State financial officers inquire about 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

States send letters and questionnaires inquiring about ESG at firms

Twenty-one state financial officers signed letters on May 15 that were sent to large asset management firms and two proxy advisory services (Glass-Lewis and Institutional Shareholder Services, who combined represent 95% of the proxy advisory business), requesting answers to questions about the use of ESG and the justification for doing so as legal fiduciaries of their clients’ money:

The letter expressed the state financial officers’ concern over the asset management and proxy advisory firms’ approach to how they are advising their clients to vote in shareholder proposals. Which in many cases appear to be unrelated to companies’ core business and have, in many cases, appeared to have been to advance the radical left-wing agenda — such as environment, social, and governance (ESG)….

[T]he letters included a questionnaire for the firms to answer and in turn, detail how they determine which shareholder proposals to support and how the firms analyze their proposal’s impact before deciding which one to go with.

Nebraska state Treasurer John Murante, a former national chair of the State Financial Officers Foundation (SFOF), told Breitbart News, “For too long, the ESG agenda has plowed forward at the behest of large investment managers like BlackRock.”

“Together, they’ve [the firms] steered votes on issues ancillary or even detrimental to companies’ core business,” Murante added. “With these letters, we hope to expose the scam that is crushing shareholder value, all in the name of an extreme, progressive agenda.”

The list of asset managers firms and proxy advisory firms who received the letter were: BlackRock, Vanguard Group, Fidelity Investments, UBS Group, State Street Global Advisors, Morgan Stanley, JP Morgan Chase, Credit Agricole, Allianz Group, Capital Group, Goldman Sachs, Bank of New York Mellon, Amundi, PIMCO, Legal & General, Edward Jones, Prudential Financial, Deutsche Bank, Bank of America, Invesco Ltd, Glass Lewis, and ISS.

The 21 state financial officers who signed the letter were Alaska Commissioner of Revenue Adam Crum, Arizona state Treasurer Kimberly Yee, Florida Chief Financial Officer Jimmy Patronis, Idaho state Treasurer Julie Ellsworth, Indiana state Treasurer Dan Elliot, Iowa state Treasurer Roby Smith, Kansas state Treasurer Steven Johnson, Louisiana state Treasurer John Schroder, Mississippi state Treasurer David McRae, Missouri state Auditor Scott Fitzpatrick, Missouri state Treasurer Vivek Malek, Nebraska state Treasurer John Murante, Nebraska Auditor Mike Foley, North Carolina state Treasurer Dale Folwell, North Dakota state Treasurer Thomas Beadle, Oklahoma Auditor and Inspector Cindy Byrd, Oklahoma state Treasurer Todd Russ, South Carolina state Treasurer Curtis M. Loftis, Jr., Utah state Treasurer Marlo Oaks, West Virginia state Treasurer Riley Moore, and Wyoming state Treasurer Curt Meier. Ohio state Treasurer Robert Sprague signed on to the proxy vote advisory firm letters.

States seek to block U.S. Department of Labor ESG rule

Twenty-five states asked a federal judge in Texas on May 16 to block the implementation of the Biden Labor Department’s rule on the use of ESG in retirement investment plans that fall under ERISA. The states argue that the Biden rule was not created properly because the previous rule (enacted under the Trump administration) was, in their view, improperly invalidated:

A group of Republican-led U.S. states has asked a federal judge in Texas to strike down a Biden administration rule allowing socially conscious investing by retirement plans, saying it will imperil Americans’ retirement savings.

Lawyers for the 25 states led by Utah and Texas said in a filing in Amarillo, Texas, federal court late Tuesday that the U.S. Department of Labor failed to justify its departure from a Trump-era rule that limited investing based on environmental, social and corporate governance (ESG) factors.

The rule, which took effect Jan. 30, sets guidelines for ESG investing including requiring that socially conscious investments are still financially sound.

The states sued in January and in February had asked the judge to temporarily block the rule pending the outcome of the case. The judge has not yet ruled on that bid, and in Tuesday’s filing, the states asked the judge to rule on the merits of their lawsuit….

The Labor Department has said the Trump-era rule, which was criticized by business groups and the financial industry, failed to account for the positive impact that ESG investing can have on long-term returns. Business groups said the Trump administration rule was unnecessary and confusing for investment managers.

The new rule covers plans that collectively invest $12 trillion on behalf of 150 million Americans.

Alabama Senate advances bill opposing ESG boycotts

The Alabama State Senate on May 18 passed a bill that would prohibit state contracts with businesses that boycott certain companies and industries (like fossil fuel or mining companies) based on ESG criteria. The bill now moves to the state House for consideration:

State senators passed a bill that would prohibit state contracts with businesses that boycott certain sectors of the economy based on environmental, social, and governance or ESGs. Sponsored by Senator Dan Roberts, R-Mountain Brook, Senate Bill 261 is among the strongest anti-ESG legislation in the nation to protect investors and funds in Alabama.

“I appreciate the support of my colleagues in the Senate for working to pass this legislation,” said Senator Dan Roberts. “The Alabama Senate has made it clear that we want businesses to focus on growing and expanding and not working to push any political agenda with left-wing ESG policies.”

The bill specifies company that refuses to deal with, terminates business activities with, or otherwise takes any commercial action that is intended to penalize, inflict economic harm on, limit commercial relations with, or change or limit the activities of a company because the company, without violating controlling law, does any of the following:

— Engages in the exploration, production, utilization, transportation, sale, or manufacturing of fossil fuel-based energy, timber, mining, or agriculture.

— Engages in, facilitates, or supports the manufacture, import, distribution, marketing or advertising, sale, or lawful use of firearms, ammunition, or component parts and accessories of firearms or ammunition.

— Does not meet, is not expected to meet, or does not commit to meet environmental standards or disclosure criteria, in particular, to eliminate, reduce, offset, or disclose greenhouse gas emissions.

— Does not meet, is not expected to meet, or does not commit to meet corporate employment or board composition, compensation, or disclosure criteria.

— Does not facilitate, is not expected to facilitate, or does not commit to facilitating access to abortion or sex or gender change surgery, medications, treatment, or therapies….

The bill now goes to the House for more debate.

On Wall Street and in the private sector

ESG employment pays better

According to Reuters, U.S. finance professionals who have ESG in their job title earn about 20% more than their non-ESG colleagues on average, at least in terms of base salary. The discrepancy began about three years ago and has continued to grow:

U.S.-based bankers and money managers whose job titles include “ESG” or “sustainability” earn on average around 20% higher base salaries than colleagues of the same seniority without those labels, according to analysis of salary data shared with Reuters.

More than $30 trillion in capital has been committed to environmental, social and corporate governance-related investments as the world looks to curb greenhouse gas emissions and companies face pressure on issues such as workplace diversity and social justice.

This has sparked a scramble to find bankers and asset managers for these roles, leading to higher base salaries than for equivalent professionals in non-ESG related functions, the analysis conducted for Reuters by New York-based data startup Revelio Labs shows.

“Salaries of ESG and non-ESG personnel started to diverge in 2020, in line with the spike in hiring in ESG roles due to the increasing focus on ESG and sustainable investing in the finance sector,” said Loujaina Abdelwahed, an economist at the company.

The strong demand for professional talent comes amid a political backlash against ESG in parts of the Western world, especially in the United States, where it has culminated in various laws to remove environmental and social considerations from business in some states….

Since 2019, the rate of base salary growth for ESG roles has been about 38 percentage points higher than non-ESG personnel, Abdelwahed said.

ESG-tagged roles overtook non-ESG on a six-month moving average basis in June 2020 and in August 2021 surged to peak around $109,846, fully $20,000 higher than non-ESG.

In the spotlight

Majority of Americans not familiar with ESG 

Gallup released the results of its recent ESG polling on May 22, and the results indicated that the public remains largely unaware of the issue. The respondents who indicated an opinion on the issue were split with 22% viewing ESG favorably and 19% viewing ESG negatively:

Efforts to promote adoption of the environmental, social and governance framework in investing, commonly termed ESG, have gained traction in recent years and have become the subject of pro- and anti-ESG legislation, yet the general public is no more familiar with ESG today than two years ago.

Thirty-seven percent of Americans currently report being “very” or “somewhat familiar” with ESG, unchanged from 36% in 2021. Another 22% today are “not too familiar,” while 40% are “not familiar at all.”

Underscoring the public’s lack of familiarity with ESG, nearly six in 10 Americans (59%) take the “no opinion” option when asked if they view “the movement to promote the use of environmental, social and governance, or ESG, factors in business and investing” as a positive or negative development. The remaining four in 10 are about evenly divided between expressing a positive (22%) and negative (19%) view of the practice.

While adults who are familiar with ESG are more likely to express an opinion about it than those with less familiarity, they are just as likely to be divided on the question — 36% viewing ESG positively and 35% negatively.

Similarly, adults who report owning stock, about six in 10 respondents in the current poll, are more likely to have an opinion about ESG than non-stock owners, but they are just as divided on the merits of promoting ESG in business and investing….

When asked whether retirement fund managers should only take financial factors into account when making investment decisions or also consider ESG factors, the public leans toward the former (48% vs. 41%, respectively). Stock owners’ views on this are nearly identical to the national averages.

Adults familiar with ESG are closely split on the question, with 50% preferring fund managers to limit their investing criteria to financial factors while 46% want ESG factors considered. Those not familiar with ESG lean more strongly toward only considering financial factors but are also more likely to have no opinion on the question….

Adoption of ESG principles has been promoted by the Biden administration as well as the Business Roundtable (a leading American business lobby), the United Nations, and other prominent organizations in the U.S. and globally. The leaders and companies embracing ESG in investing have espoused it as a way to minimize investment risk while promoting social goods. Yet critics on the political right decry it as a system designed to achieve progressive goals at the expense of shareholders, and have advanced anti-ESG legislation in many states.

While this political backdrop is evident in the Gallup data, it does not appear to be an overwhelming factor driving the public’s interest in or views about ESG.

–There is no difference between Republicans’ and Democrats’ familiarity with ESG, as just under four in 10 in each group say they are very or somewhat familiar with it and an equal proportion are not at all familiar.

–Further, awareness of ESG hasn’t increased much among either group since 2021, when 33% of Republicans and 38% of Democrats said they were very or somewhat familiar with it.

–Republicans are far more likely to have a negative than positive view of ESG, while the reverse is true of Democrats, but majorities of both groups say they are unsure.

–Only when asked to choose between two modes of investing — with or without taking ESG criteria into account — do majorities of Republicans and Democrats take opposing sides. Sixty-four percent of Republicans think fund managers should only consider financial factors when choosing investments, while 59% of Democrats think they should include ESG.