ESG developments this week
In this week’s edition of Economy and Society :
- Ten state treasurer, eight state auditor elections scheduled for Nov. 5
- SEC fines asset manager $4 million over false ESG advertising
- Oklahoma judge issues summary judgment against anti-ESG law
Election Day is in one week, and Ballotpedia staffers will be working around the clock to bring our readers updates on the latest election results. Next week’s edition of Economy and Society will land in your inbox on Thursday, but don’t worry – we’ll send you special editions of our newsletter The Daily Brew on Tuesday and Wednesday to tide you over.
From Ballotpedia
Ten state treasurer, eight state auditor elections scheduled for Nov. 5
Voters in 10 states will vote on their treasurer next week. Voters in 8 states will vote on their auditor.
State treasurers oversee state investments, such as public pension funds, making them responsible for deciding if their respective states will incorporate ESG strategies into their portfolios. Additionally, both treasurers and auditors commonly have roles implementing and enforcing pro- or anti-ESG laws and regulations and ensuring funds are invested in the best interests of beneficiaries.
Today, we highlight two of the most competitive state treasurer elections in 2024: North Carolina and Pennsylvania.
North Carolina
Brad Briner (R) and Wesley Harris (D) are running in the Nov. 5, 2024, general election for North Carolina Treasurer. Incumbent Dale Folwell (R) ran unsuccessfully for the Republican gubernatorial nomination on March 5, 2024.
Briner has argued against ESG and promoted state investments in fossil fuel and other traditional energy sectors. His campaign website says the “ESG crowd has driven a lemming-like abandonment of sectors like traditional energy sector that – like tobacco a generation ago – creates compelling returns for the non-politicized investors who remain.” Briner also says he would move away from the sole trustee treasurer model—which he says enables corruption—and toward a board of trustees for managing the state’s investments. Briner said in a PBS interview, “It’s ironic, I’m running for office to diminish the power of the office ultimately but I think it’s the right thing to do for our state.”
Harris said he would focus on financial factors in his investments and avoid considering his political preferences. He’s argued in favor of the sole fiduciary model and against a board of trustees for managing the state’s investments, saying the change would give more power to the legislature, which he opposes. Harris said, “It’s about accountability. This is a position that is elected by the people. Not every treasurer is elected by the people, and so the people get the say, and that is something that I hold near and dear. That’s the backbone of our democracy and one person can be corrupted, so can a group of political appointees.”
Pennsylvania
Incumbent Stacy Garrity (R) and Erin McClelland (D) are running in the Nov. 5, 2024, general election for Pennsylvania Treasurer. ESG and Israeli bonds have emerged as issues in the race.
Garrity invested $20 million in Israeli bonds on Oct. 12, 2023, saying it was important “to show our support at a time when the people of Israel are facing horrific terrorism.” Garrity said the bonds are a good investment because they “pay above-market returns and they’ve never defaulted.”
McClelland has argued Garrity politicized the state’s investments with foreign policy considerations. She said there are “too many factors when you’re dealing with a foreign country that you cannot control for.” McClelland says she would use the state’s investments to promote stricter human rights and environmental standards in corporate supply chains.
Learn more
To learn more about state auditor and state treasurer elections in 2024, click here.
In Washington, D.C.
SEC fines asset manager $4 million over false ESG advertising
The Securities and Exchange Commission (SEC) announced Oct. 21 that it had fined asset management firm WisdomTree Asset Management for advertising false ESG claims about three of its funds. The SEC said the funds did not sufficiently consider ESG factors, and the firm knew the ESG screening criteria were insufficient:
The U.S. Securities and Exchange Commission is fining financial services firm WisdomTree Asset Management $4 million for greenwashing and failing to comply with an investment strategy it advertised as incorporating ESG factors, the agency announced Monday.
The New York-based asset manager will pay the civil penalty for making misstatements about the investment strategy of three exchange-traded funds. These include the WisdomTree International ESG Fund, the WisdomTree Emerging Markets ESG Fund and the WisdomTree U.S. ESG Fund, according to the SEC’s Oct. 21 cease-and-desist order.
According to the order, prospectuses issued for the three ESG-marketed funds from March 2020 to November 2022 stated the funds would not invest in companies involved in certain “controversial” products and activities, such as fossil fuels and tobacco. However, the SEC found that the funds invested in companies in those sectors, including natural gas extraction, coal mining and transportation companies, as well as those that participated in the retail distribution of tobacco products.
In the states
Oklahoma judge issues summary judgment against anti-ESG law
Oklahoma County District Judge Sheila Stinson—who temporarily suspended the state’s anti-ESG law earlier this year—issued a summary judgment against the law last week. The statute prohibits state contracts and investments with asset managers who—in the state treasurer’s view—boycott the fossil fuel industry. State Attorney General Gentner Drummond (R) said his office will appeal the case to the Oklahoma Supreme Court. According to OK Energy Today:
The Oklahoma County District Judge who earlier suspended enforcement of Oklahoma’s anti-ESG act following a lawsuit by a state retiree granted summary judgment in the case on Friday.
Judge Sheila Stinson also added three more violations of the state Constitution in her ruling against the Energy Discrimination Elimination Act of 2022, an act challenged by retiree Don Keenan in a lawsuit filed in December 2023. Keenan’s lawsuit argued the creation of a blacklisting of companies that discriminated against the oil and gas industry harmed him. He sued State Treasuer Todd Russ for enforcement of the Act and the creation of a list of firms that were not allowed to do financial business with state agencies, including the retirement systems.
Judge Stinson in her granting of summary judgment said the “Act prohibits private causes of auctions and assesses attorney fees against any individual or entity challenging the statue, with no consideration of whether they are successful or not in their challenge.”
Oklahoma Council of Public Affairs argues for anti-ESG law
The Oklahoma Council of Public Affairs ran an article last week arguing Oklahoma’s anti-ESG law has financially helped the state and its pension beneficiaries:
A new study co-authored by two Oklahoma Council of Public Affairs experts finds that “environmental, social, and governance” (ESG) investing violates the fiduciary duty of state pension asset managers, is based on unreliable and inconsistent ratings, and indirectly supports attacks on key Oklahoma industries such as oil and gas. …
“The ESG Gordian Knot: Evaluating ESG in a Fiduciary World” was co-authored by [OCPA President Jonathan] Small; OPCA Policy Research Fellow Curtis Shelton, and Byron Schlomach, Ph.D.
“Pension asset managers have a legal obligation to pursue investment strategies that generate the greatest returns for retirees, maximizing their financial security,” Shelton said. “ESG fails to meet that basic standard.”
On Wall Street and in the private sector
ESG funds liquidated in U.S. and Europe
Hundreds of ESG funds in Europe and the U.S. have been liquidated or merged with other funds this year, according to data released by Morningstar. The report said closures could be related to enforcement activity against ESG funds that don’t sufficiently consider ESG criteria in the view of regulators. According to Bloomberg:
In the third quarter alone, European investment firms liquidated or merged 102 funds touting sustainable goals, bringing the total to 349 this year, according to a Morningstar Inc. analysis of the market published on Thursday.
That puts 2024 on track to surpass last year’s 351 ESG fund closures in Europe. In the US, 12 funds were liquidated, including five managed by BlackRock Inc. And more upheaval is likely to be ahead, as new rules designed to crack down on misleading ESG sales pitches get rolled out, Morningstar said. …
At the same time, Morningstar noted that redemptions from funds touting environmental, social and governance metrics slowed in the US, while inflows into European ESG funds declined. And given Europe’s dominant size in the market for ESG investing, signs of a retreat in the region carry significance.
Survey shows reduced ESG support among investors
A new Hoover Institution and Stanford survey of investors shows reduced support for ESG investment considerations for the second year in a row:
The 2024 Survey of Investors, Retirement Savings, and ESG is a coproduction of the Corporate Governance Research Initiative at Stanford’s Graduate School of Business, the Arthur and Toni Rembe Rock Center for Corporate Governance, and the Working Group on Corporate Governance at the Hoover Institution.
The study found that for the second straight year, support for ESG is down among a wide swath of investors, including institutional investors, shareholders, and retail investors, such as those investing in 401(k)s and other retirement accounts. There is a particular decline in ESG support among younger investors, who may be the ones most impacted by higher inflation and job market softness and thus less likely to believe they can make sacrifices in their portfolio for ESG aims.
“We are seeing a leveling of support for ESG across generations,” Hoover Institution senior fellow and Stanford Graduate School of Business finance professor Amit Seru says in the report. “Two years ago, young investors were twice as likely to say they are very concerned about environmental and social issues as older investors. Today, the differences are only a few percentage points.” “Sentiment has settled at a level where deep concern for ESG is a minority position,” he continues. “Two years of economic strain appear to have taken their toll on investors’ enthusiasm for stakeholder advocacy.”