Economy and Society, March 19, 2024: Appeals court pauses implementation of SEC climate rule

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 Washington, D.C.

Appeals court pauses implementation of SEC climate rule

The U.S. Court of Appeals for the Fifth Circuit on March 15 temporarily blocked the implementation of the Securities and Exchange Commission’s (SEC’s) new rule on emissions data reporting while the court considers a lawsuit alleging the regulations exceed the SEC’s authority:

The US Court of Appeals for the Fifth Circuit’s order staying the March 6 rules came after Liberty Energy Inc. requested the pause as the fracking company pursues its case. The decision was the first major ruling, and setback, for the Securities and Exchange Commission in the litigation over the regulations that require companies to report their greenhouse gas emissions and make other climate-related disclosures.

Liberty told the Fifth Circuit on March 8 it needed the stay due to “irreparable injury in the form of unrecoverable compliance costs and constitutional injuries” from the rules. The SEC disputed the claims, saying they’re “speculative and remote assertions of harm.”

The Fifth Circuit didn’t explain why it approved the administrative stay in its two-page unpublished order issued by judges Edith Jones, Stephen Higginson and Cory Wilson. The administrative stay isn’t the final decision on whether to keep the rules on hold throughout the litigation. It prevents the regulations from taking effect until the court reaches a final decision on halting the regulations as lawsuits continue.

House subcommittee holds hearing on SEC climate rule

The House Financial Services Committee’s Oversight and Investigations Subcommittee held a hearing on March 18 aimed at assessing the potential costs associated with the SEC’s climate emissions reporting rule. A video of the hearing from C-Span can be found here. Consumers Research, an organization opposed to ESG, highlighted parts of the hearing on its Twitter/X feed. The subcommittee’s list of witnesses included the following:

Ms. Whitney Hermandorfer, Director of Strategic Litigation Unit, Office of Tennessee Attorney General

Ms. Renea Jones, Co-Owner, Jones & Church Farms, Inc. 

Professor Alex Scott, Associate Professor of Supply Chain Management, University of Tennessee, Knoxville

In the states

State financial officers ask State Street for more investment options

Financial officers from 16 states sent a letter on March 14 to State Street Global Advisors, one of the largest asset managers in the world with over $4 trillion in assets under management, asking the firm to create more options for investors who oppose ESG:

State Street offers both an ESG and non-ESG fund, but the letter points out that current wider firm policies governed by shareholder proposals are all restricted to options that in some way incorporate ESG factors. The request from state officials follows a move from State Street, along with JPMorgan Asset Management, in February to not renew its membership with environmental coalition Climate Action 100+, as the U.S. House continues to investigate the coalition to see if it violates antitrust law.

“Today’s letter from state financial officers across the country is both a continuation of the important fight against ESG and its pernicious influence, as well as an important new message to asset managers and banks alike,” Derek Kreifels, CEO of the State Financial Officers Foundation, told the Daily Caller News Foundation. “Fiduciaries of public funds will not blithely accept token gestures and hollow assurances that financial institutions are retreating from their ESG activism. Those who persist in using the power of all assets under management and their proxy voting power to push a radical political agenda under the guise of ESG will be held to account by state financial officers.” …

“This use of non-ESG-denominated funds to push ESG issues makes those non-ESG fund denominations at very least inapt, if not a demonstration of the provision of material misinformation,” the letter reads. “The problem is compounded by the fact that with these same non-ESG-denominated funds State Street declines to support in its benchmark policy proposals or pressure companies to evaluate and respond to other, non-ESG risks.”

On Wall Street and in the private sector

ESG mentions on earnings calls hit lowest level in nearly five years

Q4 2023 corporate earnings calls (which took place in the first quarter of 2024) had the fewest mentions of ESG since the Q2 2019 earnings season, falling below the five- and ten-year averages, according to data published by FactSet:

FactSet Document Search (which allows users to search for key words or phrases across multiple document types) was used to answer this question. Through Document Search, FactSet searched for the term “ESG” in the conference call transcripts of all the S&P 500 companies that conducted earnings conference calls from December 15 through March 7.

Of these companies, 29 cited the term “ESG” during their earnings calls for the fourth quarter. This number is below the 5-year average of 82 and below the 10-year average of 43.

In fact, this is the lowest number of S&P 500 companies citing “ESG” on earnings calls going back to Q2 2019 (22). Since peaking at 155 in Q4 2021, the number of S&P 500 companies citing “ESG” on quarterly earnings calls has declined (quarter-over-quarter) in nine of the past ten quarters.

In the spotlight

Exxon CEO pushes back against ESG

Exxon CEO Darren Woods is arguing that fossil fuels will be needed for many years in the future and that the world’s emissions will not be net zero by 2050. Woods’ comments have received mostly positive feedback, according to Bloomberg:

Already this year, Woods filed an arbitration case against Chevron Corp. for attempting to buy into Exxon’s massive offshore oil project in Guyana and a lawsuit against investors demanding that his company cut emissions. Just months earlier, he agreed to a $60 billion takeover that would make Exxon the biggest US shale producer.

Woods is also becoming much more strident about climate goals in speeches and interviews, arguing that fossil fuels will still be needed for years to come to meet energy demand and the world is not on a path to net-zero carbon emissions by 2050 because people are unwilling to pay for cleaner alternatives.

The message may be controversial, but it’s resonating on Wall Street, where “ESG” is fast becoming a loathed moniker as ambitious environmental, social and governance pledges are rubbing against the need for secure and affordable energy. Exxon is up 89%, more than four times that of the S&P 500, since losing a climate-fueled proxy battle with Engine No. 1. in 2021.