In this week’s edition of Economy and Society:
- Federal Reserve leaves global climate group
- ESG leader enters Canadian politics
- Tennessee and BlackRock reach disclosure deal
- Critics oppose Wyoming anti-ESG bill in hearing
- ESG fund outflows and closures increased in 2024
In Washington D.C., and around the world
Federal Reserve leaves global climate group
What’s the story?
The Federal Reserve announced Jan. 17 its departure from the Network of Central Banks and Supervisors for Greening the Financial System (NGFS).
Why does it matter?
The Fed’s withdrawal is part of a broader divergence between ESG policies in the U.S. and other countries (especially Europe). The central bank said NGFS’s work has expanded beyond the scope of the Fed’s statutory authority.
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According to Bloomberg:
“While the Board has appreciated the engagement with the NGFS and its members, the work of the NGFS has increasingly broadened in scope, covering a wider range of issues that are outside of the Board’s statutory mandate,” the central bank said in a statement on Friday. …
The Fed’s move comes after US regulators had refused to back a plan last year that would have seen the Basel Committee on Banking Supervision push lenders to disclose their climate risk. …
The Federal Deposit Insurance Corp. also is planning to leave a group aimed at reducing finance’s climate effects.
ESG leader enters Canadian politics
What’s the story?
Mark Carney—the former governor of the Bank of Canada (2008-2013) and the Bank of England (2013-2020)—announced last week that he is running to replace Canadian Prime Minister Justin Trudeau as leader of the Liberal Party
Why does it matter?
Carney has promoted environmental investment considerations for over a decade and was one of the earliest ESG supporters. He helped found the Glasgow Financial Alliance for Net Zero in April 2021.
His entry into Canadian politics will test the country’s support for and opposition to the ESG movement.
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According to The New York Times:
Mark Carney, one of the world’s most prominent central bankers and an evangelist of green investment, announced on Thursday that he was running to be leader of Canada’s Liberal Party and the country’s next prime minister. If he wins, he would lead the party into national elections this year. …
Mr. Carney served as the governor of the Bank of Canada between 2008 and 2013, and then led the Bank of England from 2013 to 2020. At the Bank of England, he was known to give speeches that sometimes veered into more political subjects, especially around the dangers climate change posed to global markets.
He has since held positions as a special envoy on climate action and finance with the United Nations; as chair of Bloomberg’s board of directors; and as chair of Brookfield Asset Management, a global investment firm which until recently had headquarters in Toronto.
In the states
Tennessee and BlackRock reach disclosure deal
What’s the story?
Tennessee Attorney General Jonathan Skrmetti (R) announced Jan. 17 that his office reached an agreement with BlackRock that will require the firm to disclose more about its proxy voting decisions and its reasons for voting against management recommendations on ESG resolutions.
Why does it matter?
The agreement settles a lawsuit Skrmetti’s office filed in 2023. Skrmetti argues the settlement agreement “assures that the money Tennesseans invest with BlackRock is managed consistent with the funds’ disclosures.”
What’s the background?
Click here for more information on the Tennessee lawsuit and other state attorney general activity opposing ESG.
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According to Reuters:
The resolution is the latest step by New York-based BlackRock and by other firms to move away from environmental, social or governance measures. An anti-ESG backlash has gathered force among Skrmetti and other Republican politicians including incoming U.S. President-elect Donald Trump. …
“BlackRock was at the heart of this, the biggest asset manager in the world, and their willingness to undertake this settlement speaks to the end of the ESG moment,” [Skrmetti] said. The company’s steps like quitting an investor climate group on Jan. 9 “certainly helped solidify” the agreement, he said.
BlackRock, with some $11.6 trillion under management, said it was pleased to resolve the dispute with Tennessee. “BlackRock has consistently acted in the best interests of our clients, and we welcome the opportunity to demonstrate that fact through even greater transparency about our practices,” the company said in a statement sent by a representative.
Critics oppose Wyoming anti-ESG bill in hearing
What’s the story?
Legislators and others voiced opposition to Wyoming House Bill 80 during a Jan. 17 committee hearing. The bill would prohibit asset mangers investing on behalf of the state from considering ESG factors in their decisions.
Why does it matter?
States with Republican trifectas tend to enact legislation opposing ESG, while states with Democratic trifectas tend to enact legislation supporting ESG. The opposition to House Bill 80 shows the legislative approaches addressing ESG aren’t always clear-cut, even in a Republican trifecta.
What’s the background?
To learn more about enacted ESG reforms by state trifecta status, click here.
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According to the Cowboy State Daily:
Many of the state’s investment fund managers and Wyoming Treasurer Curt Meier said the bill is well-intended, but goes too far. …
Testimony about House Bill 80 was heard Friday by the House Minerals Business and Economic Development Committee, which took no action on the bill, instead continuing its deliberations on the bill to Monday, as a host of people lined up to testify against the bill.
Among those questioning the bill closely were Reps. J.R. Riggins, R-Casper, and Martha Lawley, R-Worland, both suggesting it could severely limit the state’s investment options and pose other unintentional problems.
On Wall Street and in the private sector
ESG fund outflows and closures increased in 2024
What’s the story?
A Jan. 16 Morningstar Sustainalytics report showed ESG funds experienced record outflows and closures in 2024.
Why does it matter?
2024 ESG outflows increased to $19.6 billion from $13.3 billion in outflows in 2023, nearly a 50% year-over-year increase. 2024 was also the first year in which the number of ESG fund closures exceeded the number of new fund launches.
Read more
According to Pensions & Investments:
Sustainable investing-focused mutual funds and exchange-traded funds suffered a severe beating in 2024, producing record outflows, a record number of discontinued ESG mandates and a record number of fund closings via merger or liquidation, according to Morningstar. …
[T]he report noted that actions speak louder than words, at least when it comes to asset managers. Outflows fell to $19.6 billion last year vs. outflows of $13.3 billion in 2023. …
Only 10 sustainable funds were launched last year, well below 2023 when 66 were launched and far behind the glory years of 2021 and 2022 when 116 and 103 funds, respectively, entered the market.