Chris Nelson

Chris Nelson is a project director at Ballotpedia. Contact us at

Proposed legislation would eliminate ESG in TSP pensions

Economy and Society is Ballotpedia’s weekly review of the developments in corporate activism; corporate political engagement; and the Environmental, Social, and Corporate Governance (ESG) trends and events that characterize the growing intersection between business and politics.

ESG developments this week

In Washington, D.C.

Congressman introduces legislation that would eliminate ESG in TSP pensions

Congressman Chip Roy (R-Texas) on May 23 reintroduced legislation calling for the elimination of the use of ESG in the Thrift Savings Plan (TSP), the pension plan for federal employees and members of the military. The private managers of the TSP are BlackRock and State Street, two of the largest passive asset managers and among the biggest advocates of ESG.

On Tuesday, Representative Chip Roy (R-TX) led 17 of his Republican colleagues in re-introducing the “No ESG at TSP Act,” legislation that seeks to prevent the federal Thrift Savings Plan (TSP) from allowing taxpayer dollars to flow into Environmental, Social, and Governance (ESG) funds.

In a press release announcing the bill’s reintroduction, Roy said “ESG investing poses a dangerous threat to the free flow of capital,” and that the movement is actively threatening domestic energy supply, empowering activist shareholders, and advancing woke gender and racial ideologies.

“ESG is an investing scheme woke corporations are using to appease the Left by destroying reliable American energy and advancing radical gender and racial ideologies,” Roy said. “Last year, the Thrift Savings Plan began allowing federal employees to invest their taxpayer funded salaries into ESG plans. The U.S. Government has no business propping up woke scams like ESG. Congress should eradicate every federal policy and office that promotes it, starting here.”

The “No ESG at TSP Act” would prohibit TSP from allowing federal employees to invest their taxpayer-funded salaries into funds that make “biased investment decisions” based on ESG criteria, according to the release.

TSP currently manages about $817 billion in total assets, making it the largest defined contribution plan in the world. The vast majority of TSP contributions stem from withholdings from federal or servicemember paychecks and their respective agency matches. That means TSP is effectively allowing billions of taxpayer dollars to be used for ESG investing, the press release said, and the “No ESG at TSP Act” would stop this….

The new bill’s cosponsors include Dan Bishop (R-NC), Troy E. Nehls (R-TX), Brian Babinn (R-TX), Byron Donalds (R-FL), Dan Crenshaw (R-TX), Scott Perry (R-PA), Bob Good (R-VA), Michael Cloud (R-TX), Buddy Carter (R-GA), Andy Ogles (R-TN), Matt Rosendale (R-MT), Randy Weber (R-TX), Andy Biggs (R-AZ), Keith Self (R-TX), Glenn Grothman (R-WI), Lauren Boebert (R-CO), and Josh Brecheen (R-OK).

In the states

Net-Zero Insurance Alliance suffers membership losses following state pressure

The Net-Zero Insurance Alliance, a global organization comprised of insurance companies that have agreed to promote ESG climate policies, continues to lose members after 23 state attorneys general sent letters earlier this month warning insurance companies that participation in the alliance potentially constitutes illegal collusive behavior under antitrust laws:

A United Nations-convened climate alliance for insurers suffered at least three more departures on Thursday including the group’s chair, as insurance companies take fright in the face of opposition from U.S. Republican politicians.

At least seven members of the Net-Zero Insurance Alliance (NZIA), which launched in 2021, have now left including five of the eight founding signatories.

Departures on Thursday included AXA , whose Group Chief Risk Officer Renaud Guidée had chaired the alliance. The French insurer said in a statement it was leaving to “continue its individual sustainability journey.” Germany’s Allianz (ALVG.DE) and French reinsurer SCOR (SCOR.PA) also quit.

NZIA, part of the Glasgow Financial Alliance for Net Zero set up by U.N. climate envoy Mark Carney, requires members to commit to reducing their greenhouse gas emissions.

The group has been buffeted by growing political opposition from some Republicans in the United States, who say the group could be violating antitrust laws by working together to reduce clients’ carbon emissions.

This month 23 U.S. state attorneys general told NZIA members that the group’s targets and requirements appeared to violate both federal and state antitrust laws.

They gave insurers a month to respond in a May 15 letter – the latest salvo from the Republicans against financial institutions factoring environmental, social and governance-related (ESG) factors into their decision making.

Harvard essay argues for end to state ESG support and opposition

Harvard Law School Forum on Corporate Governance published an essay on May 29 written by Eli Lehrer (the founder the R Street Institute) and Robert Eccles (a visiting professor of finance at Oxford), arguing for a truce on state ESG policy. They argued policies promoting and opposing ESG were both costly and counterproductive:

Over the past year, the debate over Environmental, Social and Governance (ESG) standards in the United States has revealed stark policy contrasts between red and blue states. Red state officials have proposed and enacted “anti-boycott” bills which bar state business with firms that divest from favored industries. Blue states, on the other hand, have widely considered efforts to mandate divestments from the same industries. Neither approach makes economic sense. Recognizing this creates a real opportunity for a truce, based on fiduciary duty and the separation of political issues from investment decisions.

And we need a truce because the pace of legislation about ESG is only accelerating. Data collected by the law firm Simpson Thacher & Bartlett shows that at least 28 policies and laws have taken effect since 2021 alone and, as of the spring of 2023, there are at least 13 pending bills related to ESG. This doesn’t count the enormous number of existing policies–everything from preferences for small businesses to laws against investing state funds with companies that operate in certain countries–that would fall under the ESG umbrella if proposed today. While the stated financial protection and future-proofing objectives behind these proposals are worth consideration, they are bad policies likely to fail on their own terms while doing significant fiscal damage.

Let’s start with the red-state boycott ban bills which are typically directed at investment firms that limit firearms or fossil fuel investments. These bans represent an unwise ceding of legislative power that will cost states billions….

While anti-boycott bills are too new for anyone to have long-term evidence of their impacts,  there is little question that their mirror image–mandatory divestment policies–have negative fiscal consequences and fail to produce their desired outcomes. As such, a Maine law that requires the state pension funds to end fossil fuel investments–typical of proposals floating around in several blue states–seems almost certain to have roughly the same impact as past divestment policies targeting narrower classes of firms. Analysis conducted by California’s giant CalPERS and CalSTRS pension funds both show billions in dollars of losses resulting from that states’ existing divestment policies. Even worse for supporters of divestment efforts, the best evidence seems to indicate that they are actually counterproductive….

But even though most  pro- and anti-state level ESG policies don’t work as advertised, it’s unwise to dismiss the rationale behind them out of hand. State employees–who, ideally, will represent the full spectrum of a state’s views–shouldn’t have their pension funds invested in ways that place what may be political views above return on investments….

On the other hand, any number of ESG-related considerations can have strong connections to investment return….

This brings us to a proposed solution that both the  left and right should be able to agree upon: clear fiduciary duty laws that define who is responsible for state investment, allow them to consider ESG factors only when they contribute to economic value creation and assure that state employees in defined contribution plans can select non-ESG options.

Alabama AG criticizes ESG supporters who claim to promote free markets

Alabama Attorney General Steve Marshall (R) took to the pages of The Wall Street Journal on May 23 to condemn congressional ESG supporters for calling themselves free market advocates:

Proponents of ESG—environmental, social and governance—investing are posing as champions of the free market. Utah Attorney General Sean Reyes and I testified earlier this month before the House Oversight Committee regarding our continuing investigations into several global financial alliances that aim to impose ESG policies on American businesses and consumers in defiance of our free-market economy.

Minutes into the hearing, Rep. Jamie Raskin (D., Md.) claimed that my colleagues and I were “assaulting the free market” and attempting to “stop the market from responding to the climate crisis.” Rep. Katie Porter (D., Calif.) continued the gaslighting, noting that “capitalism delivers freedom,” which “happens when markets let people choose what they want.”

As Mr. Raskin and Ms. Porter surely know, the free market has resisted onerous ESG mandates. That’s why sectorwide financial alliances have emerged to restrict the market’s functioning and stymie consumer choice.

A company’s affinity for ESG ideology is its prerogative. Likewise, it is the consumer’s choice to reward a company’s social messages with continued business. Such corporate stances are often nothing more than virtue signaling. This can often be a costly decision, as Anheuser-Busch is learning in the wake of Bud Light’s partnership with transgender activist Dylan Mulvaney.

The more sinister ESG acolytes, however, aren’t merely printing woke messages on six-packs. America’s self-proclaimed “socially responsible” financial institutions, which should be competing in the free market, are instead joining forces with one another and their global counterparts to decide which companies—and, in some cases, which industries—should be permitted to continue their market participation unimpeded.

Since 2017, a growing number of these financial alliances, including Climate Action 100+, the Net-Zero Banking Alliance and the Venture Climate Alliance, have plotted to pressure blacklisted companies into making a priority of decarbonization and other social goals at the behest of the United Nations, not American consumers. In other words, by controlling trillions of dollars in assets, these groups intend to corner the market through potentially illegal horizontal agreements and force preferred social and political objectives on American companies and consumers.

The Net Zero Asset Managers initiative boasts 301 signatories and $59 trillion in assets under management. On its website, the group writes: “Our industry’s ability to drive the transition to net zero is extremely powerful. Without our industry on board, the goals set out in the Paris Agreement will be difficult to meet.”

This statement doesn’t refer to a company making a business choice because of consumer demand or shareholder interest. Rather, it reveals a coalition of major financial-industry players that have come together to choke out certain disfavored companies and industries by limiting their access to capital and then pointing to this manufactured obstruction as evidence that these firms are a bad investment. The resulting harm to the working public—of little interest to global elites—is higher energy costs and fewer options across a variety of markets, including automobiles, appliances and food production.

In the spotlight

Forbes contributor says Target and Bud Light may have had ESG motivations behind LGBTQ campaigns and partnerships

Forbes contributor Jon McGowan–an attorney with a background in ESG–suggested last week that Target’s LGBTQ Pride Month campaign, which has been a topic of conversation and disagreement, may have been influenced by ESG scoring metrics. He said the same about the Bud Light partnership with transgender influencer Dylan Mulvaney:      

Target is the latest corporation to face backlash for LGBTQ+ pride merchandise, in what is becoming known as “Bud Lighting.” With ESG becoming a divisive political issue, there is a natural tendency by some to blame everything inclusive on ESG. However, this is not without merit. Diversity and inclusion are key issues in ESG, and it is worth looking at corporate documents to see if there is a connection….

In the ESG debate, most focus on the environmental aspect. Measuring sustainability programs and environmentally friendly actions taken by a company. However, the social aspect is the major source of controversy for the right. Diversity, equity, and inclusion, or DEI, programs; policies which target specific industries; and policies tied to political stances are often factors in ESG. Companies may implement programs and internal policies to bolster their ESG Reports. Recently, the focus of controversy has been on outward facing LGBTQ+ polices supporting and promoting the transgender community.

Budweiser was one of the first to face serious backlash after releasing a limited run Bud Light can featuring transgender influencer Dylan Mulvaney. Conservatives were outraged, and the company faced a significant loss in business. There is reason to believe that Anheuser-Busch InBev, the parent company of Budweiser, took the action as part of a marketing campaign meant to bolster their ESG scores….

Looking at Target’s 2022 ESG Report, the company boasts a 100% score by the Corporate Equality Index put out by The Human Rights Campaign. CEI is 40% based on outward facing LQBTQ policies, and a company can face an additional 25% penalty for actions which do not support the LGBTQ cause. Their high score shows a very LGBTQ friendly company. Additionally, they were ranked #4 in DiversityInc’s 2022 Top Companies for LGBTQ Employees….

If Target was considering ESG in marketing decisions relating to LGBTQ+ merchandise, it was probably to maintain their already high scores. However, their choice to change course and remove some of the Pride merchandise will have the opposite effect.

SCOTUS takes up Chevron

The Checks and Balances Letter delivers news and information from Ballotpedia’s Administrative State Project, including pivotal actions at the federal and state levels related to the separation of powers, due process, and the rule of law.

This edition: 

In this month’s edition of Checks and Balances, we review the United States Supreme Court’s decision to take up a case challenging Chevron deference, and its ruling in a separate case allowing for Article III challenges to agency structure; the inclusion of the Regulations from the Executive in Need of Scrutiny (REINS) Act in the federal debt ceiling resolution; President Joe Biden’s third veto of a Congressional Review Act (CRA) resolution; and new legislation from U.S. Senator Ted Cruz (R) aiming to eliminate the Consumer Finance Protection Bureau (CFPB).

At the state level, we take a look at a new Idaho law modifying the legislative review process for state administrative rules. We also examine legislation passed by the Arizona lawmakers that, unless vetoed by the governor, would enact a state law similar to the federal REINS Act.

We also highlight new scholarship from administrative law scholars Brianne Gorod, Brian Frazelle, and Alex Rowell examining the scope of the major questions doctrine. We wrap up with our Regulatory Tally, which features information about the 183 proposed rules and 240 final rules added to the Federal Register in April and OIRA’s regulatory review activity.

In Washington

SCOTUS takes up Chevron, greenlights challenges to agency structure

What’s the story?

The U.S. Supreme Court on May 1, 2023, agreed to hear Loper Bright Enterprises v. Raimondo—a case challenging an agency interpretation of a federal fishery law that could curb or clarify future applications of Chevron deference by the federal courts.

Inconsistent applications of Chevron deference, including by the U.S. Supreme Court, have led scholars and judicial commentators to raise questions about the doctrine’s longevity and anticipate rulings limiting its scope. Similar questions about potential limits to Chevron deference surround Loper in light of the court’s grant of review, which concerns whether the court should overturn Chevron deference or, at a minimum, clarify when certain instances of statutory silence constitute the type of ambiguity that would compel deference.

Two weeks earlier, on April 14, 2023, the court issued a unanimous decision in Axon Enterprise Inc. v. Federal Trade Commission (FTC)—consolidated with Cochran v. Securities and Exchange Commission (SEC)—holding that plaintiffs can bring constitutional challenges to the structure of the FTC and the SEC in federal courts without first going through administrative proceedings.

Want to go deeper?

REINS Act included in debt ceiling bill

What’s the story?

The U.S. House of Representatives on April 26, 2023, voted 219-210 to pass H.R. 2811, the Limit, Save, Grow Act of 2023, which aims to raise the federal government’s debt ceiling and includes provisions related to congressional review of agency rulemaking known as the Regulations from the Executive in Need of Scrutiny (REINS) Act.

The REINS Act would require congressional approval of certain major agency regulations before the rules could take effect. The REINS Act defines major agency regulations as those that have financial impacts on the U.S. economy of $100 million or more, increase consumer prices, or have significant harmful effects on the economy. Republican lawmakers have introduced the REINS Act during every session of Congress since the 112th Congress (2011-2012).

Congresswoman Kat Cammack (R-Fla.) introduced the REINS Act in the 118th Congress with more than 170 Republican cosponsors. Republican lawmakers have introduced the REINS Act during every session of Congress since the 112th Congress (2011-2012). Florida and Wisconsin lawmakers enacted REINS-style state laws in 2010 and 2017, respectively.

President Biden has stated that he will veto the Limit, Save, Grow Act if it reaches his desk. White House Press Secretary Karine Jean-Pierre stated in January, “Congress is going to need to raise the debt limit without—without—conditions and it’s just that simple,” according to ABC News.

Want to go deeper?

Biden vetoes third CRA resolution

What’s the story?

President Joe Biden (D) issued his third veto of a Congressional Review Act (CRA) resolution on May 16, 2023. The resolution, which gained bipartisan support in both the House and Senate, aimed to nullify a rule from the International Trade Administration that paused tariffs on solar equipment imports from Cambodia, Malaysia, Thailand, and Vietnam. 

Lawmakers in support of the resolution argued in part that the rule limits growth in domestic solar manufacturing, allows China to circumvent tariffs by directing its solar panels through other countries, and fails to align with U.S. trade policies. Biden disagreed in his veto message, arguing that the CRA resolution “bets against American innovation. It would undermine these efforts and create deep uncertainty for American businesses and workers in the solar industry.”

CRA resolutions pending in Congress as of May 19, 2023, aim to rescind, among others, the following selected agency rules:

  • A rule from the U.S. Department of Labor regarding wage rates for agricultural labor performed by certain temporary workers that, according to Representative Ralph Norman (R-S.C.) and Senator Tim Scott (R-S.C), will increase labor and food costs.
  • A rule from the Environmental Protection Agency instituting Endangered Species Act (ESA) protections for the lesser prairie chicken that, according to Senator Joe Manchin (D-W.Va.), will “cause serious damage to our national agricultural economy and hinder critical oil and gas projects in favor of a radical environmental agenda.”
  • A student loan cancellation rule from the U.S. Department of Education that Representative Bob Good (R-Va.) argued “shifts the costs from student loan borrowers onto the backs of taxpayers to the tune of hundreds of billions of dollars.”
  • A rule from the National Marine Fisheries Service aiming to modify the definition of ‘habitat’ for endangered species designations that Senator Cynthia Lummis (R-Wyo.) argued would politicize endangered species decision-making and unfairly target landowners. 

Want to go deeper?

Cruz files bill to eliminate CFPB

U.S. Senator Ted Cruz (R-Texas) and Representative Byron Donalds (R-Fla) on April 27, 2023, introduced the Repeal Consumer Financial Protection Bureau (CFPB) Act, which would eliminate the CFPB by repealing the CFPB Act and restoring federal law “as if the Act had not been enacted,” according to the text.

The CFPB, established as an independent agency in 2010 and championed by U.S. Senator Elizabeth Warren (D-Mass.), seeks to enforce federal consumer financial law and ensure what the agency views as fairness in the market for consumer protection products. 

Cruz argued in a statement that the CFPB serves to “stifle economic growth by enforcing burdensome, unnecessary economic regulations.”

The U.S. Supreme Court this fall will hear oral argument in Consumer Financial Protection Bureau (CFPB) v. Community Financial Services Association of America Ltd.—a case challenging the legality of the agency’s funding structure, which flows through the Federal Reserve rather than through congressional appropriations. The U.S. Supreme Court in 2019 previously weighed in on the agency’s structure, holding in Seila Law v. CFPB that the removal protections of the agency’s single director unconstitutionally insulated the CFPB from presidential oversight.

Want to go deeper?

In the states

Idaho lawmakers modify approach to review of administrative rules

What’s the story? 

A new Idaho law requires legislative approval and periodic review of all administrative rules issued by state agencies.

Before the new law, all administrative rules in Idaho expired each year unless the state legislature passed a resolution reauthorizing the state’s regulations. The new law requires lawmakers to approve each final rule before it takes effect and slows down the legislative review process by placing each rule on an eight-year expiration cycle. The modified approach seeks to ensure “that each rule is periodically reviewed for continued relevance and applicability,” according to the bill’s statement of purpose.

The law, which passed the state House by a 55-9-6 vote and the state Senate by a 26-6-3 vote, will take effect on July 1, 2023.

Want to go deeper?

Arizona legislature sends REINS-style state law to governor’s desk

What’s the story? 

Arizona lawmakers on May 15, 2023, sent a state-level version of the REINS Act to Governor Katie Hobbs’ desk.

The Arizona bill, sponsored by state Representative Justin Wilmeth (R), would require the state legislature to ratify any state agency rule that, according to the text, is “estimated to increase regulatory costs or have an adverse impact on economic growth in the state by $500,000 or more within 5 years” before the rule can take effect.

The state House voted 31-27 and the state Senate voted 16-14 to approve the bill along party lines. Governor Katie Hobbs (D) had yet to either sign the bill or veto the legislation as of May 19, 2023.

Florida and Wisconsin lawmakers enacted REINS-style state laws in 2010 and 2017, respectively.

Want to go deeper?

When should the major questions doctrine apply?

Administrative law scholars Brianne Gorod, Brian Frazelle, and Alex Rowell argue in new scholarship for the Wake Forest Law Review that more specificity is needed to set parameters for judicial applications of the major questions doctrine. The authors contend that the major questions doctrine’s application to questions of economic and political significance is too broad and that other factors, such as the history of the agency’s authority, should also be considered in order to determine whether the major questions doctrine applies to a case:

“In West Virginia v. EPA, the Supreme Court held a climate-change policy unlawful by relying on what it called for the first time the “major questions doctrine.” In the wake of the Court’s decision, commentators and litigants have argued that this doctrine should prove fatal to a wide range of regulatory actions on topics ranging from the environment and economic policy to civil rights and immigration. This Article contends that those claims are wrong. … Most importantly, the economic and political significance of an agency’s action, however great, does not alone trigger application of the doctrine. Instead, to qualify as one of the ‘extraordinary cases’ in which the doctrine applies, additional factors must demonstrate that an agency is seeking to fundamentally alter its authority and expand it ‘beyond what Congress could reasonably be understood to have granted.’ In short, the doctrine applies only where an agency makes a breathtaking assertion of power that context reveals to be a dubious effort to transform the basic nature of its authority. The Court’s decision to limit the doctrine to such extraordinary cases makes sense because the doctrine is in tension with principles of textualism, the original understanding of the Constitution, and the judiciary’s limited role under the separation of powers. Aggressively employing the doctrine beyond the limited sphere prescribed by the Court would exacerbate those tensions and undermine the legitimacy of the courts. By relying on the doctrine only sparingly, as West Virginia instructs, courts can best maintain their constitutional role of interpreting the laws and avoid inappropriately interfering with the decisions of the elected branches.”

Want to go deeper

  • Click here to read the full text of “Major Questions Doctrine: An Extraordinary Doctrine for ‘Extraordinary’ Cases” by Brianne Gorod, Brian Frazelle, and Alex Rowell

Regulatory tally

Federal Register

Office of Information and Regulatory Affairs (OIRA)

OIRA’s April regulatory review activity included the following actions:

  • Review of 37 significant regulatory actions. 
  • Three rules approved without changes; recommended changes to 32 proposed rules; two rules withdrawn from the review process.
  • As of May 1, 2023, OIRA’s website listed 117 regulatory actions under review.
  • Want to go deeper? 

State financial officers inquire about ESG

Economy and Society is Ballotpedia’s weekly review of the developments in corporate activism; corporate political engagement; and the Environmental, Social, and Corporate Governance (ESG) trends and events that characterize the growing intersection between business and politics.

ESG developments this week

In the states

States send letters and questionnaires inquiring about ESG at firms

Twenty-one state financial officers signed letters on May 15 that were sent to large asset management firms and two proxy advisory services (Glass-Lewis and Institutional Shareholder Services, who combined represent 95% of the proxy advisory business), requesting answers to questions about the use of ESG and the justification for doing so as legal fiduciaries of their clients’ money:

The letter expressed the state financial officers’ concern over the asset management and proxy advisory firms’ approach to how they are advising their clients to vote in shareholder proposals. Which in many cases appear to be unrelated to companies’ core business and have, in many cases, appeared to have been to advance the radical left-wing agenda — such as environment, social, and governance (ESG)….

[T]he letters included a questionnaire for the firms to answer and in turn, detail how they determine which shareholder proposals to support and how the firms analyze their proposal’s impact before deciding which one to go with.

Nebraska state Treasurer John Murante, a former national chair of the State Financial Officers Foundation (SFOF), told Breitbart News, “For too long, the ESG agenda has plowed forward at the behest of large investment managers like BlackRock.”

“Together, they’ve [the firms] steered votes on issues ancillary or even detrimental to companies’ core business,” Murante added. “With these letters, we hope to expose the scam that is crushing shareholder value, all in the name of an extreme, progressive agenda.”

The list of asset managers firms and proxy advisory firms who received the letter were: BlackRock, Vanguard Group, Fidelity Investments, UBS Group, State Street Global Advisors, Morgan Stanley, JP Morgan Chase, Credit Agricole, Allianz Group, Capital Group, Goldman Sachs, Bank of New York Mellon, Amundi, PIMCO, Legal & General, Edward Jones, Prudential Financial, Deutsche Bank, Bank of America, Invesco Ltd, Glass Lewis, and ISS.

The 21 state financial officers who signed the letter were Alaska Commissioner of Revenue Adam Crum, Arizona state Treasurer Kimberly Yee, Florida Chief Financial Officer Jimmy Patronis, Idaho state Treasurer Julie Ellsworth, Indiana state Treasurer Dan Elliot, Iowa state Treasurer Roby Smith, Kansas state Treasurer Steven Johnson, Louisiana state Treasurer John Schroder, Mississippi state Treasurer David McRae, Missouri state Auditor Scott Fitzpatrick, Missouri state Treasurer Vivek Malek, Nebraska state Treasurer John Murante, Nebraska Auditor Mike Foley, North Carolina state Treasurer Dale Folwell, North Dakota state Treasurer Thomas Beadle, Oklahoma Auditor and Inspector Cindy Byrd, Oklahoma state Treasurer Todd Russ, South Carolina state Treasurer Curtis M. Loftis, Jr., Utah state Treasurer Marlo Oaks, West Virginia state Treasurer Riley Moore, and Wyoming state Treasurer Curt Meier. Ohio state Treasurer Robert Sprague signed on to the proxy vote advisory firm letters.

States seek to block U.S. Department of Labor ESG rule

Twenty-five states asked a federal judge in Texas on May 16 to block the implementation of the Biden Labor Department’s rule on the use of ESG in retirement investment plans that fall under ERISA. The states argue that the Biden rule was not created properly because the previous rule (enacted under the Trump administration) was, in their view, improperly invalidated:

A group of Republican-led U.S. states has asked a federal judge in Texas to strike down a Biden administration rule allowing socially conscious investing by retirement plans, saying it will imperil Americans’ retirement savings.

Lawyers for the 25 states led by Utah and Texas said in a filing in Amarillo, Texas, federal court late Tuesday that the U.S. Department of Labor failed to justify its departure from a Trump-era rule that limited investing based on environmental, social and corporate governance (ESG) factors.

The rule, which took effect Jan. 30, sets guidelines for ESG investing including requiring that socially conscious investments are still financially sound.

The states sued in January and in February had asked the judge to temporarily block the rule pending the outcome of the case. The judge has not yet ruled on that bid, and in Tuesday’s filing, the states asked the judge to rule on the merits of their lawsuit….

The Labor Department has said the Trump-era rule, which was criticized by business groups and the financial industry, failed to account for the positive impact that ESG investing can have on long-term returns. Business groups said the Trump administration rule was unnecessary and confusing for investment managers.

The new rule covers plans that collectively invest $12 trillion on behalf of 150 million Americans.

Alabama Senate advances bill opposing ESG boycotts

The Alabama State Senate on May 18 passed a bill that would prohibit state contracts with businesses that boycott certain companies and industries (like fossil fuel or mining companies) based on ESG criteria. The bill now moves to the state House for consideration:

State senators passed a bill that would prohibit state contracts with businesses that boycott certain sectors of the economy based on environmental, social, and governance or ESGs. Sponsored by Senator Dan Roberts, R-Mountain Brook, Senate Bill 261 is among the strongest anti-ESG legislation in the nation to protect investors and funds in Alabama.

“I appreciate the support of my colleagues in the Senate for working to pass this legislation,” said Senator Dan Roberts. “The Alabama Senate has made it clear that we want businesses to focus on growing and expanding and not working to push any political agenda with left-wing ESG policies.”

The bill specifies company that refuses to deal with, terminates business activities with, or otherwise takes any commercial action that is intended to penalize, inflict economic harm on, limit commercial relations with, or change or limit the activities of a company because the company, without violating controlling law, does any of the following:

— Engages in the exploration, production, utilization, transportation, sale, or manufacturing of fossil fuel-based energy, timber, mining, or agriculture.

— Engages in, facilitates, or supports the manufacture, import, distribution, marketing or advertising, sale, or lawful use of firearms, ammunition, or component parts and accessories of firearms or ammunition.

— Does not meet, is not expected to meet, or does not commit to meet environmental standards or disclosure criteria, in particular, to eliminate, reduce, offset, or disclose greenhouse gas emissions.

— Does not meet, is not expected to meet, or does not commit to meet corporate employment or board composition, compensation, or disclosure criteria.

— Does not facilitate, is not expected to facilitate, or does not commit to facilitating access to abortion or sex or gender change surgery, medications, treatment, or therapies….

The bill now goes to the House for more debate.

On Wall Street and in the private sector

ESG employment pays better

According to Reuters, U.S. finance professionals who have ESG in their job title earn about 20% more than their non-ESG colleagues on average, at least in terms of base salary. The discrepancy began about three years ago and has continued to grow:

U.S.-based bankers and money managers whose job titles include “ESG” or “sustainability” earn on average around 20% higher base salaries than colleagues of the same seniority without those labels, according to analysis of salary data shared with Reuters.

More than $30 trillion in capital has been committed to environmental, social and corporate governance-related investments as the world looks to curb greenhouse gas emissions and companies face pressure on issues such as workplace diversity and social justice.

This has sparked a scramble to find bankers and asset managers for these roles, leading to higher base salaries than for equivalent professionals in non-ESG related functions, the analysis conducted for Reuters by New York-based data startup Revelio Labs shows.

“Salaries of ESG and non-ESG personnel started to diverge in 2020, in line with the spike in hiring in ESG roles due to the increasing focus on ESG and sustainable investing in the finance sector,” said Loujaina Abdelwahed, an economist at the company.

The strong demand for professional talent comes amid a political backlash against ESG in parts of the Western world, especially in the United States, where it has culminated in various laws to remove environmental and social considerations from business in some states….

Since 2019, the rate of base salary growth for ESG roles has been about 38 percentage points higher than non-ESG personnel, Abdelwahed said.

ESG-tagged roles overtook non-ESG on a six-month moving average basis in June 2020 and in August 2021 surged to peak around $109,846, fully $20,000 higher than non-ESG.

In the spotlight

Majority of Americans not familiar with ESG 

Gallup released the results of its recent ESG polling on May 22, and the results indicated that the public remains largely unaware of the issue. The respondents who indicated an opinion on the issue were split with 22% viewing ESG favorably and 19% viewing ESG negatively:

Efforts to promote adoption of the environmental, social and governance framework in investing, commonly termed ESG, have gained traction in recent years and have become the subject of pro- and anti-ESG legislation, yet the general public is no more familiar with ESG today than two years ago.

Thirty-seven percent of Americans currently report being “very” or “somewhat familiar” with ESG, unchanged from 36% in 2021. Another 22% today are “not too familiar,” while 40% are “not familiar at all.”

Underscoring the public’s lack of familiarity with ESG, nearly six in 10 Americans (59%) take the “no opinion” option when asked if they view “the movement to promote the use of environmental, social and governance, or ESG, factors in business and investing” as a positive or negative development. The remaining four in 10 are about evenly divided between expressing a positive (22%) and negative (19%) view of the practice.

While adults who are familiar with ESG are more likely to express an opinion about it than those with less familiarity, they are just as likely to be divided on the question — 36% viewing ESG positively and 35% negatively.

Similarly, adults who report owning stock, about six in 10 respondents in the current poll, are more likely to have an opinion about ESG than non-stock owners, but they are just as divided on the merits of promoting ESG in business and investing….

When asked whether retirement fund managers should only take financial factors into account when making investment decisions or also consider ESG factors, the public leans toward the former (48% vs. 41%, respectively). Stock owners’ views on this are nearly identical to the national averages.

Adults familiar with ESG are closely split on the question, with 50% preferring fund managers to limit their investing criteria to financial factors while 46% want ESG factors considered. Those not familiar with ESG lean more strongly toward only considering financial factors but are also more likely to have no opinion on the question….

Adoption of ESG principles has been promoted by the Biden administration as well as the Business Roundtable (a leading American business lobby), the United Nations, and other prominent organizations in the U.S. and globally. The leaders and companies embracing ESG in investing have espoused it as a way to minimize investment risk while promoting social goods. Yet critics on the political right decry it as a system designed to achieve progressive goals at the expense of shareholders, and have advanced anti-ESG legislation in many states.

While this political backdrop is evident in the Gallup data, it does not appear to be an overwhelming factor driving the public’s interest in or views about ESG.

–There is no difference between Republicans’ and Democrats’ familiarity with ESG, as just under four in 10 in each group say they are very or somewhat familiar with it and an equal proportion are not at all familiar.

–Further, awareness of ESG hasn’t increased much among either group since 2021, when 33% of Republicans and 38% of Democrats said they were very or somewhat familiar with it.

–Republicans are far more likely to have a negative than positive view of ESG, while the reverse is true of Democrats, but majorities of both groups say they are unsure.

–Only when asked to choose between two modes of investing — with or without taking ESG criteria into account — do majorities of Republicans and Democrats take opposing sides. Sixty-four percent of Republicans think fund managers should only consider financial factors when choosing investments, while 59% of Democrats think they should include ESG.

House Oversight Committee holds ESG hearing

Economy and Society is Ballotpedia’s weekly review of the developments in corporate activism; corporate political engagement; and the Environmental, Social, and Corporate Governance (ESG) trends and events that characterize the growing intersection between business and politics.

ESG developments this week

In Washington, D.C.

House Oversight Committee holds ESG hearing

The House Oversight Committee on May 10 held a hearing on ESG, during which Republicans and Democrats took opposite perspectives on the issue. Chairman James Comer (R-Ky.) criticized ESG in his opening statement:

In his opening statement, Chairman Comer emphasized that asset managers and activist shareholders are partnering with liberal advocacy groups to push ESG priorities and a radical political agenda with Americans’ money. He stressed that ESG commitments are often at odds with their clients’ best interests, occur without their clients’ knowledge, and used to force businesses to comply to a far-left ideology. In addition, he highlighted the Biden Administration’s pursuit to advance ESG priorities over the economic, energy, and national security needs of the United States. He concluded that the Committee would continue to expose and investigate harmful ESG practices and hold unelected bureaucrats accountable for pushing their interests on the American people.

Among other things, Chairman Comer said that he intends to hold more oversight hearings to investigate ESG policy:

But today will not be the end of the Committee’s work.  

Asset managers should understand that they are stewards of money that is not theirs, and their failure to act in the best interests of their clients is a dereliction of duty. 

Proxy advisors should understand that they cannot intimidate and coerce companies to implement ESG policies without scrutiny.

While this is the first official hearing in what will be a series of oversight actions by this Committee to explore ESG, we’ve already held several hearings to investigate related issues, including misguided energy policy and progressivism in the military.

We must also continue our oversight of the Biden Administration’s government-wide efforts by unelected bureaucrats to dictate to the American people what they are allowed to say, spend their money on, or do with their hard-earned savings. 

Whether it’s the SEC and Federal Reserve; the EPA and Department of Energy; the Pentagon; the State Department, know this: we are watching.

On the other side of the aisle, Congressman Jamie Raskin (D-Md.) argued in favor of ESG and criticized House Republicans for opposing policies supporting the investment strategy.

Rep. Jamie Raskin (D-Md.) blasted the GOP attacks on “woke” ideology during a House Oversight Committee hearing Wednesday, arguing the term has a proud history and that it should guide companies in their business decisions.

“The word work comes from the Indo-European root ‘weg,’ which means to be strong and alert,” Raskin said at a hearing focused on environmental, social and governance (ESG) investing.

That word also evolved into the modern word vigilance.

“The whole point of being a fiduciary is to be vigilant, watchful and alert to opportunities and risks,” Raskin said in defending ESG investing. “And that’s what asset managers, corporate board members and executives do with other people’s money.”

The opposite of a woke investing strategy, Raskin argued, “is a negligent and inattentive investment strategy.”…

“We are witnessing a widespread, highly coordinated, politically motivated attack on investors and the hard-working people they serve,” Illinois state treasurer Michael Frerichs told the committee.

“ESG is about looking at a wider range of risks and value opportunities that can have a material financial impact on investment performance.”…

The attack on sustainable investing is personal for Raskin, who saw his wife Sarah Bloom Raskin’s nomination for the role of top cop at the Federal Reserve fall apart over allegations that her concerns around climate financial risks were an attempt to do policy by the backdoor….

In a 2020 New York Times op-ed, Bloom Raskin argued that the federal reserve should not subsidize fossil fuels, a technology whose impacts on climate change and diminishing position versus newer technologies made it inherently risky.

Fed governor questions importance of climate risks to financial system

Fed Governor Christopher Wall spoke on May 11 at an economic conference in Spain and said that, in his view, climate change does not pose what he called a “significantly unique or material” risk to the financial system:

Climate change does not pose such “significantly unique or material” financial stability risks that the Federal Reserve should treat it separately in its supervision of the financial system, Fed Governor Christopher Waller said on Thursday in a detailed rebuttal of demands for climate initiatives by the U.S. central bank.

“Climate change is real, but I do not believe it poses a serious risk to the safety and soundness of large banks or the financial stability of the United States,” Waller told an economic conference in Spain. “Risks are risks … My job is to make sure that the financial system is resilient to a range of risks. And I believe risks posed by climate change are not sufficiently unique or material to merit special treatment.”

The aim of Fed oversight and stress tests of bank balance sheets, he said, was “general resiliency, recognizing that we can’t predict, prioritize, and tailor specific policy around each and every shock that could occur.”

“In March we watched a bank run on Silicon Valley Bank” that heightened attention to the levels of uninsured deposits at some institutions, Waller said. “Those are the kinds of things I am staring at right now. I am not as worried about climate as I am about things like banks failing because of bank runs.”…

In his remarks on Thursday, Waller said science had “rigorously established” the climate is changing. But in assessing financial stability, U.S. central bankers needed to ask only if those changes would have a “near-term” impact, with potential losses large enough to affect the macroeconomy, he said.

Waller argued they won’t, noting that banks are already adept at hedging against weather-related losses, while more slow-moving changes – to coastal residential patterns as sea levels rise, for example – were analogous to population losses seen over the decades in cities like Detroit, locally important, but not systematically so.

In the states

States move to block BlackRock from buying utility companies

Several Republican state Attorneys General filed a motion with the Federal Energy Regulatory Commission (FERC) on May 10 to prevent BlackRock – one of the largest advocates of ESG investing – from using its financial position and prominence to impose ESG policies (like net carbon emission goals) on utility companies:

A group of Republican-led states have filed a motion with a federal regulator to block BlackRock, the largest asset manager in the world, from imposing sustainable investing practices on utility companies.

The states, led by Indiana Attorney General Todd Rokita (R), appealed to the Federal Energy Regulatory Commission (FERC) to keep BlackRock from laying down environmental, social and governmental (ESG) investing priorities on utility companies, continuing a GOP crusade against what it argues is “woke” investing.

The states, including Utah, Alabama, Alaska, Arkansas, Iowa, Kentucky, Louisiana, Mississippi, Missouri, Montana, Nebraska, Ohio, South Carolina, South Dakota, Texas and West Virginia, filed the motion against the investment company on Wednesday, asking the FERC to not give it blanket authorization to buy more than $10 million in voting stakes in a utility company if it imposes ESG priorities.

“These elitists are trying to impose restrictions on energy companies and utilities that would never win approval at the ballot box,” Rokita said in a statement. “Their schemes could raise utility bills for regular Americans, including elderly Hoosiers on fixed incomes, and they could diminish the value of investment accounts.”

The move from the GOP-led states comes after BlackRock signed onto a number of climate-related goals, including the Climate Action 100+ and the Net Zero Asset Managers initiatives, which call for fossil fuel use to be slashed by 25 percent in 2030 and as far down as 2 percent by 2050.

In response to the filing from the Republican states, BlackRock said it was focused on providing the “best financial outcome” for clients.

Alabama Senate committee advances bill opposing ESG

The Alabama Senate Committee on Fiscal Responsibility and Economic Development overrode objections from the state’s bankers and Democrats and advanced an ESG bill that would prevent state entities from doing business with financial companies that boycott specific sectors of the economy:

Some Alabama companies don’t want to do business with other companies that aren’t meeting certain environmental, social and governance criteria.

And now some lawmakers in the state of Alabama are making it known that they don’t want to do business with those companies. It would prevent all governmental entities in the state from entering into contracts with such companies, with some exceptions.

The Alabama Senate committee on fiscal and responsibility and economic development ultimately approved the bill, SB261 by Sen. Dan Roberts, R-Mountain Brook, on a 10-3 vote along party lines.

The bill is essentially a boycott of a boycott.

The legislation sets out particular sectors that cannot be “economically boycotted” by other companies who hope to contract with the state.

The sectors include fossil fuels, timber, mining, agriculture and firearms and ammunition manufacturers.

It also precludes companies from boycotting companies who are not committed to meet environmental standards, particularly regulations to offset, reduce or eliminate greenhouse gas emissions. Or companies that doesn’t meet certain composition, compensation, or disclosure criteria. Or companies that don’t facilitate access to abortion, sex or gender change surgery, medications, treatment or therapy.

“We’re trying to ensure that Alabama’s tax dollars will not be used to subsidize private entities that boycott law-abiding businesses for reasons relating to arbitrary or subjective standards,” Roberts said. “I think we’re starting to see it on a national front … We’re trying to stop is a movement that’s going on in the United States that’s commonly referred to with environmental social governance.”

Three NYC pension plans sued over ESG

Three New York City pension plans were sued on May 11 by plan members who alleged that the administrators of the plans had caused them economic damage with their ESG practices.  Specifically, they alleged that the plans had lost value by selling fossil fuel stocks:

In a new attack against ESG investing, three New York City pension funds were sued for allegedly breaching their fiduciary duty by selling billions of dollars of fossil-fuel assets.

The plaintiffs, represented by Donald Trump’s former Labor Secretary Eugene Scalia, claim the retirement plans’ decision to divest roughly $4 billion in fossil fuel investments is “a misguided and ineffectual gesture to address climate change,” according to the complaint filed in New York state court. They said the plans have “a duty to act prudently in making investment decisions.”

The move to exclude fossil-fuel investments was made in 2021. Then last year, oil and gas stocks soared following Russia’s unprovoked invasion of Ukraine, with the MSCI World Energy Index rising more than 40%. New York City Comptroller Brad Lander, who oversees the pension plans, has been actively pressing asset managers to do more to address climate change.

“While we don’t comment on pending litigation, we take our fiduciary duty very seriously,” Lander’s office said in a statement. The vote by trustees to exclude fossil fuels from the three funds was made to protect beneficiaries from “the financial risks of investing in fossil-fuel reserves,” according to the statement.

The lawsuit, filed late Thursday, emerges as Republican politicians across the US criticize environmental, social and governance investing. They have launched probes into Wall Street’s ESG efforts and introduced anti-ESG bills, while states including Texas and Florida have restricted business with banks and investment firms that push to address climate change and workforce diversity.

The New York City Employees’ Retirement System, the Teachers’ Retirement System and the Board of Education Retirement System violated their obligations when they opted in 2021 to divest fossil-fuel holdings to “advance environmental goals unrelated to the financial health of the plans,” according to the suit. The choice was made without “regard for whether those assets would produce a superior return for the plans.”

Florida governor signs bill opposing ESG

Economy and Society is Ballotpedia’s weekly review of the developments in corporate activism; corporate political engagement; and the Environmental, Social, and Corporate Governance (ESG) trends and events that characterize the growing intersection between business and politics.

ESG developments this week

In the states

Florida governor signs bill opposing ESG

Florida Gov. Ron DeSantis (R) signed legislation on May 2 prohibiting the use of ESG criteria in the investment of public funds. According to Reuters:

The bill is one of the furthest-reaching efforts yet by U.S. Republicans against sustainable investing efforts, and a clear political message from DeSantis, a likely presidential candidate.

Republicans, including some from energy-producing states, say many executives and investors have lost their focus on returns as they take growing account of issues like climate change and workforce diversity.

“We want them to act as fiduciaries. We do not want them engaged on these ideological joyrides,” said DeSantis just before he signed the bill at a webcast event.

Analysts said the legislation goes further than other state anti-ESG bills, even as business groups worry the efforts pose financial risks….

The law also outlaws the sale of ESG bonds, a popular way to fund renewable energy projects or lower debt costs for borrowers if they meet gender diversity or greenhouse gas emissions targets.

Oklahoma treasurer announces 13 financial institutions can’t do business with the state over ESG policies

Oklahoma State Treasurer Todd Russ (R) on May 3 issued a list of 13 financial institutions that are ineligible to do business with the state under a 2022 law because, according to Russ’s office, they engage in energy boycotts that hurt the state’s economy. The listed institutions cannot manage state pension funds or enter into certain other contracts with public entities:

Oklahoma State Treasurer Todd Russ is planning to announce the sweeping measure Wednesday morning which represents one of the most aggressive actions any state has taken against banks pursuing so called environmental, social and governance (ESG) initiatives. The move ultimately blocks the banks from managing billions of dollars in Oklahoma pensions, investments and other state entities.

“The energy sector is crucial to Oklahoma’s economy, providing jobs for our residents and helping drive economic growth,” Russ said in a statement. “It is essential for us to work with financial institutions that are focused on free-market principles and not beholden to social goals that override their fiduciary duties.”

The ban impacts some of the largest asset managers and banks in the country including BlackRock, Wells Fargo, JPMorgan Chase, Bank of America and State Street. BlackRock alone reported in April that it has a staggering $9.1 trillion in assets under management.

Oklahoma’s actions come three months after Russ sent a letter and questionnaire to dozens of banks and financial institutions on Feb. 1, asking about their climate and energy investment policies. Russ noted at the time that BlackRock manages more than 60% of the Oklahoma Public Employees Retirement System.

Under a 2022 law passed by the state’s legislature last year, the state’s treasurer is mandated to probe the investment policies of banks it does business with and assemble a list of companies determined to be engaged in a boycott of the energy sector. Russ’ office said it received almost 160 responses which helped inform the decision Wednesday….

Overall, as of 2022, Oklahoma’s oil and gas industry and its component sectors sustained 4,000 businesses, produced $19 billion in state gross domestic product, provided state households with $16.5 billion in earnings and created 85,050 jobs, according to state data. The state is the nation’s sixth-largest crude oil producer and fifth-largest producer of marketed natural gas.

ESG standards pursued by major financial institutions, though, prioritize environmental investments, boosting green energy projects once deemed risky, over traditional oil and gas investments as well as corporate social priorities such as boardroom diversity initiatives.

Alabama regional banks push back against bill opposing ESG

A bill in the Alabama Senate aimed at opposing ESG in state investments has stalled. According to 1819 News, several regional banks that support ESG are lobbying legislators to oppose the bill:

Just as State Sen. Dan Roberts’ (R-Mountain Brook) anti-ESG (environmental, social and governance) bill was gaining momentum in the Alabama Legislature, its hearing before the Senate Fiscal Responsibility and Economic Development Committee, chaired by State Sen. Garlan Gudger (R-Cullman), was delayed until at least next week.

Sources familiar with the issue told 1819 News on Wednesday that Birmingham-based Regions Financial and the company’s lobbyist, senior vice president and head of state government affairs and economic development Jason Isbell, were behind the pushback against the bill that would prohibit government entities from contracting with companies that use ESG criteria to discriminate in business practices and leverage economic power for political and ideological objectives….

Over the past few years, Regions has defended the ESG agenda used by large asset management companies like BlackRock Inc. and other banks to push social and ideological agendas.

According to its website, Regions believes ESG contributes to its success….

In Regions’ 2022 Proxy Statement and Notice, Chair of the bank’s Board of Directors Charles D. McCrary touted its ESG report and adherence to standards set by the controversial World Economic Forum….

According to the Claremont Institute, Regions has promised $14,600,000 to BLM and related causes….

Regions is not the only entity within Alabama’s business elite pushing back against the anti-ESG legislation. According to an email from the Business Council of Alabama’s manager of Governmental Affairs William Newman to the council’s Tax and Fiscal Policy Committee, the BCA also opposed the Senate bill.

On Wall Street and in the private sector

Insurers re-evaluate ESG standards

Insurers are re-evaluating their affiliations with international climate change organizations and their acceptance of ESG standards, citing legal threats from governments. While the governments in question have not been named specifically, some observers think state opposition to ESG could be contributing to the re-calculation:

Insurers are being forced to rethink their approach to climate change as they assess the risk of being sued for antitrust violations.

Munich Re, the world’s biggest reinsurer, recently backed out of the Net Zero Insurance Alliance citing what it called the “material” legal risks it would face if it remained. The defection was followed by two more high-profile departures, with Zurich Insurance Group AG and Hannover Re also leaving. All three said they’ll still pursue net zero goals, just not in coordination with an alliance.

There are now concerns that more exits may follow. A spokesman for Scor SE said the firm’s NZIA membership is currently “being reviewed by the group’s executive committee and board.” Spokespeople for Allianz SE and Swiss Re AG both said the companies are “monitoring” developments.

Though Munich Re was unique in its explicit reference to legal risks, NZIA’s sudden loss of three key members has left the insurance industry looking like a casualty of the anti-ESG movement in the US. Insurers’ extra sensitivity about antitrust issues may be tied to the sector’s “occupational habit” of trying to anticipate risks, said Maurits Dolmans, a partner at Cleary Gottlieb Steen & Hamilton LLP who advises Race to Zero, a group that’s affiliated with NZIA and other climate alliances.

Alec Burnside, a partner at Dechert LLP in Brussels who specializes in competition law, says the firms most susceptible to the threat of litigation are those with large US operations….

“Companies that are exiting climate alliances have a practical interest in not getting into an ESG-wokeism slanging match with antitrust as one of the weapons that’s used against them,” Burnside said. “One way to keep your head down amid all the backlash against ESG is to say ‘we remain wedded to sustainability goals, but we are pursuing them unilaterally.’”

ESG shareholder proposals fail to gain support

The Financial Times reported on May 6 that shareholder resolutions supporting ESG (like proposals aimed at ending bank financing of fossil fuel projects) are failing to gain support this shareholder meeting season:

This year, shareholder resolutions at Citi and BofA demanding the banks stop financing new fossil fuel projects won less support than they did in 2022.

The shift echoes a broader trend in other types of climate-related votes. Across corporate America, there are signs of scepticism over so-called Say on Climate votes asking shareholders to approve climate transition strategies, says Glass Lewis, a shareholder advisory firm. It says while shareholders of US companies were among the first to propose a Say on Climate vote in 2021, none of these proposals were approved, with support ranging from 7 per cent to 39 per cent.

“That scepticism appears to have turned to indifference, as there were no shareholder proposals on this topic at US companies in 2022,” it said in a report in March. “It is likely that the momentum around this issue has essentially ceased for the time being at North American companies.”

At this point in the annual meetings season, it is too soon to know whether support for other types of climate shareholder proposals has been sapped this year. But two years after the tiny hedge fund Engine No. 1 shocked the world with a victory to elect directors to the board of ExxonMobil, the early voting results suggest climate advocacy by shareholders is not the force it was in 2021.

At the same time, investors have cooled on dedicated funds that invest with environmental, social and governance mandates. In April, Goldman Sachs was warned that one of its ESG equity funds might be delisted because it had not attracted enough investors. And more generally investors have pulled billions from sustainable funds this year.

This is partly because of performance. For a decade, US ESG large-cap equity funds were among the best performers in the stock market. But this year, ESG funds globally have underperformed the market as “ESG darlings” in clean energy have suffered amid a flight to safety, AllianceBernstein said in a May 3 report.

In the spotlight

Warren Buffett remains dubious of ESG

In a guest op-ed in The New York Times, Roger Lowenstein, a financial journalist and biographer of Warren Buffett, explained why the famed investor has rejected and continues to reject the ideas of ESG:

[A]s the Berkshire faithful gather for their annual meeting in Omaha on Saturday, Mr. Buffett is decidedly out of step with the progressive orthodoxy in corporate boardrooms. To Mr. Buffett, boards’ rightful role is, as ever, to serve the shareholders who have risked their capital. Institutional investors such as BlackRock’s Larry Fink have pushed E.S.G. — or environmental, social and governance — investing to turn corporations into agents of progressive change.

Scores of corporations have in the last few years adopted climate and diversity policies. The Business Roundtable, a chief executives group, proclaimed it no longer believed that corporations exist principally to serve shareholders. This is a little like the Communist Party dropping its primary allegiance to workers.

Mr. Buffett is having none of it. He is socially conscious and over the years has expressed concerns on topics as varied as inflation and nuclear proliferation. But he is dismissive of social governance warriors seeking to hijack the corporate mission. Most such critics represent institutions. Mr. Fink, mutual fund groups like Vanguard and state pension funds manage other people’s money — they advocate their opinions, not their purses. Mr. Buffett feels a greater allegiance to shareholders who purchased stock as he did — with their own cash.

Not surprisingly, Mr. Buffett has become a target for progressive institutional investors. At last year’s annual meeting, shareholders solicited proxy votes to force Berkshire to adopt four new policies, mostly on climate and diversity. They lost handily. (A resolution calling for Mr. Buffett to step down as board chairman, though not as C.E.O., fared the worst.) This year, Mr. Buffett faces six proxy challenges related to climate, diversity and corporate governance….

How did Wall Street’s wealthiest liberal come to be a refusenik? The simple answer is that Mr. Buffett hasn’t changed even as the political climate has….

If form holds, at Saturday’s meeting Mr. Buffett — and his sidekick, the curmudgeonly vice chairman Charlie Munger — will get plenty of questions related to corporate governance and even politics. Neither is likely to change his mind, and most shareholders seem to like it that way. Last year, assuming the dissident votes came from institutions, individual holders overwhelmingly backed management. Mr. Buffett may not conform to the fashionable standards of the Business Roundtable, but he is still in good graces with one group — individuals who trust him to manage their savings.

Shareholder activists sue the SEC, alleging bias

Economy and Society is Ballotpedia’s weekly review of the developments in corporate activism; corporate political engagement; and the Environmental, Social, and Corporate Governance (ESG) trends and events that characterize the growing intersection between business and politics.

ESG developments this week

In Washington, D.C.

NCPPR sues the SEC, alleging bias

The National Center for Public Policy Research (NCPPR), a non-profit organization, on April 28 filed a lawsuit against the Securities and Exchange Commission (SEC), alleging that the Commission was biased against NCPPR because the organization files shareholder proposals that are opposed to ESG.

American First Legal Services, co-counsel for NCPPR with Boyden Gray & Associates, describes the case against the SEC as follows:

NCPPR is a communications and research foundation that focuses on providing free market solutions to public policy problems and is a longtime Kroger Co. (“Kroger”) shareholder.

In its “Framework for Action: Diversity, Equity & Inclusion,” Kroger indicates that it “strives to reflect the communities we serve and foster a culture that empowers everyone to be their true self.” As part of its effort to associate its brand with diversity and inclusion, Kroger’s board adopted The Kroger Co. Policy on Business Ethics, which commits Kroger “to a policy of equal opportunity for all associates without regard to race, color, religion, gender, national origin, disability, sexual orientation, or gender identity.”

NCPPR sent a proposal to Kroger requesting, as shareholders, that Kroger issue a public report detailing the potential risks associated with omitting “viewpoint” and “ideology” from its written equal employment opportunity (EEO) policy. 

Kroger submitted a letter to the SEC’s Division of Corporation Finance arguing that the Proposal “deals with matters relating to the Company’s ordinary business operations” because it pertains only to “Kroger’s management of its workforce and policies concerning employees.” Kroger, and the SEC, effectively turned a blind eye and blocked the proposal, ignoring the fact that conservatives often face employment discrimination due to political ideology, while acknowledging other factors like “gender.” 

NCPPR argued that the SEC was engaging in viewpoint discrimination by giving the green light to identical proposals about certain forms of discrimination (e.g., against sexual orientation and gender identity) while agreeing companies could exclude proposals about other forms of discrimination that are at least as significant to society (e.g., viewpoint and ideology, especially against conservatives).

NCPPR operates the Free Enterprise Project, which, by its own description, “files shareholder resolutions, engages corporate CEOs and board members at shareholder meetings, petitions the Securities and Exchange Commission (SEC) for interpretative guidance, and sponsors effective media campaigns to create the incentives for corporations to stay focused on their missions.”

FEP Director Scott Shepard says that the SEC has been discriminating against it and others, favoring ESG in its policy:

For years we’ve watched the SEC staff discriminate against center/right proposals, including ours. In doing so and in failing to provide meaningful explanations for its decisions, it has violated the law in ways that breach its statutory duties and our First Amendment rights. This action is a first step in ending that illegal discrimination.

In the states

Louisiana attorney general launches ESG investigation

Louisiana Attorney General Jeff Landry (R) launched an investigation on April 25 into Climate Action 100+, which describes itself as “an investor-led initiative to ensure the world’s largest corporate greenhouse gas emitters take necessary action on climate change.” Landry’s office says the investigation seeks to determine whether some asset management companies that are part of the initiative have violated their fiduciary duties by focusing on ESG investment factors:

Landry’s office on Tuesday announced a “multi-pronged” effort focusing on the Climate Action 100+ Steering Committee, specifically scrutinizing Franklin Templeton and the California Public Employees’ Retirement System. The investigation will look into whether the groups breached their obligations to investors by prioritizing climate initiatives….

“ESG investing puts politics over people and raises significant concerns that companies guided by these green-energy fantasies may be engaging in unfair and deceptive practices that harm Louisiana consumers,” Landry said, according to the Washington Times. “Franklin Templeton is deeply embedded in Climate Action 100+; and we are troubled that, by focusing on the radical ESG agenda, it may be violating its fiduciary duties to shareholders in our state.”…

Franklin Templeton has some $1.5 trillion in assets under management, while CalPERS, the country’s largest public pension fund, had more than $440 billion in assets under management as of last year.

Last year, congressional Republicans, led by Rep. Jim Jordan (R-OH), sent a letter sent to executives of the steering committee for Climate Action 100+ demanding documents that show the group’s network of influence. In the letter, they said the coalition “seems to work like a cartel to ‘ensure the world’s largest corporate greenhouse gas emitters take necessary action on climate change.’”

Kansas bill opposing ESG to become law

A Kansas bill aimed at opposing the influence of ESG in state investments will become law.  The bill was passed by both houses of the legislature on April 6, but there was some question about whether Gov. Laura Kelly (D) would veto it. Last week, the governor announced that she would not veto the bill, meaning it will now be enacted:

The law restricts the $24.3 billion Kansas Public Employees Retirement System, Topeka, from entering into any contracts with money managers that consider environmental, social and governance factors.

Specifically, the bill prohibits the system from ESG factors involving restrictions in investments in fossil fuel-based energy, nuclear energy, agriculture and lumber production, mining and greenhouse gas emissions, firearms manufacture or sales, facilitating or assisting with abortion or gender reassignment.

In Kansas, a bill can become law whether the governor signs a bill or declines to do so. In a statement on Monday, Ms. Kelly said: “Because I have reservations about the potential unforeseen consequences of House Bill 2100 for the state and for local governments, I will allow the bill to become law without my signature.”

The bill passed the House of Representatives 76-47 and the Senate 27-12 on April 6.

Indiana House passes bill opposing ESG in state investments

The Indiana House passed a bill on April 24 restricting the use of ESG funds in state investments, following the lead of the state Senate. The bill now goes to Gov. Eric Holcomb (R) for consideration.

Indiana Republicans pushed through a proposal Monday taking a stand against socially and environmentally conscious investing although disagreements within their legislative majorities narrowed it from what conservatives first sought.

House members voted 66-29 for final passage of the bill aimed at preventing leaders of the state’s pension funds for teachers and other government workers from investing any of their some $45 billion with firms that consider environmental, social and governance principles in their investment decisions….

Such a ban is needed in Indiana to ensure that “financial returns trump all,” said Republican Rep. Ethan Manning of Logansport, the bill’s sponsor.

“Our concern is when these large asset managers on Wall Street are using their outsized market power to force decisions on companies when it’s not best for them,” Manning said….

The Indiana Chamber of Commerce, the state’s largest business group, and some other business organizations objected to earlier versions of the bill, calling proposed investment limitations “anti-free market.” An analysis of the first version of Manning’s proposal projected that the limitations would cost the state pension system $6.7 billion over 10 years.

Business groups dropped much of their opposition after the initial proposal was rewritten and the GOP-dominated Senate later removed provisions such as one that would have had the state treasurer’s office compile and publish a list of companies it found had made ESG investment commitments….

Democratic Rep. Carey Hamilton of Indianapolis argued the anti-ESG bill was “carving out protections for certain sectors for political reasons.”

“We’re creating bigger government to oversee a system that works today for our retirees,” Hamilton said.

In academia

NYU business professor criticizes ESG at Morningstar conference

Last week, investment research company Morningstar held its annual conference in Chicago, hosting Aswath Damodaran, among others. Damodaran, a professor of finance at NYU’s Stern School of Business and ESG opponent, criticized the investing strategy in a talk. Morningstar is the parent company of Sustainalytics, one of the world’s foremost ESG rating services.

ESG is a failure, its advocates are to blame, and the concept should be retired, according to Damodaran….

Damodaran is known as the “dean of valuation” for his analysis of security prices. He touched on the topic of valuations, but his most provocative remarks were about ESG.

Once the “S” was put in the middle of ESG, the concept was doomed, he said. It is impossible to achieve a consensus on any social issue, much less the full range of socially responsible concerns that permeate the ESG landscape.

Indeed, the fundamental issue for Damodaran is that there is no consensus about what constitutes “good” or “bad” companies when it comes to ESG….

Advisors are putting trust in a scoring system that companies will “game,” he said. “We created a scoring system that makes us feel we are doing good rather than a system that does good.”

“The best thing would be to retire the concept,” he said.

Damodaran said that ESG proponents oversold the concept when they claimed that ESG could deliver excess returns (alpha) along with values-based portfolio construction. A constrained strategy (like ESG) cannot beat an unconstrained one. The positive alpha that has benefitted some ESG investors is a result of outsized flows into those strategies, driven in part by aggressive asset management marketing.

Once those flows subside, returns from ESG investing will suffer.

“If your clients think they can earn alpha,” he said, “bring them back to reality. You can’t claim ESG is always good for returns.”…

Eric Hofer, a great American thinker, once wrote that, “Every great cause begins as a movement, becomes a business, and eventually degenerates into a racket.”

Damodaran has put ESG in the same context: “These ideas start by repackaging an existing concept or measure and adding a couple of proprietary tweaks that are less improvement and more noise. Then they get acronyms, before being sold relentlessly.”

London Business School professor also pushes back against ESG

ESG Clarity published an article on April 27 covering London Business School finance professor Alex Edmans’s comments criticizing ESG on the “ESG Out Loud” podcast on April 6. Edmans argued that ESG creates conditions for confusion in the market:

You cannot reduce the cost of capital and improve investor returns, London Business School finance professor Alex Edmans has said.

Speaking in an episode of the ESG Out Loud podcast, Edmans said despite “basic finance theory” suggesting that if you are having positive impact by reducing a company’s cost of capital, you must be reducing your return because the company’s cost of capital is the return to investors, many investors, finance professors and policymakers are still making this claim.

“This is not possible. And if you can only have one or the other, that’s fine. Just be honest about it. When I go and buy organic food, I do this because I think it’s good for society. I don’t think it’s good for my wallet, but that’s fine because my motivation is not a financial one, it’s an impact one.”

Acknowledging the similarities between his points on this matter and those of ex-BlackRock CIO for sustainable investing Tariq Fancy, Edmans said, “You can’t have both [impact and improving returns] but funds that claim they can are likely to get more investors than those that don’t….

Clarity on terminology will help, Edmans said. “The phrase ESG investing is confusing. For some people, ESG investing is just investing, it’s a way of creating long-term financial returns. It’s not to save the world.

“And then people like Larry Fink have climate risk is investment risk. He says ESG is capitalism, it’s about creating financial value.

“Then there’s a separate reason for ESG, which is to create social value and to change the world, for example to encourage companies to decarbonise, change the mix of their workforce, even if this doesn’t improve returns.”

Edmans suggested instead using the phrases “intangible investing”, which uses intangible information but tries to create long-term returns; “impact investing”, which involves financial sacrifice; and “values-based investing”, where you can divest from sectors or companies you don’t like but realise you’re not depriving them of capital.

Second Circuit weighs in on CFPB funding structure

The Checks and Balances Letter delivers news and information from Ballotpedia’s Administrative State Project, including pivotal actions at the federal and state levels related to the separation of powers, due process, and the rule of law.

This edition: 

In this month’s edition of Checks and Balances, we review legal challenges to the funding structure of the Consumer Financial Protection Bureau (CFPB); President Biden’s veto of a Congressional Review Act (CRA) resolution aiming to nullify the Environmental Protection Agency’s (EPA) revised Waters of the United States rule; and President Biden’s recent executive order raising the monetary threshold for significant rules, among other provisions.

At the state level, we take a look at a lawsuit aiming to block Minnesota’s new vehicle emissions regulation and clarification from the Oklahoma Attorney General on the state board of education’s rulemaking authority.

We also highlight a new study from administrative law scholars Steven J. Balla, Bridget C. E. Dooling, and Daniel R. Pérez examining partisan use of the Congressional Review Act (CRA). We wrap up with our Regulatory Tally, which features information about the 193 proposed rules and 195 final rules added to the Federal Register in March and OIRA’s regulatory review activity.

In Washington

Second Circuit weighs in on CFPB funding structure

What’s the story?

The U.S. Court of Appeals for the Second Circuit ruled in Consumer Financial Protection Bureau v. Law Offices of Crystal Moroney, P.C. on March 23, 2023, that the funding structure of the Consumer Financial Protection Bureau (CFPB) is constitutional and does not violate the Constitution’s appropriations clause. The ruling departs from a 2022 holding by the Fifth Circuit that is pending before the U.S. Supreme Court.

After the U.S. District Court for the Southern District of New York ruled in August 2020 in favor of the CFPB’s civil investigative demand against the Law Offices of Crystal Moroney, the law office appealed on the grounds that the agency’s petition was unenforceable in part because the CFPB’s funding structure (which flows through executive branch disbursements from the U.S. Treasury rather than through congressional appropriations) violates the appropriations clause of the U.S. Constitution. The Second Circuit, however, upheld the agency’s funding structure, arguing that Congress approved of the funding mechanism when it passed the Consumer Financial Protection Act.

The U.S. Court of Appeals for the Fifth Circuit, however, ruled in 2022 in Consumer Financial Protection Bureau v. Community Financial Services Association of America, Limited that the CFPB’s funding structure violates the appropriations clause, which vests Congress—not the executive branch—with control over fiscal matters. CFPB appealed the decision and the case is scheduled to be heard by SCOTUS during the court’s October 2023-2024 term. The upcoming SCOTUS decision could overturn the Second Circuit ruling. 

Want to go deeper?

Biden vetoes CRA resolution aiming to nullify EPA rule

What’s the story?

President Joe Biden (D) issued a veto on April 6, 2023, to block a Congressional Review Act (CRA) resolution aiming to nullify the Environmental Protection Agency’s (EPA) revised Waters of the United States rule, which largely restores the Obama-era regulatory framework under the Clean Water Act. Biden stated in his message, “The increased uncertainty caused by H.J. Res. 27 would threaten economic growth, including for agriculture, local economies, and downstream communities.” As a result of the veto, the rule remains in effect. 

Federal lawmakers in the 118th Congress have filed CRA resolutions aimed at nullifying certain administrative rules issued under the Biden administration and preventing agencies from issuing similar rules in the future. The selection of pending CRA resolutions below addresses rules on topics ranging from student loans to environmental regulations: 

  • Student loan cancellation: U.S. Senator Bill Cassidy (R-La.) introduced a CRA resolution on March 27, 2023, aiming to nullify a rule from the U.S. Department of Education regarding student loan cancellation. “The Biden administration’s tuition bailout is bad public policy, and it’s unfair to people who’ve paid their college debt off by working multiple jobs or consciously meeting their obligations,” argued Senator John Cornyn (R-Texas) in a statement.
  • Regulatory definition of ‘habitat’ for endangered species: Senator Cynthia Lummis (R-Wyo.), joined by Republican cosponsors, introduced a CRA resolution on March 30, 2023, aiming to nullify a rule from the National Marine Fisheries Service and maintain the regulatory definition of ‘habitat.’ Lummis argued in a statement, “By scrapping the definition of habitat within the ESA, the Biden administration is causing chaos and confusion among private property owners throughout Wyoming and the west. … This CRA will ensure that Wyoming landowners are not unfairly targeted by the administration and that habitat designations are based on science, not on politics.”
  • Endangered species listing of northern long-eared bat: Representative Pete Stauber (R-Minn.) and Senator Markwayne Mullin (R-Okla.) filed separate CRA resolutions on March 30, 2023, joined by Republican cosponsors, aiming to nullify a rule from the Fish and Wildlife Service that reclassifies the northern long-eared bat as an endangered species under the Endangered Species Act (ESA) of 1973. “The listing of the northern long-eared bat is an example of the ESA being used to stifle development rather than its intended purpose, which is to protect species from human-caused harm,” argued Stauber in a statement.  

The CRA as of April 2023 has been used to repeal 20 administrative agency rules, including one rule repealed under President George W. Bush (R), 16 rules repealed under President Donald Trump (R), and three rules repealed under President Joe Biden (D).

Want to go deeper?

Biden raises monetary threshold for significant rules

What’s the story?

President Joe Biden (D) issued an executive order on April 6, 2023, to make changes to the regulatory review process. The order raises the monetary threshold for classifying significant rules and seeks to reduce the number of actions that require review by the Office of Information and Regulatory Affairs (OIRA).

The executive order changes the definition of a significant regulatory action to include any action with an annual effect of $200 million or more, as opposed to $100 million or more. It also directs the OIRA administrator to review all other significant rules (those regarding novel policy issues) and seeks to classify agency rules in an effort to limit the number of actions that require review by OIRA. The order also directs the Office of Management and Budget (OMB) to update regulatory analysis guidance Circular A-4 within one year, among other provisions. 

OIRA Administrator Richard Revesz stated in a blog post that “these new steps will produce a more efficient, effective regulatory review process that will help improve peoples’ lives.” 

Former OIRA Administrator Susan Dudley, however, argued in Forbes “that amendments to key definitions may seriously curtail the number of rules subject to the analysis and interagency review practices that have been the bedrock of regulatory development in the United States for the last half-century.”

Want to go deeper?

In the states

Minnesota associations sue state agency to block vehicle emissions rule

What’s the story? 

A group of Minnesota business associations filed a lawsuit against the Minnesota Pollution Control Agency (MPCA) on March 13, 2023, in the U.S. District Court for the District of Minnesota against the adoption of a zero-emissions vehicle regulation modeled on similar regulatory action in California. 

The fuel emissions mandate was issued in California, effective November 30, 2022, in an effort to scale down emissions from light-duty passenger cars, pickup trucks, and SUVs by 2035. The California regulation was later adopted by the Minnesota Pollution Control Agency on July 26, 2021. Minnesota was among a group of 17 states considering adopting California’s mandate. 

The Clean Fuels Development Coalition, Minnesota Soybean Growers Association, ICM Inc., Minnesota Service Station and Convenience Store Association, and National Association of Convenience Stores argued that the mandate violates the Energy Policy and Conservation Act (EPCA), which prohibits states from adopting fuel efficiency standards that contradict the federal standard. The president and CEO of the National Association of Convenience Stores, Henry Armour, argued, “Adopting California’s rules in Minnesota would stop further investments in efficient use of renewables and other liquid fuels and would result in more net carbon emissions than we would have without these misguided rules,” according to CSP.  

A spokesperson for MPCA, Andrea Cournoyer, stated, “While the Minnesota Pollution Control Agency reviews this latest legal action, we are confident these standards will continue to stand and remain focused on implementing the standards, building out Minnesota’s electric vehicle infrastructure and advancing Minnesota’s Climate Action Framework,” according to StarTribune

Want to go deeper?

Dispute over Oklahoma State Board of Education’s rulemaking authority

What’s the story? 

Oklahoma Attorney General Gentner Drummond (R) ruled on April 4, 2023, that the State Board of Education (BOE) does not have the authority to issue administrative rules without the directive of the state legislature. The attorney general’s ruling follows efforts by the Oklahoma BOE to mandate restrictions on school libraries and sexual education. 

The Oklahoma BOE voted on March 23, 2023, to enact regulations regarding library materials and sexual education. The rule required schools to remove library materials that fell into the category of what the agency referred to as “pornographic material and sexualized content.” Another rule was passed in an effort to allow parents to review and object to instructional materials concerning sexual education. 

Drummond’s ruling stated, “Any rule promulgated relying only on the general ‘powers and duties’ within section 3-104 is invalid and may not be enforced by the State Department of Education or the Board.” The ruling argues that any proposed rules that exceed the BOE’s statutory authority are void.   

State Superintendent Ryan Walters (R) responded to the ruling on April 6, 2023, stating that “because the Attorney General’s approach is consistent with the proposed Board rules, I respectfully commend the rules for consideration and adoption by the Legislature.”

Want to go deeper?

Examining partisan use of the CRA

A new study from administrative law scholars Steven J. Balla, Bridget C. E. Dooling, and Daniel R. Pérez aims to examine historical use of the Congressional Review Act (CRA) in an effort to clarify what the authors view as assumptions about its partisan applications by Republicans. In “Beyond Republicans and the Disapproval of Regulations,” Balla, Dooling, and Pérez conclude that the CRA has been used regularly since its passage as a “position taking” mechanism by both Republicans and Democrats alike:

“Under the Congressional Review Act (CRA), legislators deploy expedited procedures to repeal agency regulations. For decades, the conventional wisdom—drawn from a handful of cases in which rules were repealed—has been that the CRA is primarily used by Republicans to nullify regulations issued at the close of Democratic presidential administrations. In this article, we demonstrate that the conventional wisdom provides an incomplete account of the use of the CRA. The centerpiece of our approach is an original data set of all resolutions disapproving of agency regulations introduced over a 26-year period. The analysis of this data set demonstrates that Democrats make regular use of the CRA and that resolutions are consistently pursued outside of presidential transitions. Given these patterns, we argue (contrary to existing accounts) that the CRA is not inherently deregulatory and routinely has utility as an instrument of position taking for legislators of both political parties.”

Want to go deeper

  • Click here to read the full text of “Beyond Republicans and the Disapproval of Regulations” by Steven J. Balla, Bridget C. E. Dooling, and Daniel R. Pérez

Regulatory tally

Federal Register

Office of Information and Regulatory Affairs (OIRA)

OIRA’s March regulatory review activity included the following actions:

  • Review of 70 significant regulatory actions. 
  • Ten rules approved without changes; recommended changes to 55 proposed rules; four rules withdrawn from the review process; one rule subject to a statutory or judicial deadline.
  • As of April 3, 2023, OIRA’s website listed 107 regulatory actions under review.
  • Want to go deeper? 

Biden issues executive order on environmental justice

Economy and Society is Ballotpedia’s weekly review of the developments in corporate activism; corporate political engagement; and the Environmental, Social, and Corporate Governance (ESG) trends and events that characterize the growing intersection between business and politics.

ESG developments this week

In Washington, D.C., and around the world

The EU moves to pass ESG due diligence bill

The European Union is getting closer to passing a bill that will require greater due diligence on the part of most businesses with respect to ESG-related factors. The bill could expose companies to greater liability and penalties for certain ESG violations such as environmental damage caused by a corporation (or damage caused by a company that a corporation does business with). Some European businesses are pushing back against the bill:

“Some of the most powerful lobbyists in Europe’s finance industry are preparing to fight the passage of an ESG bill, after it won early backing from European Union lawmakers.

The Association for Financial Markets in Europe, whose members dominate the region’s debt and equity capital markets, says a planned EU law designed to make it easier to sue companies for ESG violations ignores the unique status of financial firms. 

The Corporate Sustainability Due Diligence Directive (CSDDD) moved a step closer to becoming law last week, after the EU Parliament’s legal affairs committee struck a preliminary agreement to cover all sectors, including the finance industry. If passed, the law will force companies to pay a lot more attention to their value chains.

In practice, that means that human rights abuses or environmental damage that occurs in an EU corporation’s value chain may expose that company to civil liability or regulatory penalties.

CSDDD has the potential to be one of the EU’s most far-reaching pieces of environmental, social and governance rulemaking. While ESG regulations passed to date impose disclosure requirements on companies, the due diligence directive would force them to act on the information they’re disclosing. If they don’t, they can be punished by regulators and sued by stakeholders.

Lara Wolters, the EU Parliament member responsible for ushering CSDDD through the chamber, said she’s bracing for a “tough” battle with the finance industry. She also said there’s too much at stake for lawmakers to cave.

The power that banks, asset managers and insurers have “is huge,” Wolters said. So to suggest “that power isn’t going to be used to try to affect any positive change” would be “crazy,” she said.

The next step for CSDDD is a formal vote of the parliament committee, which is due to take place on Tuesday. After that, it goes to the full chamber and then to the European Council.”

Biden executive order incorporates environmental justice into federal agency missions

Last week, President Biden issued an executive order creating a White House Office of Environmental Justice and directing all federal agencies to prioritize what it described as environmental justice in their policymaking whenever and however possible:

“President Biden will sign an executive order Friday in the Rose Garden that will direct every agency of the federal government to incorporate “environmental justice” into its mission, the White House said. 

The White House has invited environmental justice leaders, climate advocates and community leaders to join the president at the signing ceremony today. There, Biden will reaffirm his administration’s commitment to fighting climate change and correcting “disproportionate environmental harms,” including those inflicted by a “legacy of racial discrimination including redlining.”  

“The executive order will direct agencies to address gaps in science and data to better understand and prevent the cumulative impacts of pollution on people’s health. It will create a new Office of Environmental Justice in the White House to coordinate all environmental justice efforts across the federal government. And it will require agencies to notify nearby communities in the event of a release of toxic substances from a federal facility,” a White House official said….

The new White House Office of Environmental Justice created by Biden’s action will be led by a Federal Chief Environmental Justice Officer, who will be tasked with coordinating “environmental justice” policy across the whole federal government….

The White House contrasted Biden’s planned action with policies favored by House Republicans and Speaker Kevin McCarthy, R-Calif., accusing “extreme MAGA Republicans” of being in the pocket of Big Oil.” 

GOP presidential candidate criticizes Biden administration for encouraging ESG

The day after President Biden’s environmental justice announcement, the New York Post published an op-ed by a challenger for the White House, Vivek Ramaswamy. The op-ed – which is an excerpt from Ramaswamy’s new book Capitalist Punishment: How Wall Street is Using Your Money to Create a Country You Didn’t Vote For – criticized the administration for, in Ramaswamy’s view, tilting the scales on ESG and steering public funds to pet projects using the investment strategy. Ramaswamy – an entrepreneur and the founder of the self-described post-ESG asset management firm Strive – announced his bid for the Republican presidential nomination earlier this year:

“It’s no surprise that liberal politicians have been some of environmental, social, and governance (ESG) policies’ strongest proponents.

ESG-friendly politicians often co-opt pension fund money for political ends.

However, that’s not the only power they have.

Elected officials can also wield influence through executive orders, agency directives, and letter writing to pave the way for ESG asset managers to access the back door of corporate America and sometimes even shove those managers through.

That’s exactly what President Biden has done.

The first thing he did when he took office was pick up his executive order pen.

He used it to direct his federal agencies to revisit their rules with an eye toward making them more ESG-friendly.

There was no need for messy bipartisanship, congressional compromises, or involving the legislative branch at all.

Why bother with the tedious, constitutionally approved method of making new laws when there is an army of federal bureaucrats at your disposal?

On day one of his presidency, he lamented “the unbearable human costs of systemic racism” and mandated an “ambitious whole-of-government equity agenda.”…

The same day, he rejoined the Paris Agreement, and simultaneously issued another order directing that all federal agencies “immediately commence work to confront the climate crisis.”…

Within a week, he issued yet another order, promising “bold, progressive action that combines the full capacity of the Federal Government with efforts from every corner of our Nation, every level of government, and every sector of our economy.”  

He charged every federal agency with appointing an “Agency Chief Sustainability Officer” and announced that the United States would be “promoting the flow of capital toward climate-aligned investments and away from high-carbon investments.”  

By May, his executive orders became even more specific, focusing federal climate efforts on the financial sector in particular.

Through strokes of the executive pen, a Green New Deal that would never be approved by Congress would be pushed on corporate America through Wall Street, guided by the heavy hand of federal agencies at every turn.

Following the orders of the new climate commander-in-chief, the government joined the ESG battle. For the most part, federal agencies were pleased to be conscripted into service.

The Department of Labor was one of the first agencies to respond….

There’s another little-known federal agency that is playing a big role in allowing ESG to go unchecked: the Office of the Comptroller of the Currency (OCC).

The agency is tucked inside the Department of the Treasury and is tasked with regulating US banks.

As ESG proponents know, access to banking services from major financial institutions is a critical part of any business—if a business can’t open a bank account, process credit card payments, or get lines of credit, it can’t exist.

Cutting off banking services is a death blow and one that can be delivered without political or market accountability….

So through the OCC’s somewhat obscure rule-making and guidance-issuing process, the Biden administration has handed ESG activists their sledgehammer back.

Banks, like asset managers, are simply one more tool that politicians can manipulate to further political agendas that Congress would never enact.”

In the states

Florida advances bill opposing ESG

The Florida Senate passed a bill on April 19 that would prohibit the state and local governments from using ESG in debt financing and investing. The bill now goes to Governor Ron DeSantis (R):

“Florida’s Republican-controlled Senate approved on Wednesday a bill that bans state and local governments from using environmental, social, governance criteria when selling debt or investing public money. The legislation, which had already cleared the state’s House of Representatives last month, will now be brought to DeSantis for his signature.

The 44-year-old governor has attacked ESG as part of a larger conservative agenda at the center of his likely 2024 GOP presidential run. DeSantis, like other Republican officials, has criticized Wall Street’s ESG policies as “woke capitalism.” His administration has pulled about $2 billion from BlackRock Inc. and singled out Chief Executive Officer Larry Fink, one of Wall Street’s leading ESG advocates.

The new legislation prohibits Florida municipalities from selling bonds tied to ESG projects, as well as imposing restrictions on seeking ESG ratings. In 2022, Florida issuers sold $13 billion of long-term bonds, making it the fourth-largest issuer in the US, behind California, New York and Texas.

The law also bars Florida’s public money from being deposited in financial institutions that are deemed to pursue “social, political, or ideological interests” in their investment decisions. Florida had almost $37 billion in state deposits, with Wells Fargo & Co. holding the biggest individual amount, $6.5 billion, according to data from Florida’s Bureau of Collateral Management.”

On Wall Street and in the private sector

Some companies are hoping to avoid ESG discussions during annual meeting season 

According to Axios, this spring – during the annual general meeting season and the accompanying votes on shareholder proposals – many companies are trying to avoid discussions related to ESG or other perceived controversial matters:

“Companies don’t want to talk about their environmental, social and governance goals anymore, experts in ESG and communications tell Axios….

Promoting ESG policies was once an easy layup to score good press — and theoretically move toward bettering society — but now it’s a way to court controversy, the ire of politicians, and attention from well-funded anti-ESG groups….

Anti-ESG forces are in full swing this proxy season — the time of year when public companies host their annual meetings, and shareholders vote on a slate of investor proposals.

Investors have filed 68 anti-ESG proposals this year to date — compared to 45 in all of 2022, per data from the Sustainable Investments Institute, a nonprofit.

About one-third of the anti-ESG proposals this year are focused on diversity — asking companies, including Apple, JPMorgan, Coca-Cola and McDonald’s, to report on the “risks” that their anti-discrimination or racial justice efforts pose to their business.

Two proposals ask companies to avoid public policy positions unless there’s a business justification. And a handful are asking public companies to report the risks posed by attempting to achieve net zero or decarbonization goals….

“Companies should be prepared to deal with ESG backlash,” the Conference Board warned in its recent proxy season preview.”


“Companies are soldiering on with diversity or climate initiatives they think are important — or good for business — but they’re just less willing to talk about it.

Worth noting: The retreat isn’t simply about anti-ESG efforts. Businesses are also more inclined to stay mum as regulators like the SEC start paying more attention to companies’ ESG-related claims.

The bottom line: ESG efforts aren’t going away, but you might see fewer press releases and puff pieces about the issue.”

Tennessee joins open letter opposing ESG

Economy and Society is Ballotpedia’s weekly review of the developments in corporate activism; corporate political engagement; and the Environmental, Social, and Corporate Governance (ESG) trends and events that characterize the growing intersection between business and politics.

ESG developments this week

In the states

What have states done on ESG?

The Daily Signal (a publication of the Heritage Foundation) on April 14 published an outline of the state actions taken so far in 2023 related to ESG:

“The governors of Utah, Kentucky, West Virginia, and Arkansas have so far in 2023 signed legislation into law aimed at combating environmental, social, and governance policies.

More than a dozen states have introduced or are considering taking action on similar bills, including Montana, Kansas, and Florida….

Republican Utah Gov. Spencer Cox signed two bills into law on March 14.

SB 96 “addresses fiduciary duties for funds managed by public entities.”…

The law will take effect on May 3.

SB 97 relates to economic boycotts and “addresses public entity contract requirements.”…

The law also takes effect on May 3.

Republican Kentucky Gov. Andy Beshear signed HB 236 into law on March 24.

“Kentucky now has the strongest anti-ESG legislation in the nation. For many years, pension investments were about maximizing returns,” Kentucky State Treasurer Allison Ball, a Republican, told The Daily Signal in an emailed statement. “Recently, however, there has been a destructive shift in investment methodology to use the savings of Americans as financial muscle to push ideological causes through the ESG movement.”…

Republican West Virginia Gov. Jim Justice signed HB 2862 into law on March 28.

“The purpose of this bill is to ensure that all shareholder votes by or on behalf of the West Virginia Investment Management Board and the Board of Treasury Investments are cast according to the pecuniary interests of investment beneficiaries,” a summary of the bill says….

Republican Arkansas Gov. Sarah Huckabee Sanders signed HB 1307, which is “concerning the regulation of environmental, social justice, or governance scores; and to authorize the treasurer of state to divest certain investments or obligations due to certain factors,” into law on March 30.

Other states that have introduced or are considering similar bills include South Carolina, Iowa, Oklahoma, Indiana, Texas, Tennessee, Ohio, Missouri, Arizona, and Alabama.”

New Hampshire joins ESG pushback

New Hampshire Gov. Chris Sununu (R) signed an executive order last week directing state executive agencies to invest their funds based on expected financial returns (not based on ESG investing criteria), making the state the latest to push back against ESG in public investments:

“Just weeks after the Biden administration imposed new rules promoting ESG investing by retirement fund managers, Gov. Chris Sununu issued his own order blocking state agencies under his control from joining in the “woke” investment movement.

“Executive branch agencies shall prioritize investment decisions that maximize financial returns and minimize risk, as part of their fiduciary duty to act in the best interest of the State and the beneficiaries of the state’s trust funds,” Sununu’s order read in part. By mandating “maximizing returns,” Sununu is effectively banning the “environmental, social, and corporate governance” (ESG) investment criteria.

“The most important responsibility we have is getting the best return for our retirees. And this ESG stuff doesn’t get the returns,” Sununu told NHJournal Tuesday. “It hurts returns, it increases risk, and it doesn’t fulfill the mission.”

Sununu’s executive order also instructs relevant state agencies to review their policies to ensure “no funds or state-controlled investments are invested with firms that invest New Hampshire funds in accounts solely based on ESG criteria.” And it instructs State Treasurer Monica Mezzapelle to “report on an annual basis” to the governor and legislature “regarding compliance with the duty to make investment decisions based upon the fiduciary duty to maximize short or long-term financial benefits for the state.”

The order is just the latest action the Sununu administration has taken to oppose the new ESG rule. Last month, Sununu joined 18 fellow GOP governors in a letter to the Biden administration, pledged to fight the move….

And his Attorney General, John Formella, is part of a lawsuit attempting to block the new rule from being applied.”

South Carolina House advances bill opposing ESG

A bill in South Carolina that would require the state pension system to consider only pecuniary factors in its investments and to exercise its shareholder proxy rights has passed the state House and moves now to the Senate:

“[I]n South Carolina, the state’s House of Representatives passed the ESG Pension Protection Act. The bill requires South Carolina’s retirement system to consider only “pecuniary factors” when making investment decisions and prevents it from considering ESG factors.

The bill would also require the state’s retirement system to exercise shareholder proxy rights for shares that are owned directly or indirectly on behalf of the system. To accomplish this, the retirement system would have to manage the proxy voting in-house, hire an external proxy adviser or fully delegate the proxy voting to an external investment manager.

According to a fiscal analysis of the bill by the South Carolina Revenue and Fiscal Affairs Office, managing the proxy voting could cost the retirement system as much as $1 million if it does it in-house. It would cost the system $292,000 to hire an external proxy adviser, and delegating the proxy voting to an external investment manager would be of no cost to the retirement system. The report added that the retirement system is not sure which of the three scenarios would fulfill the requirements of the bill.”

Not every anti-ESG effort is successful, even in red states

The Washington Times ran a piece on April 12 covering state-level efforts opposing ESG. The article mentioned some examples of Republican-governed states that tried to push back against ESG but were unsuccessful in doing so:

“Rooting out ESG-based investing is proving to be more difficult than conservatives figured, and early efforts have faltered even in Republican-led states.

State pension managers, banking associations and business groups in more than a half-dozen conservative states have warned that bills to blacklist pro-ESG asset managers and investment funds could cost retirees and hurt local banks.

Mississippi, North Dakota and Wyoming killed anti-ESG bills, and Kansas and Indiana diluted legislation….

Republicans in Arizona, Texas and Kentucky have also faced resistance from state and county money managers.

West Virginia Treasurer Riley Moore, a Republican, faced headwinds as he championed a bill prohibiting state-managed funds from supporting ESG issues in the shareholder proxy voting process. The bill was recently signed into law.

Mr. Moore suggested in an interview with The Times that the pushback stemmed from “fearmongering” and outside influences….

Wyoming, which defeated anti-ESG bills this year, enacted a law in 2021 prohibiting financial institutions from discriminating against firearms-related businesses. North Dakota also tanked anti-ESG legislation this year but enacted a law in 2021 to prohibit state pensions from making “social investments” unless they are shown to perform as well or better than similar non-social investments.

Meanwhile, nearly a dozen liberal states have taken action promoting ESG and divesting from specific industries.”

On Wall Street and in the private sector

Wall Street banks can’t live up to expectations

A newly released analysis by Ceres and Transition Pathways Initiative – two ESG-supporting activist groups – discusses how difficult it can be for banks to keep their ESG promises and meet the expectations of those who rely on the investment strategy:

“The six biggest banks on Wall Street are failing to live up to a key plank of their ESG commitments to stakeholders, according to a joint study published on Wednesday.

An analysis by Ceres and the Transition Pathways Initiative has found that JPMorgan Chase & Co., Bank of America Corp., Citigroup Inc., Goldman Sachs Group Inc., Morgan Stanley and Wells Fargo & Co. have yet to align their oil and gas financing goals for 2030 with a scenario that keeps global warming within the critical threshold of 1.5C.

Banks’ continued support for fossil fuels, which is the primary source of planet-warming pollution, has left the industry and the executives who dominate it vulnerable to criticism from shareholders and activist groups. At the same time, the finance sector is under intense pressure from the American right as the Republican Party penalizes lenders for appearing to embrace environmental, social and good governance goals, such as reducing financed emissions.

“Our analysis highlights just how difficult it is for banks and their stakeholders to assess and compare how much progress they’re making on real oil and gas emissions reductions,” said Blair Bateson, director of the Ceres Company Network at Ceres. “And it goes beyond these six banks.”

BloombergNEF estimates that the ratio of clean-energy lending and equity underwriting relative to fossil fuels needs to hit 4 to 1 by the end of the decade to live up to the Paris climate agreement. But by the end of 2021, that ratio for the finance industry was roughly 0.8 to 1, BloombergNEF said in February….

The banks singled out in the analysis by Ceres and TPI are all members of the Net Zero Banking Alliance, a coalition that requires signatories to set interim targets for the most carbon-intense sectors on their balance sheets. All six have set 2030 goals for the oil and gas sectors.”

ESG issues impacting shareholder meetings

Bloomberg Law reports that ESG and ESG-related matters are playing a significant role in this year’s shareholder meeting season. The report says shareholders (and shareholder groups) are developing proxy proposals that support and oppose ESG political issues and certain types of political spending:

“Annual meetings kicked off with a bang this year as companies and their executives confronted increasingly thorny questions from both liberal and conservative stakeholders over a wide range of environmental, social, and governance topics including diversity, abortion, and climate change.

Walt Disney Co. Chief Executive Officer Bob Iger dove into the political debate at the company’s annual meeting last week, calling Florida Governor Ron DeSantis’ pushback of the entertainment giant’s support for LGBTQ rights as “anti-business” and “anti-Florida.” Royal Bank of Canada found itself on the defensive at its annual meeting two days later, as the bank faced a volley of questions from angry proxy holders about its fossil fuel investments and the impact of its business practices on Indigenous people and people of color.

Political friction at shareholder meetings is not new, but appears to be “coming back into vogue,” said David Webber, a corporate law professor at Boston University. Webber noted that there’s a long history of confrontational debates at shareholder meetings including over gay rights and segregation in previous decades. “I think we’re definitely seeing a new wave of it now,” he said….

Companies including Eli Lilly and Co and Coca-Cola Co. are among those that face politically sensitive shareholder proposals on abortion and political spending at upcoming annual meetings. Home Depot Inc. faces two diversity-related proposals this year while annual meetings at Bank of America Corp and Wells Fargo & Co will see multiple shareholder proposals on climate change impacts from lending and investment activities.

Conservatives, who historically are less active in shareholder campaigns, hope to sway corporate agendas too. One shareholder has even put forth a proxy proposal that calls on Home Depot’s management to make a commitment to avoid supporting or taking a public position on “any controversial social or political issues.”…

The volume of conservative shareholder proposals has risen in recent years, a new trend in the predominantly liberal shareholder activism space. These proposals typically don’t receive much investor support. But proposals opposing environmental, social and governance policies rose 60% since last year, according to the Proxy Preview 2023 report from March.”

Economy and Society, April 11, 2023: Tennessee joins open letter opposing ESG

Economy and Society is Ballotpedia’s weekly review of the developments in corporate activism; corporate political engagement; and the Environmental, Social, and Corporate Governance (ESG) trends and events that characterize the growing intersection between business and politics.

ESG developments this week

In the states

SFOF CEO pushes back on ESG 

Derek Kreifels, the CEO of the State Financial Officers Foundation (SFOF), appeared on Fox News’s “Fox & Friends” on April 9 to discuss the state financial officers who are pushing back against ESG. Kreifels argued asset managers have a fiduciary responsibility to consider only financial factors—not ESG criteria—in their investments on behalf of states.

Watch the video here.

Tennessee joins open letter opposing ESG

In last week’s newsletter, we reported that 19 state attorneys general had signed an open letter to asset managers arguing that those managers have a legal responsibility to seek maximized returns based on financial (not ESG) considerations in the investment of state funds. Tennessee joined the original group on April 10, bringing the number of states that are part of the coalition to 20:

Tennessee Attorney General Jonathan Skrmetti joined a coalition of 20 state attorneys general in warning more than 50 of the nation’s largest asset managers about Environmental, Social, and Governance investments being made with Americans’ money as annual shareholders’ meetings begin for many public companies.

The letter was sent to 53 asset managers with $40 billion or more in assets; the attorneys general cite concerns that asset managers may be pushing the political goals of Climate Action 100+ and the Net Zero Asset Managers Initiative rather than acting in the best fiduciary interests of their clients, which is their legal obligation.

“We are writing this open letter to asset manager industry participants to raise our concerns about the ongoing agreements between asset managers to use Americans’ savings to push political goals during the upcoming proxy season,” the coalition wrote. “As explained further below, asset managers have committed to use client assets to change portfolio company behavior so that it aligns with the Environmental, Social, and Governance goal of achieving net zero by 2050. This specific, political commitment changes the terms of the products offered, as well as engagements with individual companies.”

In addition, the coalition notes that during the 2023 proxy season, asset managers will need “to choose between their legal duties to focus on financial return, and the policy goals of ESG activists” as banks, insurers, and utility and energy companies are all facing proposals from climate activists affiliated with organizations asset managers may have joined. Additionally, abortion and political spending and race and gender quotas may also be included in numerous proposals this year but are not financially justified – and ESG aims themselves are not valid defenses. …

General Skrmetti signed onto the letter in addition to state attorneys general from Alabama, Arkansas, Georgia, Idaho, Indiana, Iowa, Kansas, Kentucky, Mississippi, Missouri, New Hampshire, Ohio, South Carolina, Texas, Virginia, West Virginia, and Wyoming. The effort was led by Montana Attorney General Austin Knudsen, Louisiana Attorney General Jeff Landry, and Utah Attorney General Sean Reyes.

Kansas bill opposing ESG passes legislature

Kansas lawmakers approved a bill on April 6 prohibiting ESG considerations in public pension investments. Some measures that were proposed, like certain restrictions on private ESG investing and on public investments in foreign companies, did not make it into the final bill. The bill was sent to the governor for consideration:

A proposal designed to thwart investing that considers environmental, social and governance factors has cleared the Kansas Legislature, but divisions within its GOP majorities kept the measure from being as strong as some conservatives wanted.

Lawmakers on Thursday approved a bill that would prevent the state, its pension fund for teachers and government workers and its cities, counties and local school districts from using ESG principles in investing their funds or in awarding contracts. Such investment strategies have become the target of GOP lawmakers across the country who argue they are focused more on pushing political agendas rather than earning the best returns.

At least seven states, including Oklahoma, Texas and West Virginia, have enacted anti-ESG laws in the past two years. GOP Govs. Ron DeSantis of Florida and Greg Gianforte of Montana also have moved to ensure their states’ funds aren’t invested using ESG principles. …

Some conservative lawmakers in Kansas wanted to require managers of private funds to either disclose to clients that ESG principles guide their investing or to get clients’ written consent to use ESG. Republican state senators backed a plan to force the state pension fund to divest from nations identified by the U.S. government as foreign adversaries, including China.

But proposals to impose new rules for private money managers spurred a strong backlash from influential business and banking groups. House members said the provision requiring the pension fund to divest from other nations was written so broadly that it would prevent investing in companies founded by immigrants fleeing oppression. …

The votes to approve the bill were 76-47 in the House and 27-12 in the Senate and sent the measure to Democratic Gov. Laura Kelly. While almost all of the state’s Democratic lawmakers voted “no,” Kelly has not said what she will do. Supporters had the two-thirds majority needed to override a veto in the Senate, but not in the House.

Anti-ESG bill advances out of Indiana Senate committee 

The Indiana Senate Pensions and Labor Committee advanced a bill April 5 that proposes prohibiting ESG considerations in public investments. The Senate bill contains several exemptions that did not appear in the bill when it was first introduced. Some have suggested the changes would water down the legislation:

A bill designed to prevent the state’s pension fund from working with asset managers that use environmental, social and governmental—or ESG—considerations in their investment strategies was advanced by the Indiana Senate Pensions and Labor Committee on Wednesday.

As it was originally written, House Bill 1008, authored by Rep. Ethan Manning, R-Logansport, was projected to result in a whopping $6.7 billion loss to the Indiana Public Retirement System, or INPRS, over the next decade. That number was based on the assumption that financial institutions would not be able to work with INPRS due to its hardline stance against ESG investing, according to State Treasurer Daniel Elliot.

That prompted lawmakers to make significant changes to the bill, including exempting private market funds, which make up about 15% of the state’s total pension investments, from the legislation. The amended bill also excludes the state police pension trust and the pension system’s defined contribution plans.

Manning said the revisions would reduce the fiscal impact to zero and clear up any confusion while keeping intact the original intent of the legislation.

“The big idea here is that financial returns trump all, period, full stop,” Manning told the committee. “That’s the point of the bill. You can do all of the ESG funds and investing you want, but they have to have the highest returns, lowest risk and lowest management fees.”

The legislation also imposes reporting requirements on INPRS, requiring the agency to provide an annual count of all proxy votes made by fiduciaries.

Enforcement of the law would fall under the treasurer’s office, which some lawmakers found problematic.

The committee advanced the bill with all three Democrats on the committee voting against the measure. The legislation heads to the Senate floor.

Wyoming secretary of state joins ESG pushback

During a meeting of the State Loans and Investments Board on April 6, Wyoming Secretary of State Chuck Gray (R) said he opposes ESG and will do whatever he can, given his position, to oppose it:

Secretary of State Chuck Gray left no doubt about where he stands on ESG policies during a State Loans and Investments Board (SLIB) meeting on Thursday morning, saying he won’t tolerate them. He quizzed financial advisors trying to get a contract with the State of Wyoming to help manage the state’s investments.

ESG, also called “woke capitalism” by critics, rates funds on various markers of progressive-friendly policies related to protecting the environment, diversity in the workplace and community relations.  

Gray mentioned early testimony given by a handful of University of Wyoming students who said there are new investment opportunities opening up in fields that ESG-friendly investors have shunned. 

“There’s this enormous opportunity in oil and gas created by, if you will, this clown show woke ideology that is out there, this ESG deal,” Gray said. 

Gray grilled Kevin Alexander, a partner with private credit investment firm Ares Management, about whether he’s opposed to ESG-driven investing and how he plans to take advantage of new competitive opportunities opened by the ideological-driven investing.  

Ares staff came before SLIB on Thursday seeking an approval to enter into a contract with the state to manage $100 million of its investments. 

“We’re fundamentally investors in cash-flows,” Alexander answered Gray. “Our view of ESG is, we want to provide a risk adjusted return on a predictable, contractual cash-flow. We do not have any limitations with respect to our investing that are guided from an ESG perspective.” …

State Treasurer Curt Meier did not ask any questions about ESG and described Ares staff as “a good group of capitalists.” He has spoken against ESG investing in the past, but like Gordon, espoused a commitment to investing in what provides the state the highest rate of return.  

The topic of managing the state’s investments falls more in the purview of Meier’s department than Gray’s on a day-to-day basis.  The secretary of state oversees the state’s business filings. But every member of SLIB gets a say in how the state’s investments are handled. 

The state’s current Investment Policy Statement (IPS) doesn’t mention ESG or provide any guidelines to fund managers as to whether or not they can invest in funds supportive of ESG policies.

On Wall Street and in the private sector

ESG sector suffers losses to end Q1

The ESG sector, which has underperformed many indexes and benchmarks over the last year in the midst of broad market declines and the rise of energy assets, looked to rebound in the first quarter of 2023 but was undone at the end of the quarter, in part because of its exposure to banks and other financial services companies:

Investment funds with environmental, social and governance (ESG) goals appear to be back in vogue in 2023, although the banking crisis that roiled markets last month removed some of the shine as investors withdrew cash towards the end of the quarter.

The previously booming ESG investment industry experienced a rough 2022, as soaring energy prices and a surge in global inflation eroded confidence in sustainable investing for some.

Before concerns over the health of banks sparked an investor rush to safety, funds marketing themselves as ESG-friendly had a strong start to 2023, with investors adding in more cash than they withdrew, according to Refinitiv Lipper data.

Across ESG debt, equity and multi-asset funds, net inflows hit $25.5 billion, the best quarter since early 2022, the data shows.

Still, with markets suffering another volatile spell and equity prices far below their peaks, total assets under management across all ESG funds stood at $33.3 trillion at end-March, versus a peak of $51.7 trillion at end-December 2021, according to the Refinitiv Lipper data. …

Analysts say ESG funds have been helped by a rebound in technology stocks that many funds hold, and policy initiatives such as the U.S. Inflation Reduction Act, which support the case for buying stocks that could benefit from a lower-carbon economy.