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.
House Appropriations Committee passes budget blocking ESG labor rule
The House Appropriations Committee passed a fiscal year 2025 labor budget bill on July 10 that proposes prohibiting the Department of Labor from implementing its rule allowing ESG considerations in Employee Retirement Income Security Act (ERISA)-governed retirement plans:
The committee on July 10 in a 31-25 vote approved the Fiscal Year 2025 Labor, Health and Human Services, Education, and Related Agencies Appropriations Act. The bill provides a discretionary total of $10.5 billion for the Labor Department, which is $3 billion, or 23%, below the fiscal year 2024 enacted level and $3.6 billion below the president’s budget request.
Within the bill is a provision that states “none of the funds made available by this Act may be used to administer, implement, or enforce” certain Labor Department initiatives.
Those initiatives include a rule that took effect in January 2023 that permits retirement plan fiduciaries to consider environmental, social and governance factors when selecting investments. Department officials and retirement experts contend that the rule is neutral and maintains the department’s position that fiduciaries may not sacrifice investment returns or assume greater investment risks as a means of promoting collateral social policy goals.
Project 2025 argues Republican administration should block SEC climate disclosure rule
Project 2025—the Heritage Foundation’s presidential transition plan proposal—argues that if the presidency changes hands in 2025, the new administration and Congress should work to change the Securities and Exchange Commission (SEC) and block the agency from implementing its climate disclosure rule:
The 2025 Presidential Transition Project is organized by the Heritage Foundation, a conservative think-tank founded in 1973. When there is a change of presidential administration, the incoming president will establish a transition team to organize policy, review existing personnel, and fill vacant positions. It prepares the administration to being work on the day the president is sworn in. Project 2025 is attempting to preemptively influence that transition. To do that, Project 2025 is offering a policy agenda in the form of a book published in April 2023, personnel, training, and a 180-day playbook. …
The chapter on the SEC was authored by David R. Burton, a Senior Fellow in Economic Policy at Heritage since 2013. He is an attorney who was in private practice and served as general counsel at the National Small Business Association. At Heritage, he focuses on securities law, capital markets, entrepreneurship, financial privacy, tax matters, and regulatory and administrative law. …
Directly addressing the SEC Climate-Related Disclosure Rule, Burton states that Congress should “prohibit the SEC from requiring issuer disclosure of social, ideological, political, or “human capital” information that is not material to investors’ financial, economic, or pecuniary risks or returns. The proposed SEC climate change rule, which would quadruple the costs of being a public company, is particularly problematic.”
On Wall Street and in the private sector
BlackRock updates investment guidelines to promote environmental goals
Asset management giant BlackRock updated its climate investment guidelines on July 2, allocating $150 billion to funds focused on reducing carbon emissions:
BlackRock Inc., the world’s largest asset manager, updated its decarbonization investment guidelines on July 2, allocating $150 billion for funds screened for energy transition risks and opportunities. Though based in Europe, these guidelines could impact US funds, a company spokesperson confirmed.
The new policy expects affected funds to consider shareholder proposals on Scope 3 greenhouse gas emissions and climate-related lobbying activities. This move illustrates the tightrope BlackRock walks to satisfy demands from both European clients focused on decarbonization and Republican-dominated US states with laws against ESG criteria in portfolio decisions. Some states have even banned BlackRock over its climate-risk policies. …
This strategic move by BlackRock highlights its effort to balance global investment priorities, navigating complex regulatory landscapes while addressing climate risks and opportunities.
Tech stocks boost ESG fund returns
Although U.S. investors are moving their investments away from ESG funds on average, many ESG funds are outperforming indexes this year, boosted by tech stock returns:
Most ESG funds that don’t specifically invest in renewable energy businesses are overweight in technology companies and underweight in oil and gas stocks. In the first six months of the year, the S&P 500 gained about 15 per cent. Almost 60 per cent of the gain for the year to date was driven by five tech giants — Nvidia, Microsoft, Amazon, Meta and Apple — which are almost always the largest holdings in ESG funds, according to Morningstar.
Vanguard’s US-focused FTSE Social Index fund, which has $20.6bn of assets under management, rose in value by 15.5 per cent in the first half and is up 26 per cent over the past 12 months, compared with 24.9 per cent for the S&P 500. Its largest holdings are Microsoft, Apple and Nvidia.
The best performing big ESG fund in the first half of the year was the Putnam Sustainable Leaders fund, which is owned by Franklin Templeton. The fund jumped 19.4 per cent in the first half. Unsurprisingly, its top holdings are Microsoft, Alphabet and Nvidia.
In the spotlight
Anti-ESG group launches agriculture-themed campaign
Consumers’ Research, a leader in the anti-ESG movement, has launched a new ad campaign arguing ESG hurts agriculture and opposing the inclusion of ESG initiatives in revisions to the federal Farm Bill:
Consumers’ Research, a leading anti-ESG group, wrote to top lawmakers on agricultural issues in a letter obtained first by The Hill and launched billboards and television ads warning against the risks of including certain policies in potential legislation.
“Simply put, Americans cannot afford to allow the same ESG regime currently infecting corporate boardrooms to gain purchase on family farms,” Will Hild, the organization’s director, wrote a letter to Sen. Debbie Stabenow (D-Mich.) and Sen. John Boozman (R-Ark.), the chair and ranking member of the Senate Committee on Agriculture, respectively, and Rep. Glenn Thompson (R-Pa.) and Rep. David Scott (D-Ga.), the chair and ranking member of the House Agriculture Committee, respectively.
“The interests of consumers and the health of American agriculture must be paramount as Congress determines how to revise the Farm Bill,” he added. “In crafting the bill, Congress must ensure that ESG and onerous climate initiatives are kept far away.”