West Virginia treasurer sends letter to financial institutions over ESG practices

ESG developments this week

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.

In the states

West Virginia treasurer sends letter to financial institutions over ESG practices

West Virginia Treasurer Riley Moore (R) sent a letter to six banks—including Citibank, TD Bank, and HSBC—warning that they may be ineligible for contracts with the state in 45 days unless they show that they do not illegally boycott fossil fuel companies:

West Virginia is putting Citibank, TD Bank, HSBC and three other banks on notice that they could be barred from receiving state contracts as part of a continuing attack on environmental, social and governance policies.

Details: State Treasurer Riley Moore wrote to the six companies informing them of his “initial determination” that they are refusing or limiting their business with coal, oil and gas companies “without a reasonable business purpose,” according to a copy of the letters shared with POLITICO. The banks will be placed on West Virginia’s Restricted Financial Institution List in 45 days unless they show that they aren’t boycotting fossil fuels, Moore said.

“We are winning,” said Moore, who is also running for a U.S. House seat and leading a 15-state coalition combating ESG policies. “I am not out here to defeat the banks. What I am here to do is to defeat ESG and liberate the free market.”

On Wall Street and in the private sector

BlackRock continues to avoid ESG-related language

BlackRock, the largest asset management firm in the world, is continuing to move away from ESG-related language. Instead, the firm is referring to its environmental asset management strategies as transition investing:

After crusading for years for investment funds and companies to take into account environmental, social and governance factors, Larry Fink has purged the letters from his vocabulary. 

He attempted to use BlackRock’s clout as the steward for millions of investors to prod companies toward climate-friendly policies and press them to disclose the social effects of their businesses. He long argued that the world’s largest asset manager and its peers could make money and make the world a better place at the same time. …

BlackRock is still wagering that fighting climate change will be a generational investment opportunity—but the company is no longer pushing for changes in corporate behavior, talking about hard-to-quantify social issues or actively promoting ESG investing criteria. Instead, it is directing billions of client dollars toward infrastructure projects that will help speed the transition from fossil fuels.

ISS to create proxy voting options for ESG opponents

Institutional Shareholder Services (ISS), the largest proxy advisory service in the world, has agreed to provide its clients with a new proxy voting option for ESG opponents. The new option uses guidelines devised by Jerry Bowyer, a longtime ESG skeptic:

Institutional Shareholder Services (ISS), the influential proxy adviser majority owned by Deutsche Boerse (DB1Gn.DE) that recommends how shareholders should vote in corporate elections, will offer a new “ESG skeptic” option, according to executives. …

ISS currently offers seven types of specialty voting guidelines, beyond its benchmark guidelines, for investors like climate-focused groups or religious funds. ISS last year added “board-aligned” investment voting guidelines that opposed many ESG resolutions, though the new offering may appeal to clients who want to go further against ESG. …

[Jerry] Bowyer said he calls his approach that of an “ESG skeptic” and that he supports ESG resolutions less than 5% of the time, compared to about 50% for the ISS benchmark guidelines. Bowyer said he and ISS executives started speaking after he criticized ISS on social media site LinkedIn in June 2023, discussions that led to the collaboration.

ESG bond market joins ESG stocks in losing ground

This newsletter has covered the pullbacks ESG funds have faced in the stock market over the last two years. Now, Bloomberg reports that ESG debt markets are facing similar difficulties:

Extra regulatory requirements, fewer financial incentives and the risk of being accused of greenwashing are putting off clients who just a few years ago were champing at the bit to attach an environmental, social or governance label to their financing, according to bankers and lawyers close to the market.

The products in question are so-called sustainability-linked loans, a market that BloombergNEF has estimated is worth $1.5 trillion, making it second in size only to the global market for green bonds. Largely unfettered by regulations, borrowers and financiers have been relatively free to construct their own standards for SLLs. But as financial watchdogs start to erect guardrails around ESG labeling, a broader market retreat appears to be underway. …

A key factor behind the slide in SLL issuance is the enforcement of a European Union regulation requiring companies to document their ESG claims, according to one of the bankers Bloomberg interviewed, who asked not to be named discussing private deliberations. The Corporate Sustainability Reporting Directive is now forcing companies that do business in the bloc to provide vast amounts of data to back up virtually every sustainability statement they make.

Europe’s largest pension fund expands ESG investment rules

ABP, a Dutch-based pension fund and the largest in Europe, announced that it is reevaluating the companies it holds for compliance with higher ESG standards:

Europe’s biggest pension fund is imposing stricter environmental, social and governance requirements on its portfolio, as it steers more capital toward companies it assesses to be greener and fairer. …

“Companies that are inextricably linked to climate change and cannot or do not want to change are no longer suitable for us,” the fund said. Those that manage the risks of a changing world well will instead be seen as good fit for ABP, it said. …

ABP’s investments now exclude companies involved in serious controversies relating to climate, nature, human rights and corporate integrity. The exclusions also apply to tobacco companies, firms that make nuclear weapons, civilian firearms, fur, non-organic pesticides, single-use plastics and gambling.