making investment decisions and prevents it from considering ESG factors.

The bill would also require the state’s retirement system to exercise shareholder proxy rights for shares that are owned directly or indirectly on behalf of the system. To accomplish this, the retirement system would have to manage the proxy voting in-house, hire an external proxy adviser or fully delegate the proxy voting to an external investment manager.

According to a fiscal analysis of the bill by the South Carolina Revenue and Fiscal Affairs Office, managing the proxy voting could cost the retirement system as much as $1 million if it does it in-house. It would cost the system $292,000 to hire an external proxy adviser, and delegating the proxy voting to an external investment manager would be of no cost to the retirement system. The report added that the retirement system is not sure which of the three scenarios would fulfill the requirements of the bill.”

Not every anti-ESG effort is successful, even in red states

The Washington Times ran a piece on April 12 covering state-level efforts opposing ESG. The article mentioned some examples of Republican-governed states that tried to push back against ESG but were unsuccessful in doing so:

“Rooting out ESG-based investing is proving to be more difficult than conservatives figured, and early efforts have faltered even in Republican-led states.

State pension managers, banking associations and business groups in more than a half-dozen conservative states have warned that bills to blacklist pro-ESG asset managers and investment funds could cost retirees and hurt local banks.

Mississippi, North Dakota and Wyoming killed anti-ESG bills, and Kansas and Indiana diluted legislation….

Republicans in Arizona, Texas and Kentucky have also faced resistance from state and county money managers.

West Virginia Treasurer Riley Moore, a Republican, faced headwinds as he championed a bill prohibiting state-managed funds from supporting ESG issues in the shareholder proxy voting process. The bill was recently signed into law.

Mr. Moore suggested in an interview with The Times that the pushback stemmed from “fearmongering” and outside influences….

Wyoming, which defeated anti-ESG bills this year, enacted a law in 2021 prohibiting financial institutions from discriminating against firearms-related businesses. North Dakota also tanked anti-ESG legislation this year but enacted a law in 2021 to prohibit state pensions from making “social investments” unless they are shown to perform as well or better than similar non-social investments.

Meanwhile, nearly a dozen liberal states have taken action promoting ESG and divesting from specific industries.”

On Wall Street and in the private sector

Wall Street banks can’t live up to expectations

A newly released analysis by Ceres and Transition Pathways Initiative – two ESG-supporting activist groups – discusses how difficult it can be for banks to keep their ESG promises and meet the expectations of those who rely on the investment strategy:

“The six biggest banks on Wall Street are failing to live up to a key plank of their ESG commitments to stakeholders, according to a joint study published on Wednesday.

An analysis by Ceres and the Transition Pathways Initiative has found that JPMorgan Chase & Co., Bank of America Corp., Citigroup Inc., Goldman Sachs Group Inc., Morgan Stanley and Wells Fargo & Co. have yet to align their oil and gas financing goals for 2030 with a scenario that keeps global warming within the critical threshold of 1.5C.

Banks’ continued support for fossil fuels, which is the primary source of planet-warming pollution, has left the industry and the executives who dominate it vulnerable to criticism from shareholders and activist groups. At the same time, the finance sector is under intense pressure from the American right as the Republican Party penalizes lenders for appearing to embrace environmental, social and good governance goals, such as reducing financed emissions.

“Our analysis highlights just how difficult it is for banks and their stakeholders to assess and compare how much progress they’re making on real oil and gas emissions reductions,” said Blair Bateson, director of the Ceres Company Network at Ceres. “And it goes beyond these six banks.”

BloombergNEF estimates that the ratio of clean-energy lending and equity underwriting relative to fossil fuels needs to hit 4 to 1 by the end of the decade to live up to the Paris climate agreement. But by the end of 2021, that ratio for the finance industry was roughly 0.8 to 1, BloombergNEF said in February….

The banks singled out in the analysis by Ceres and TPI are all members of the Net Zero Banking Alliance, a coalition that requires signatories to set interim targets for the most carbon-intense sectors on their balance sheets. All six have set 2030 goals for the oil and gas sectors.”

ESG issues impacting shareholder meetings

Bloomberg Law reports that ESG and ESG-related matters are playing a significant role in this year’s shareholder meeting season. The report says shareholders (and shareholder groups) are developing proxy proposals that support and oppose ESG political issues and certain types of political spending:

“Annual meetings kicked off with a bang this year as companies and their executives confronted increasingly thorny questions from both liberal and conservative stakeholders over a wide range of environmental, social, and governance topics including diversity, abortion, and climate change.

Walt Disney Co. Chief Executive Officer Bob Iger dove into the political debate at the company’s annual meeting last week, calling Florida Governor Ron DeSantis’ pushback of the entertainment giant’s support for LGBTQ rights as “anti-business” and “anti-Florida.” Royal Bank of Canada found itself on the defensive at its annual meeting two days later, as the bank faced a volley of questions from angry proxy holders about its fossil fuel investments and the impact of its business practices on Indigenous people and people of color.

Political friction at shareholder meetings is not new, but appears to be “coming back into vogue,” said David Webber, a corporate law professor at Boston University. Webber noted that there’s a long history of confrontational debates at shareholder meetings including over gay rights and segregation in previous decades. “I think we’re definitely seeing a new wave of it now,” he said….

Companies including Eli Lilly and Co and Coca-Cola Co. are among those that face politically sensitive shareholder proposals on abortion and political spending at upcoming annual meetings. Home Depot Inc. faces two diversity-related proposals this year while annual meetings at Bank of America Corp and Wells Fargo & Co will see multiple shareholder proposals on climate change impacts from lending and investment activities.

Conservatives, who historically are less active in shareholder campaigns, hope to sway corporate agendas too. One shareholder has even put forth a proxy proposal that calls on Home Depot’s management to make a commitment to avoid supporting or taking a public position on “any controversial social or political issues.”…

The volume of conservative shareholder proposals has risen in recent years, a new trend in the predominantly liberal shareholder activism space. These proposals typically don’t receive much investor support. But proposals opposing environmental, social and governance policies rose 60% since last year, according to the Proxy Preview 2023 report from March.”