In this week’s edition of Economy and Society:
- Texas comptroller removes BlackRock from boycott list
- ESG legislation update
- Canada finalizes greenwashing guidelines
- ESG funds outperform market for longest period in more than two years
- Surveys show mixed support for ESG
- Study argues ESG politicized corporate speech
In the states
Texas comptroller removes BlackRock from boycott list
What’s the story?
Texas Comptroller Glenn Hegar announced last week that his office removed BlackRock from the state’s list of firms barred from managing public investment funds over their treatment of fossil fuel companies.
Hegar said BlackRock’s recent shift away from public ESG support made the firm eligible to do business with the state again. He cited BlackRock’s broader inclusion of oil and gas companies in investment products and its withdrawal from the Net Zero Asset Managers Initiative and Climate Action 100+.
Why does it matter?
Texas was the first and largest state to create a list of asset managers—including BlackRock and other major firms—ineligible for public contracts over alleged discrimination against fossil fuel companies. BlackRock’s removal marks a shift in the relationship between the largest Republican-led state and the world’s largest asset manager.
What’s the background?
Texas passed its anti-boycott bill in June 2021, making it the first state to identify and ban financial firms deemed to boycott fossil fuels from receiving public contracts.
Fifteen other states have enacted similar anti-boycott legislation since 2021. Check out the full list of bills in Ballotpedia’s ESG legislation tracker here.
The anti-boycott approach is one of the six major types of reforms Ballotpedia has identified opposing ESG in public policy. There are five major types of reforms supporting ESG. To see the full list of approaches supporting and opposing ESG, click here.
Read on
Start exploring Ballotpedia’s ESG legislation tracker here.
For more analysis on enacted ESG legislation, including interactive maps, click here.
ESG legislation update
Three state legislatures took action on five ESG-related bills last week (since June 3). Three crossed over from one chamber to another, and one passed both chambers.
States with legislative activity on ESG last week are highlighted in the map below. Click here to see the details of each bill in the legislation tracker.
Around the world
Canada finalizes greenwashing guidelines
What’s the story?
Canada’s Competition Bureau announced last week that it finalized corporate environmental guidelines to help companies comply with new anti-greenwashing laws.
Why does it matter?
The guidelines clarify how companies must comply with Canada’s 2024 amendments to the Competition Act, which require businesses to substantiate environmental claims in advertising and corporate communications.
Read more
According to ESG Today:
The new publication includes a guideline for environmental claims about the future – such as net zero goals and timelines – requiring them to be supported by substantiation and a clear plan, noting that “claims about the future can be considered greenwashing if they represent little more than wishful thinking.”
In order to be well-founded and substantiated, the Bureau guides businesses to ensure they have a clear understanding of what needs to be done to achieve the goal, to have a “concrete, realistic and verifiable plan to accomplish the objective, with interim targets,” and meaningful steps underway to accomplish the plan. …
The new laws included provisions prohibiting representations about products’ environmental benefits that were “not based on an adequate and proper test,” and about the environmental benefits of business or business activity, unless they are “based on adequate and proper substantiation in accordance with internationally recognized methodology.”
On Wall Street and in the private sector
ESG funds outperform market for longest period in more than two years
What’s the story?
ESG-focused index funds are up about 5.4% year-to-date, more than double the S&P 500’s 2.6% return. It’s the longest stretch of ESG outperformance since late 2022.
Why does it matter?
After more than two years of underperformance, ESG funds’ recent gains may affect asset manager positioning going forward.
Read more:
According to Bloomberg:
Environmental, social and governance funds tracked in the US are up 5.4% on this year, more than doubling the 2.6% return of the S&P 500 Index, according to data compiled by Bloomberg. The research includes only equity funds with assets under management of more than $500 million.
The gains are occurring during what’s been a period of record outflows for ESG funds. In the first quarter, roughly $8.6 billion was redeemed from sustainable funds globally, according to Morningstar Inc. The market has struggled to find its footing amid an “increasingly complex geopolitical environment” triggered by President Donald Trump’s return to the White House, Morningstar said. …
Analysts at Morningstar published a report last week highlighting five ESG-focused exchange-traded funds that “continue to look promising.” They also happen to be the sector’s five largest ETFs, led by the iShares ESG Aware MSCI USA ETF (ESGU).
Surveys show mixed support for ESG
What’s the story?
A new survey from BNP Paribas reports that most institutional investors continue to incorporate sustainability goals but with less public emphasis. A separate Morningstar survey found that while many still consider sustainability factors, they are moving away from ESG as a broad or unified framework, instead focusing on specific issues without using ESG terminology.
Why does it matter?
While both surveys show continued consideration of sustainability factors, the differing views on ESG terminology reflect ongoing uncertainty about how the concept is defined, applied, and communicated in institutional investing.
Read more
According to ESG Today:
Nearly nine out of ten institutional investors globally report that they are not changing their commitments to sustainable investing, despite geopolitical pressures, although many are being quieter about it, according to a new survey by financial group BNP Paribas. …
The survey found that despite the recent geopolitical upheavals, less than 3% of investors reported scaling back their ESG objectives, while 87% report that their ESG and sustainability objectives remain the same. Within the latter group, however, nearly half said that despite retaining their ESG objectives, they have become less vocal about their process and achievements.
According to Bloomberg:
“Mainly, the asset owners seem less concerned about what ESG is called versus how it is implemented across their global portfolios,” according to the Morningstar report released on Tuesday. The environmental part of ESG is the primary focus for investors ahead of social and governance-related issues, with the majority viewing “climate as a material investment factor.”
The survey found that many asset owners feel ESG has become a polarizing marketing term that’s left the investment industry “open to concerns of oversimplification or accusations of greenwashing.” Many said “sustainable investing” and “responsible investing” are more appropriate terms.
In the spotlight
Study argues ESG politicized corporate speech
What’s the story?
A new report from the National Bureau of Economic Research argues that corporate politicization has increased over the past decade.
Why does it matter?
The report argues the shift is related to growing pressure on companies to take positions on political issues—a dynamic the authors associate with ESG frameworks and the influence of large asset managers such as BlackRock.
Read more
According to City Journal:
The authors report that “the growth of Democratic-leaning corporate speech is closely correlated with the expansion of assets under management in funds with environmental, social, and governance (ESG) objectives.” Firms with high BlackRock ownership also saw a particularly large increase after 2019, when CEO Larry Fink sent a letter encouraging corporations to dive into political controversies.
In other words, companies largely appear to be responding to direct pressure and financial incentives, as opposed to reacting to broader political developments and cultural phenomena. In addition to the overall upward trend, though, some abrupt, temporary spikes did occur around events such as the death of George Floyd in May 2020. …
The authors propose a theoretical model in which Democrats’ ESG push forced corporations to pick sides, necessarily alienating investors of one political persuasion or the other. This could explain the apparent paradox in which corporations responded to financial incentives and somehow hurt their stock.