ESG developments this week
In this week’s edition of Economy and Society :
- Oklahoma AG appeals ESG ruling to state Supreme Court
- Global ESG funds add $10.4 billion in the third quarter
- BlackRock ESG funds post Q3 outflows
- Corporate ESG reporting up from five years ago
- Consumers’ Research warns banks of potential lawsuits
In the states
Oklahoma AG appeals ESG ruling to state Supreme Court
What’s the story?
Oklahoma Attorney General Gentner Drummond (R) filed an appeal with the state Supreme Court seeking to overturn a lower court’s ruling against the state’s anti-ESG law. The statute prohibits state contracts and investments with asset managers who—in the state treasurer’s view—boycott the fossil fuel industry.
Why does it matter?
Oklahoma’s decision on the anti-ESG law could set an example that other states may consider in enforcing their own laws.
What’s the background?
Drummond has become involved in several cases related to ESG and Oklahoma’s energy industry. In addition to supporting Oklahoma’s anti-ESG law—the Energy Discrimination Act of 2022—in state courts, Drummond last month joined a multi-state challenge of an Environmental Protection Agency (EPA) rule limiting heavy-duty truck emissions. He also challenged the EPA’s authority to reject the state’s ozone emissions plan in 2023.
See this newsletter’s previous coverage of the Oklahoma Energy Discrimination Act of 2022 here.
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From Environment and Energy Leader:
For Drummond, the fight to safeguard Oklahoma’s energy sector and fiscal policies embodies a wider struggle against environmental measures that, in his view, ignore the economic realities facing energy-dependent states. As his anti-ESG appeal moves forward, Oklahoma’s stance could set a precedent for other states grappling with ESG considerations in public investments, underscoring the question of where state authority ends and federal influence begins.
Drummond’s escalating legal battles with federal agencies reflect a potent intersection of energy policy, state rights, and the shifting boundaries of environmental governance. Whether defending Oklahoma’s sovereignty against EPA mandates or shielding public funds from ESG-driven restrictions, Drummond’s actions resonate deeply within an intensifying national debate on the future of state-regulated finance and energy policy. The Supreme Court’s eventual ruling on Oklahoma’s anti-ESG law could reshape the landscape for states aiming to resist ESG mandates—an outcome Drummond seems prepared to pursue at all costs.
On Wall Street and in the private sector
Global ESG funds add $10.4 billion in the third quarter
What’s the story?
ESG funds attracted $10.4 billion in new investments globally in Q3 2024, representing about 0.33% growth. European ESG funds performed best, adding about $10.3 billion.
Why does it matter?
The $10.4 billion represents an acceleration in ESG investment growth compared to the first and second quarters of the year. Global ESG funds added $6.2 billion in Q2 and $4.8 billion in Q1. The growth remained below the nearly $160 billion peak in Q4 2021
Read more:
According to Morningstar:
The organic growth rate of the global ESG fund coverage inched higher to 0.33 % from the restated 0.20% three months ago. But this is much lower than the 0.77% growth experienced by the broader fund coverage, which posted aggregate inflows of USD 373 billion, boosted by improving economic prospects and market price appreciation. The organic growth rate, calculated as net flows over the period divided by total assets at the beginning of the period, provides insight into the relative magnitude of net flows.
The higher global inflows into ESG funds benefited mostly from the decelerated outflows in the US, Japan, and Canada, while Europe registered slightly lower subscriptions in the third quarter relative to the previous quarter.
BlackRock ESG funds post Q3 outflows
What’s the story?
Although investors added money to European ESG funds in Q3, BlackRock—the world’s largest asset manager and largest ESG fund manager—experienced negative growth. The asset manager finished the quarter with outflows of $2.2 billion from its European ESG funds.
Why does it matter?
BlackRock is the largest passive ESG fund manager in the world and has not seen withdrawals exceeding new investments in its European ESG products since at least 2021. The move could indicate investors are moving to more active strategies.
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According to Bloomberg:
“This is surprising given that BlackRock has been at the top of ESG fund-flow league tables every quarter for at least the past five years,” said Hortense Bioy, head of sustainable investing research at Morningstar Sustainalytics. “It’s even more surprising that the outflows came from its passive fund range, which has always proven popular among investors.” …
The Morningstar data, which are limited to mutual funds bought by retail and institutional investors, also show that flows into Europe’s index-tracking ESG funds fell to a record low of $10 billion at the end of September.
Corporate ESG reporting up from five years ago
What’s the story?
U.S. companies have boosted their ESG reporting over the last five years, according to an Oct. 31 Reuters report. For example, more than 80% of companies in the S&P 500 reported on the demographics (race and gender) of their workforce as of Sept. 1, compared to only 5% five years ago.
Why does it matter?
Some companies have reported reductions in their ESG reporting in the face of opposition from state governments and other critics. The Reuters report indicates those reductions may be exceptions to the overall trend.
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According to Reuters:
The trend shows the importance investors and regulators now place on environmental, social and governance (ESG) issues, analysts said, amid rapid global warming and shifting workforce demographics. Some political conservatives call the attention misplaced or worry the disclosures could give activists leverage to force companies to make unnecessary changes.
“Most ESG problems are business problems. I’m an accounting professor. I can tell you that if you pick any company’s 10K and look at the risk factors, they are full of E and S problems,” said Shiva Rajgopol, who teaches at Columbia Business School.
The data contrasts with a some high-profile cases where companies have dialed back ESG efforts such as working less with industry climate efforts and cooperating less with an LGBTQ+ advocacy group.
In the spotlight
Consumers’ Research warns banks of potential lawsuits
What’s the story?
Consumers’ Research—a group opposing ESG investing—sent a letter to five banks arguing they could face lawsuits for making unrealistic ESG claims. New York Attorney General Letitia James (D) recently brought a lawsuit against JBS USA Food Company, alleging the company’s ESG commitments were misleading based on their beef production. The Consumers’ Research letter argues banks that finance food producers could face similar allegations based on their net-zero commitments.
Why does it matter?
Consumers’ Research says consumer costs could rise if attorneys general seek to enforce environmental/sustainability promises in courts.
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Consumers Research writes:
Food production and food availability on store shelves are critical issues for consumers. This places a greater emphasis on action taken by the New York Attorney General’s office which highlighted a major risk to companies directly involved in financing and supporting the national food supply chain.
Recently, JBS USA Food Company (JBS) was sued by New York Attorney General Letitia James over public ESG statements and sustainability documents. The lawsuit alleged JBS’s public statements and sustainability documents set unattainable goals regarding net-zero emissions—goals that could not be met so long as JBS continued to produce beef products—and that the JBS commitments misled consumers. …
Consumers’ Research is concerned that it is only a matter of time before the banks that finance food supply production companies, like Citibank, are subjected to state actions targeting their unrealistic net-zero commitments, as has happened with JBS.