In this week’s edition of Economy and Society:
- Canadian think tank publishes report on ESG ratings
- Net-Zero Banking Alliance banks on more defections
- State attorneys general send letter to SBTi
- Judge denies effort to stop California climate reporting law
- Texas attorney general blames ESG for wildfires
- Texas legislators introduce three ESG-related bills
Around the world
Canadian think tank publishes report on ESG ratings
What’s the story?
On Aug. 15, The Fraser Institute, a Canadian think tank, published a report titled “A Lawsuit Waiting to Happen: The Use of Non-Financial Metrics by the Investment Industry.”
The report states that:
- “ESG ratings of the same company vary widely from one rating agency to another, demonstrating very low validity;
- ESG ratings do a poor job of predicting future environmental performance, such as the exposure of a company to fines from environmental regulators;
- ESG ratings of companies do not predict future operating performance or the trajectory of stock prices;
- and corporate disclosure of ESG-favoured information seems connected to less ethical and more self-interested managerial behaviour.”
Why does it matter?
According to its author, Bryce Tingle, the N. Murray Edwards chair in Business Law at the University of Calgary, the study, is derived from “decade of careful investigation in dozens of empirical studies….”
The report’s author, University of Calgary Prof. Bryce Tingle writes that, “Over 88% of fund managers overseeing US$3.16 trillion of investment funds purport to use these ESG scores, a problem if the scores are inaccurate.”
What’s the background?
The Fraser Institute says its mission is “to improve the quality of life for Canadians, their families, and future generations by studying, measuring, and broadly communicating the effects of government policies, entrepreneurship, and choice on their well-being.”
Read more
According to Wealth Professional:
[Tingle] highlights one of ESG’s wildly inconsistent ratings which can mean that the same firm can be ranked as a leader by one agency and a laggard by another. “Many ESG factors are purely subjective, such as employee happiness … [and] incommensurate even across a single dimension,” the paper notes.
According to the paper, corporations can spend up to US$480,000 annually answering rating requests, with some firms hit by as many as 250 surveys per year and boards are increasingly devoting management time to satisfying ESG raters. Tingle concludes that the ESG disclosure treadmill often represents “a dead loss of time and money.”
The biggest warning comes on the legal front with the report highlighting that investment managers are fiduciaries, legally bound to act in the best interests of their clients, but if the tools they use are demonstrably flawed, they may be in breach of that duty.
Net-Zero Banking Alliance banks on more defections
What’s the story?
On Aug. 13, Bloomberg reported that the Net-Zero Banking Alliance (NZBA) “may be facing defections by some large EU banks with sizeable US exposures,” following recent U.S. bank departures.
Why does it matter?
More European bank departures from NZBA would follow similar actions from American, Canadian, and British, and Swiss banks. The six largest American banks and four of Canada’s largest banks all left NZBA in January 2025. Two of Britain’s three biggest banks followed, leaving NZBA in July 11 and Aug. 1, respectively. UBS, Switzerland’s biggest bank, left NZBA on Aug. 7.
What’s the background?
The NZBA is a United Nations environment program that describes itself as “global member-led initiative supporting banks to lead on climate mitigation in line with the goals of the Paris Agreement.”
Click here for more on the most recent financial institutions to leave the NZBA.
Read more
According to Bloomberg:
“EU exits from NZBA would mark a painful milestone for the group. In the US, where President Donald Trump’s reelection has brought with it intensified political attacks on net zero policies, banks have had to navigate a landscape in which NZBA commitments have come with the risk of lawsuits and GOP blacklists. In the EU, meanwhile, net zero has been enshrined in law and the bloc’s banks stand out as some of the world’s most climate conscious.
A spokesperson for NZBA said the alliance is committed to supporting its remaining members, without commenting on possible EU defections. This moment calls for “long-term work that requires courage, consistency and true leadership to stay on track, even when faced with barriers to action,” the person said.
In the states
State attorneys general send letter to SBTi
What’s the story?
Last week, 23 state attorneys general sent a letter to the Science Based Targets initiative (SBTi), requesting information about the group and its members, warning that “the SBTi, and financial institutions that commit to the SBTi standards ‘risk violating federal and state antitrust laws as well as state consumer protection laws.’”
Iowa Attorney General Brenna Bird organized the letter. All of the 23 signees are Republicans.
Why does it matter?
On Aug. 4, Florida Attorney General James Uthmeier announced an investigation into SBTi and the Climate Disclosure Project (CDP), a group that co-founded SBTi. Uthmeier alleged deceptive trade practices and antitrust violations. Uthmeier argued SBTi “sells companies validation of their climate goals—then directs them back to CDP to report their progress, creating what appears to be a profit-driven feedback loop.”
The state attorneys general letter indicates ongoing concern about sustainability, influence, and investing in Republican-controlled states.
What’s the background?
Click here for more on Florida’s investigation in SBTi and CDP.
Read more
According to ESG Today:
The AGs’ letter included a particular focus on the SBTi’s recently released Financial Institutions Net-Zero (FINZ) Standard, which it suggested formed an agreement to cut off funding and insurance to the oil and gas industry….
In July, the SBTi released its finalized Financial Institutions Net-Zero (FINZ) Standard, aimed at enabling banks and investors to set net zero-aligned targets for their lending, investing, insurance and capital markets activities. Among the key requirements set out for financial institutions to achieve goals aligned with the new standard is the publication of a “fossil fuel transparency policy,” requiring financial institutions to publish policies to immediately end project finance explicitly linked to fossil fuel expansion activities and general purpose finance of companies involved in coal expansion, end general purpose finance to oil and gas companies involved in expansion by 2030, and to transition portfolio energy activities to net zero by 2050.
In the letter, the AGs state that they “have grave concerns about these types of arrangements and commitments,” and warn that the SBTi, and financial institutions that commit to the SBTi standards “risk violating federal and state antitrust laws as well as state consumer protection laws.”
Judge denies effort to stop California climate reporting law
What’s the story?
U.S. District Judge Otis Wright II denied a motion from the U.S. Chamber of Commerce and other plaintiffs seeking a preliminary injunction to block enforcement of SB253 and SB261, two California laws that require corporations to report their Scopes 1, 2, and 3 emissions. The laws are set to go into effect in 2026 and 2027, respectively.
Why does it matter?
Two California laws – SB253, “Climate Corporate Data Accountability Act” and SB261, “Greenhouse gases: climate-related financial risk” – “require companies with revenues greater than $1 billion that do business in California to report annually on their emissions from all scopes, including direct emissions (Scope 1), emissions from purchase and use of electricity (Scope 2), and indirect emissions, including those associated with supply chains, business travel, employee commuting, procurement, waste, and water usage (Scope 3).”
A trial date in the Chamber of Commerce’s ongoing challenge of the two laws is scheduled for 2026. The Chamber of Commerce alleges the laws violate the Constitution’s Commerce Clause, Supremacy Clause, and the First Amendment.
What’s the background?
California Gov. Gavin Newsom (D) signed SB 19 into law in 2024, codifying two regulations that Newsom approved in 2023. Click here for more on the California emissions reporting laws.
President George W. Bush (R) nominated Wright to the U.S. District Court for the Central District of California in 2007.
Read more
According to ESG Today:
SB 253 requires companies with revenues greater than $1 billion that do business in California to report annually on their direct Scope 1 and 2 emissions, and Scope 3 value chain emissions, including those associated with supply chains, business travel, employee commuting, procurement, waste, and water usage. SB 261 applies to U.S. companies that do business in California and with revenues greater that $500 million to prepare a report disclosing their climate-related financial risk, as well as measures to reduce and adapt to that risk.
Following the approval of the new climate disclosure laws, the U.S. Chamber of Commerce, alongside other business groups, filed a lawsuit against the state, arguing that the new rules would violate the first amendment by compelling businesses to engage in subjective speech, and claiming that supply chain emissions “can be nearly impossible for a company to accurately calculate,” and that they would obligate companies to “subjectively report their worldwide climate-related financial risks and proposed mitigation strategies.”…
The plaintiffs in the case may still appeal, and the trial is currently scheduled for October 2026. Disclosures of Scope 1 and 2 emissions under the new law is scheduled to begin in 2026, covering the previous fiscal year, while Scope 3 emissions reporting will begin in 2027, while the first climate-related risk reports are to be published by January 1, 2026.
Texas attorney general blames ESG for wildfires
What’s the story?
Texas Attorney General Ken Paxton (R) said that his office is investigating Xcel Energy Inc. and two contractors for causing wildfires that burned parts of the state last year. Paxton said “It is unconscionable that utility companies might have sacrificed infrastructure maintenance, public safety and the well-being of our Texas communities for radical ESG and DEI goals.”
Why does it matter?
The Smokehouse Creek and Windy Deuce wildfires burned roughly one million acres in Texas in 2024 and did significant property damage. Paxton’s office alleges that Xcel and its contractors may have acted negligently by prioritizing ESG and allowing its net-zero by 2050 pledge to affect its business conduct.
XCel “said in a statement that it will work with state officials to better understand the cause of the fires, though the company disputes claims that it acted negligently.”
Read more
According to Bloomberg:
Texas restricts government work with companies that discriminate against firearms entities or boycott oil and gas companies. The ESG push at investment firms, pension funds and law practices has faded somewhat, partly because of efforts to avoid attacks by President Donald Trump and Republicans.
Xcel has set a goal of net zero carbon emissions by 2050, which is common among utility companies. The company faces lawsuits from victims of the Smokehouse fire, and is set to go to trial next month over its role in the 2021 Marshall Fire in Colorado, which it denies sparking.
Texas legislators introduce three ESG-related bills
Republican legislators in Texas introduced three bills related to ESG on Aug. 15. Texas is a Republican trifecta. Click here to see the details of the bills in the legislation tracker.
