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Economy and Society, November 15, 2022: Former BlackRock senior adviser expresses concerns with 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

State Financial Officers Foundation holds a conference and makes an announcement

This week, the State Financial Officers Foundation—a nonprofit organization aimed at encouraging fiscal responsibility among state treasurers and auditorsheld its semi-annual meeting in Washington, DC. The event—attended by more than two-dozen state officials—focused on election results, and included one stand-alone speech and three expert-panel discussions dedicated to ESG and the various impacts that it may have on states.

Additionally, SFOF and its state financial official members held a press conference to announce the launch of its new retail-oriented, constituent-targeted ESG campaign and website called “Our Money, Our Values”. The SFOF press release on its new campaign read as follows:

Today, the State Financial Officers Foundation (SFOF) announced a new campaign titled “Our Money, Our Values” that will educate American public on the dangers of Environmental, Social, and Governance (ESG).

The “Our Money, Our Values” campaign, which officially launched during the SFOF National Meeting in Washington, D.C., builds on the work of state financial officers from across the nation who have taken significant actions to prevent ESG from harming the citizens of their respective states.

“As SFOF members continue to fight for their constituents, it’s important the American people have an honest understanding of what ESG really is,” said SFOF CEO Derek Kreifels. “Our money should not be used to push policies that don’t align with our values and have nothing to do with maximizing the value of our retirements and pensions. We are launching ‘Our Money Our Values’ to help educate Americans everywhere who are being used by massive corporations like BlackRock, Vanguard, and StateStreet.”

As part of the campaign, SFOF debuted a new website that provides resources to everyday Americans so they can learn the truth about ESG and how it impacts their pocketbooks, livelihoods, and how it pushes a progressive agenda that often runs counter to American values….

To ensure the website is seen by as many Americans as possible, SFOF will begin a six-figure digital marketing effort.

On Wall Street and in the private sector 

Investors withdraw from ESG funds

Reuters reported on November 11 that ESG investment funds have seen an uptick in fund withdrawals over the last several months. In a piece titled “Money before climate; market downturn spurs ESG fund exodus,” the newswire said the following:

Funds adhering to environmental, social, and corporate governance (ESG) principles have been hit by unprecedented outflows in the market downturn, as investors prioritize capital preservation over goals such as tackling climate change.

ESG, a classification applied to fund assets currently worth an estimated $6.5 trillion, is being tested by a drop in market values fuelled by concerns that central banks hiking interest rates to fight rampant inflation will trigger an economic recession.

Investors souring on ESG funds could pose a challenge to governments seeking to enlist them in the fight against climate change. Policymakers at the COP27 climate talks in Egypt are trying this week to secure more financing from the private sector to help lower carbon emissions.

Data from research service Refinitiv Lipper shows that funds of equities, debt and other asset types dedicated to responsible investing posted net outflows globally of $108 billion this year to the end of September, the first time investors withdrew money from them over such a long period since Refinitiv started tracking them in late 2017.

Moreover, investors pulled money out of responsible investment funds – defined as such because they use criteria like ESG or religious values in their investment decisions – faster, relative to their size, than broader market funds for all but two months of 2022 through September, the data shows….

Only 31% of actively managed ESG equity funds beat their benchmarks in the first half of 2022, compared to 41% of conventional funds, according to Refinitiv Lipper.

This represents a reversal of fortunes compared to the previous years.

Former Vice President Al Gore argues ESG investing is consistent with fiduciary duties of money managers

Former Vice President of the United States Al Gore (D) has previously defended ESG investing, and he re-emerged November 8 with an op-ed in The Wall Street Journal arguing that ESG investing is consistent with investment managers’ fiduciary duties. Gore, along with his Generation Investment Management partner David Blood, wrote:

We co-founded Generation Investment Management with five other partners nearly 19 years ago as a pure-play sustainable-investment manager. We agree with much of the recent criticism of the way some investors have claimed to use environmental, social and governance factors. We are unsurprised by the recent backlash against the multiple definitions and confusing terminology, the overreliance on checklists, the potentially misleading marketing campaigns, and the frequent lack of rigor and accountability. But these criticisms are by no means evidence that sustainable investing and ESG are failed concepts. Instead, they are welcome challenges to ensure that sustainable investing and the incorporation of ESG factors are carefully defined, clearly understood and effectively practiced.

Sustainable investing is about investing in businesses that are driving toward a world with low greenhouse-gas emissions that is also prosperous, equitable, healthy and safe. It is consistent with the fiduciary duty that investment professionals owe their clients. Those who don’t take sustainability factors into account aren’t fulfilling that duty.

Widespread marketing and greenwashing campaigns have contributed to confusion in the financial marketplace about what ESG is and what it is not. Put simply, ESG analysis is a tool to advance sustainable investing; it isn’t an outcome in itself. We see environmental, social and governance factors as critical inputs into decisions about where to invest money. Investors should take ESG factors into account alongside more-traditional measures such as expected cash flow….

Since all businesses affect social and environmental issues, for good or ill, all investment must consider risk, return and impact as part of fiduciary duty. Negative environmental and social effects are headwinds on future business success; positive effects are tailwinds. Developing comparable data sets on impact, robust standards, and measurement and reporting norms should be the highest priority for sustainable investors. Accountability is essential.

We acknowledge that sustainable investing is hard. Not everything is a win-win. And not all businesses that are sustainable are good investments, because the fundamentals of finance still apply. Yet we believe sustainable investing is the best investment approach and will increasingly be recognized as such. Banning consideration of ESG factors would not only lead to poor investment outcomes; it would constitute a clear dereliction of fiduciary duty.

Former BlackRock senior adviser expresses concerns with ESG

Over the weekend, The Wall Street Journal published Angel Au-Yeung’s review of the new book “Sustainable: Moving Beyond ESG to Impact Investingby Terrence Keeley. A former BlackRock senior adviser, Keely wrote the book to express his concerns with the ESG investing model. Last year, Tariq Fancy, the former director of sustainable investing for BlackRock made headlines when he argued that ESG was a marketing tactic that had little or no impact on corporate sustainability or the environment. From the review:

Terrence Keeley had been at BlackRock Inc. for about a decade when he reached a contrarian conclusion: ESG doesn’t work. 

Mr. Keeley spent much of his time at the asset manager overseeing a group that nurtured relationships with central banks, finance ministries, family offices and sovereign-wealth funds. Under pressure from politicians and activists, some of these investors were looking to distance themselves from companies that fall short on environmental, social and governance factors. BlackRock obliged, helping clients funnel money toward companies whose values they share.

Mr. Keeley said the strategy has proved to be neither a reliable generator of returns nor a real catalyst for change. In his new book, “Sustainable: Moving Beyond ESG to Impact Investing,” he argues that investors should shift money away from ESG indexes toward “companies with persistent environmental and social problems and engaging them to change.”…

Mr. Keeley retired from BlackRock in July, and the asset manager isn’t likely to abandon the ESG model soon. Still, the book hints at a quiet debate within a firm that has embraced the sustainable-investing movement. And it comes as the world’s largest investor is taking heat from government officials on both sides of the climate debate—for doing too much to discourage investment in fossil-fuel companies and for not doing enough….

Mr. Keeley isn’t the first former BlackRock executive to break with the company on the merits of ESG investing.

The promise of ESG “lured me to join BlackRock to begin with,” Tariq Fancy, the firm’s former chief investment officer for sustainable investing, wrote in an August 2021 post on Medium. Mr. Fancy left BlackRock in 2019 convinced that the asset-management industry’s ESG push was “leading the world into a dangerous mirage, an oasis in the middle of the desert that is burning valuable time.” 

Mr. Fancy has said governments, not investors, must take the lead on climate change. Mr. Keeley believes the markets will play a major role—just not the way they are now.

Economy and Society, November 10, 2022: Congressional Republicans discuss ESG and SEC oversight plans

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.

Congressional Republicans discuss plans to investigate ESG and expand SEC oversight if they win majorities

According to the Washington Post, congressional Republicans are planning to spend time in the next Congress investigating ESG and trying to inhibit other efforts to promote what they call woke capitalism if they gain majorities in either legislative chamber. Republican leadership has also expressed interest in expanding legislative oversight of the SEC and its planned climate disclosure regulations:  

“Less than a week before the midterm elections, Republican lawmakers on Capitol Hill are already gearing up to investigate what they see as “woke capitalism,” a reference to Wall Street firms that treat climate change as an economic risk.

Polls suggest the GOP will retake the House, and Republicans there are preparing to grill the chief executives of big financial firms as well as Gary Gensler, the Democratic chairman of the Securities and Exchange Commission, about their efforts to curb climate change. In the Senate, where polls show a toss-up battle for control of the chamber, key senators are pushing legislation to punish businesses that prioritize environmental, social and governance causes — known as ESG — rather than pure profits.

Rep. Garland “Andy” Barr (R-Ky.) said in an interview that ESG principles “will be one of the major focuses of oversight of a Republican majority” on the House Financial Services Committee, which oversees the nation’s banking, insurance and real estate sectors.

“My view is that ESG investing is a cancer within our capital markets,” Barr said. “It is a fraud on American investors.”

The SEC “is a target of our oversight because of this 534-page monstrosity of a climate disclosure regulation,” he added, referring to a proposed rule that would require all publicly traded companies to disclose their greenhouse gas emissions and the risks they face from climate change.

Not everyone is convinced that the Wall Street firms face a real threat from a Republican takeover of Congress. Some see the GOP moves as political theater intended to satisfy the party’s base and fuel the nation’s ongoing culture wars.

The GOP is engaged in “a lot of political hay making,” said Ivan Frishberg, chief sustainability officer at Amalgamated Bank, which does not do business with fossil fuel companies. “But I don’t think this is changing what asset managers or banks are doing in terms of their approach to either their stewardship of assets in a changing climate, or participation in the climate initiatives that they’re a part of.”

Yet supporters of sustainable investing are bracing for intense scrutiny if Democrats fare badly in the midterms, leading to high-profile hearings and grilling of administration officials.

Rep. Frank D. Lucas (R-Okla.) said he would prefer to seek the testimony of Gensler and other Biden administration officials before hauling in the chief executives of big financial firms such as BlackRock, the world’s largest asset manager. Lucas said he would recommend this approach to Rep. Patrick T. McHenry (R-N.C.), who would become chair of the Financial Services Committee if the chamber changes hands.

And Rep. Blaine Luetkemeyer (R-Mo.) said he hopes to call in the heads of the three big investment advisers — BlackRock, Vanguard and State Street — that have used their economic power to curb climate change and advance other causes that are popular among liberals….

Sen. Tom Cotton (R-Ark.) has accused BlackRock and other Wall Street firms of “acting like a climate cartel” and contributing to high gas prices. But there is no evidence that sustainable investing has affected gas prices, which have gone up for a variety of reasons, including tightening global oil markets and Russia’s invasion of Ukraine.

Larry Fink, the chief executive of BlackRock, has defended his firm’s push to hold companies accountable for environmental and social progress. In his annual letter to corporate America in January, he argued that focusing on ESG principles does not conflict with making money.

“We focus on sustainability not because we’re environmentalists, but because we are capitalists and fiduciaries to our clients,” Fink wrote in the letter, adding, “Capitalism has the power to shape society and act as a powerful catalyst for change. But businesses can’t do this alone, and they cannot be the climate police.””

New York Post business columnist Charles Gasparino confirms the Washington Post’s reporting, saying that his sources are telling him many of the same things about a potential GOP agenda on ESG. He also says Republicans have plans to try and prevent SEC Chairman Gary Gensler from becoming treasury secretary if Janet Yellen steps down from the position:

“Gary Gensler, a former Wall Street banker and academic, is the chair of the agency, appointed by Sleepy Joe nearly two years ago supposedly to protect investors from scammers.

Instead, Gensler is transforming the SEC in ways not even moderate Dems on Wall Street had ever imagined….

He and his Dem colleagues on the commission approved a cockamamie set of standards imposed by the Nasdaq stock market that is intended to make every listed company disclose and meet progressive board-diversity mandates. (Noticeably exempted: All those Chinese companies listed on the exchange as Nasdaq slipped in a loophole where they can skip appointing members of the country’s oppressed ethnic minorities.)

Now he wants to make the Nasdaq model de rigueur across corporate America. In documents to investors, Gensler wants public companies to make sweeping disclosures on how they are reducing their carbon footprint, on top of revealing the racial and ethnic makeup of their workforce….

Gensler is angling to be Treasury secretary when the current occupant, Janet Yellen steps down as expected next year.

A Republican congressional sweep ­negates the Gensler Treasury possibility, I am told. The Senate will hold hearings on what the GOP believes is his radical transformation of the agency….

In the Senate, plans are also in place to put so-called riders on must-pass spending bills to zero out Gensler’s ESG/diversity stuff. Biden will have a choice of either agreeing to the partial defunding of SEC activities and signing spending bills, or face a legislative stalemate.

Another set of hearings will target the corporate enablers of the Dems’ progressive economic agenda. Retiring Pennsylvania Republican Sen. Pat Toomey has been requesting information from companies involved in Environmental Social Governance investing, which is a big moneymaker on Wall Street but, he believes, anti-consumer and politically fraught.

Toomey and top Republicans believe this investment method has forced companies to adopt progressive positions on the environment and other contentious issues at the worst possible time. By late 2021, inflation and gas prices in particular were already spiking because of Biden’s anti-drilling energy agenda while pandemic lockdowns ended.

The subsequent war in Ukraine further eroded oil inventories and added more price pressure. Asset managers pushing ESG mandates made a bad situation exponentially worse by threatening to direct money away from energy producers that didn’t further cut back production.

Once in the majority, Republicans will have subpoena power over massive asset managers, and to compel Wall Street firms to turn over the information and defend their practices at public hearings — which I am told is the plan.”

On Wall Street and in the private sector

Agricultural companies and organizations push back against proposed SEC rule on emissions

Late last month, farmers and agricultural companies began to push back against the SEC’s proposed climate disclosure rule. Trade groups including the American Farm Bureau Federation and the National Corn Growers Association argue that, in their view, the imposition of greenhouse gas disclosure requirements could harm America’s farms and agricultural capacity. According to the Wall Street Journal:

“Big agricultural groups say a proposal from the Securities and Exchange Commission requiring companies to report their carbon footprint could drive small farmers out of business.

Skeptics say it is more likely to be a boon for the consulting business.

The proposal, unveiled by the SEC in March and not yet finalized, would require publicly traded companies to disclose their greenhouse-gas emissions, as well as the risks their business faces from climate change. Most controversially, some large companies would also have to provide an estimate of the emissions from their suppliers and consumers.

Agriculture companies and farm groups have said the burden of generating those estimates would get passed on to small private farmers and drive up food costs. Supporters say those claims are misleading, and that large public companies will likely rely on consultants to crunch the numbers.

The SEC proposal is backed by environmentalists and some fund managers who hope more transparency about climate data will help people make more informed investment decisions.

The agriculture industry’s pushback aligns it with some other sectors opposed to the SEC proposal, including auto manufacturers and oil producers. Other industries with a smaller carbon footprint and more liberal-leaning workforce, including the tech and financial industries, have been broadly supportive of the proposal….

Meanwhile, trade groups including American Farm Bureau Federation and the National Corn Growers Association are rallying their members against the rule. They say requiring companies to calculate such emissions is a daunting task given the nature of farming.

“A farm isn’t a smokestack,” said Mary-Thomas Hart, chief counsel at the National Cattlemen’s Beef Association. “You can’t put a monitor in and get steady emissions data.””

Notable quotes

ESG funds experience largest outflow since Q4 2000

In the October 28 edition of its EPFR (Emerging Portfolio Fund Research) Chartbook, Informa (a financial intelligence company) noted that ESG equity funds experienced their largest weekly outflow since EPFR started tracking their performance in 2000:

“Going into the final days of October, Equity Funds with socially responsible (SRI) or environmental, social and governance (ESG) mandates posted their biggest weekly outflow since EPFR started tracking them in 4Q00.”

Economy and Society, November 1, 2022: How will voters affect the control of state financial offices?

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

Election preview

Across the country, voters are gearing up to decide the control of the U.S. Senate, U.S. House, and state governments nationwide. Beyond the usual high-profile races, let’s take a look at another set of important offices: state financial officers (SFOs).

Different states have different names for these elected officials, but they all fall into three groups: treasurers, auditors, and controllers. Broadly, these officials are responsible for things like investing state funds, auditing other government offices, and overseeing pensions.

When it comes to where the money goes and who is watching it, these officeholders are typically the ones in charge, giving them an important role in state government. Like gubernatorial elections, the midterm election cycle is disproportionately weighted with a majority of the elections in four-year cycles.

In 2022, either directly or indirectly, voters will decide who controls 68 of the 105 state financial officerships nationwide (65%).

  • Direct elections: voters will directly elect 50 SFOs this year. For comparison, only 14 are on the ballot in 2024.
  • Appointees with expiring terms: nine SFOs’ terms are set to expire in 2023 or 2024, with decision-making power for the next term falling to the governors and legislators voters elect this November. 
  • Contingent appointees: nine SFOs’ don’t have a term length, but instead serve at the pleasure of elected officials who are on the ballot this year. If an elected official loses or the office switches party control, their predecessor will get to decide whether to keep those SFOs or appoint new ones.
  • Other: four SFOs’ terms are contingent upon either a non-elected appointee or a multi-member board.

Among the 36 appointed SFOs, 28 are appointed by a single office or entity:

  • Governors appoint nine
  • Legislatures or joint legislative committees appoint 14;
  • In Oregon, the secretary of state appoints the auditor; and,
  • Other appointees or multi-member boards appoint four.

Additionally, offices sometimes have to work together to select SFOs:

  • Governors appoint, and legislatures confirm, two SFOs;
  • Governors appoint, and senates confirm, five; and,
  • In Wyoming, the governor, secretary of state, and treasurer, by majority vote, appoint the auditor, with the Senate’s confirmation.

When it comes to partisan affiliations, most appointed SFOs are officially nonpartisan, but we can use the party of the appointing authority to make an estimation. But this is not always a perfect calculation, as it is not uncommon for an appointer of one party to retain an SFO appointed by a member of a different party.

In Oregon, for example, former Secretary of State Dennis Richardson (R) appointed Kip Memmott as the state’s audit director in 2017. Memmott remained in office even after Secretary of State Shemia Fagan (D) took control in 2021.

And in Virginia, Controller David Von Moll took office in 2001, under former Gov. Jim Gilmore (R). Von Moll then remained controller throughout four Democratic administrations over the following two decades.

The 69 directly-elected officers, on the other hand, hold partisan positions, meaning candidates run with party labels on the ballot.

Altogether, heading into November, there are

  • 42 SFOs who are Democrats or were appointed by Democrats;
  • 56 SFOs who are Republicans or were appointed by Republicans;
  • Three SFOs who were appointed by a combination of Democrats and Republicans, listed as other; and,
  • Four SFOs who were appointed by non-elected appointees or multi-member boards, also listed as other.

Among the offices being decided this November, Democrats and Republicans both currently hold 33, and two positions are marked as other because appointment authority was split between Democrats and Republicans.

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

UK announces stricter rules for businesses’ ESG claims

The British financial regulator, the Financial Conduct Authority (FCA), announced last week that it would follow the lead of regulatory bodies in other Western nations (including the American Securities and Exchange Commission) in developing regulations related to preventing and punishing false or misleading ESG claims from businesses:

“The UK’s financial regulator made clear it will no longer tolerate vague ESG fund designations as it moves to crack down on investment managers that can’t back up their claims of targeting environmental, social and governance metrics.

Fund managers operating in the UK will face a “package of new measures, including investment product sustainability labels and restrictions on how terms like ‘ESG,’ ‘green’ or ‘sustainable’ can be used,” the Financial Conduct Authority said in a statement on Tuesday.

It’s the latest example of regulators tightening the screws around ESG investing, which after years of unfettered growth now accounts for roughly a third of global assets. A more aggressive regulatory environment has already led asset managers to scale back their ESG ambitions, with an analysis by Jefferies showing that reclassifications to package regular funds as more sustainable products plunged 84% over the past year.

“Already today, greenwashing may be eroding trust in the market for sustainable investment products,” the FCA said. “If consumers can’t trust the claims firms make about their products, they will shy away from this market, slowing the flow of much-needed capital to investments that can genuinely drive positive change.” 

The watchdog expects the bulk of the proposed rules will come into effect in mid-2024 at the earliest. 

Regulators in the EU, US, UK and Japan are stepping up oversight of ESG funds amid growing concerns that asset managers keen to sell products are promising more than they can deliver. Fund clients have been calling for better guardrails on the ESG industry, with an analysis by PwC showing that 71% of institutional investors want stronger ESG regulations. The hope is that extra rules “can act as an important lever to build trust and decrease the risk of mislabeling,” according to PwC….

The FCA proposed three fund labels: “Sustainable Focus,” which invests mainly in assets that achieve a high standard of sustainability; “Sustainable Improvers,” which would invest in assets that may not be sustainable now with an aim to improve them; and “Sustainable Impact,” which targets solutions to social and environmental challenges.”

UK’s Advertising Standards Authority orders a stop on ESG advertising from HSBC

The UK’s Advertising Standards Authority (ASA) ordered HSBC – the largest bank in Europe – to stop a poster advertising campaign that depicted the bank as environmentally friendly. The regulator said the posters violated environmental advertising rules because they omitted information about the bank’s investments in businesses and industries that generated high levels of carbon emissions:

“HSBC Holdings Plc has been reprimanded by a UK watchdog for violating environmental advertising rules, after it sought to depict itself as a green bank in a set of posters.

In the latest sign that regulators are growing increasingly intolerant of all manifestations of greenwashing, the Advertising Standards Authority said it has ordered HSBC to ensure the posters “not appear again in the form complained of,” according to a statement published Wednesday. 

HSBC breached the so-called CAP Code, which relates to non-broadcast advertising and direct and promotional marketing, the ASA said. The bank was told to make sure that “future marketing communications featuring environmental claims were adequately qualified and didn’t omit material information about its contribution to carbon dioxide and greenhouse-gas emissions,” the watchdog said….

HSBC’s advertisements drew complaints from environmental groups, which said they misled consumers. The two posters in question, which were used by HSBC ahead of last year’s COP26 climate summit, stated that the bank plans to “provide up to $1 trillion in financing and investment globally to help our clients transition to net zero,” and that it’s “helping to plant two million trees, which will lock in 1.25 million tons of carbon over their lifetime.”…

HSBC has helped arrange about $111 billion of financing for fossil-fuel companies since the Paris climate accord was struck in late 2015. More than half of that was in the form of loans to oil, gas and coal clients, according to data compiled by Bloomberg.

The ASA said that, “despite the initiatives highlighted in the ads,” HSBC was “continuing to significantly finance investments in businesses and industries that emitted notable levels of carbon dioxide and other greenhouse gasses,” which consumers might not realize based on the information in the posters.

“We concluded that the ads omitted material information and were therefore misleading,” the ASA said.”

In Washington, D.C.

Chairman of the Senate Intelligence Committee says ESG-favored companies often ignore environmental and social abuses in China

Two weeks ago, U.S. Senator Mark Warner (D), the chairman of the Senate Intelligence Committee, argued that some companies only talk about their ESG credentials in American and Western settings. In his book The Dictatorship of Woke Capital, market analyst Stephen Soukup argued that one of the primary problems with ESG-favored companies, in his view, was their disparate treatment of environmental and social issues in Western nations on the one hand and the People’s Republic of China on the other. Warner said companies like Apple and Tesla often ignore environmental and social abuses in countries like China:

“Senate Intelligence Committee Chairman Mark Warner said he’s “disappointed” that companies such as Apple Inc. and Tesla Inc. tout their ESG bona fides but neglect glaring environmental or human rights issues when relying on China for supply chains and sales.

Multinationals may highlight their commitment to Environmental, Social and Governance goals but also reason that “the Chinese markets, it’s so big, we’ve got to turn a blind eye” to abuses, Warner said in an interview with Bloomberg in New York. “Whether it’s oppression of the people in Hong Kong or whether it’s the Uyghurs or whether it’s using electrical power coming out of Xinjiang to build the batteries that go in your Tesla.”

China has been accused of widespread human rights abuses against mostly Muslim Uyghurs in the far west region of Xinjiang, 

Warner said he’s “disappointed with our friends at Apple” and has been “really frustrated with not just American companies, but other multinationals.”

Spokespeople for Apple and Tesla didn’t immediately return emails seeking comment on Tuesday. Sales in China accounted for roughly a quarter of Tesla’s automotive revenue in the third quarter. Apple are 99% made in China, according to Bloomberg Industries, and about a fifth of its revenue comes from China….

Warner predicted additional legislative action on the issue, including on synthetic biology, advanced energy, quantum computing and other emerging technologies.

Warner also critiqued some environmentalists for measuring the impact of electric cars based only on when the vehicle is used as opposed to “how the car got got to your driveway in the first place.””

On Wall Street and in the private sector 

73% of large American companies consider ESG data in determining executive compensation according to a new report

A new report out this week says that 73% of all large American companies consider ESG metrics to varying degrees in determining executive compensation levels:

“Large US companies are increasingly linking executive compensation to some form of ESG performance, with the share growing from 66 percent in 2020 to 73 percent in 2021. At the same time, just a minority of polled corporate executives say including ESG (environmental, social, and governance) performance goals in executive pay is very important in achieving their ESG goals.  Most view such measures as being of medium importance, which indicates that incorporating ESG measures into compensation is just part of companies’ broader efforts to achieve their objectives.

The findings come from a new report by The Conference Board, produced in collaboration with Semler Brossy and ESG data analytics firm ESGAUGE. The study includes various trends—and highlights lessons learned—relating to companies tying executive pay to ESG performance.

In addition to the analysis showing an overall increase in the adoption of such goals, some ESG topics have gained considerably more traction than others: From 2020 to 2021, the share of S&P 500 companies incorporating DE&I (diversity, equity and inclusion) goals in executive compensation grew from 35 percent to 51 percent. And carbon footprint and emission goals nearly doubled, increasing from 10 percent to 19 percent.

To understand the opportunities and challenges companies have in implementing ESG performance goals in executive compensation programs, The Conference Board convened a roundtable with executives in compensation, ESG, governance, and sustainability. Participants said the top reason to link executive pay to ESG performance goals is signaling ESG as a priority, followed by responding to investor expectations. The top two reasons for not tying executive compensation to ESG is the challenge of defining specific goals, followed by skepticism about their effectiveness.”

In the spotlight

Finnish study suggests net zero carbon emissions might be impossible due to limited battery resources

A new Finnish government study says the limited availability of natural resources such as cobalt could limit battery production at the scale needed to reach net zero carbon emissions globally. According to the Daily Skeptic:

“Influential elites are either in denial about the horrifying costs and consequences of Net Zero – witness last Wednesday’s substantial vote against fracking British gas in the House of Commons – or busy scooping up the almost unlimited amounts of money currently on offer for promoting pseudoscience climate scares and investing in impracticable green technologies. Until the lights start to go out and heating fails, they are unlikely to pay much attention to a recent 1,000 page alternative energy investigation undertaken for a Finnish Government agency by Associate Professor Simon Michaux. Referring to the U.K.’s 2050 Net Zero target, Michaux states there is “simply not enough time, nor resources to do this by the current target”.

To cite just one example of how un-costed Net Zero is, Michaux notes that “in theory” there are enough global reserves of nickel and lithium if they are exclusively used to produce batteries for electric vehicles. But there is not enough cobalt, and more will need to be discovered. It gets much worse. All the new batteries have a useful working life of only 8-10 years, so replacements will need to be regularly produced. “This is unlikely to be practical, which suggests the whole EV battery solution may need to be re-thought and a new solution is developed that is not so mineral intensive,” he says.

All of these problems occur in finding a mass of lithium for ion batteries weighting 286.6 million tonnes. But a “power buffer” of another 2.5 billion tonnes of batteries is also required to provide a four-week back-up for intermittent wind and solar electricity power. Of course, this is simply not available from global mineral reserves, but, states Michaux, it is not clear how the buffer could be delivered with an alternative system.

Michaux sounds a clear warning message. Current expectations are that global industrial businesses will replace a complex industrial energy ecosystem that took more than a century to build. It was built with the support of the highest calorifically dense source of energy the world has ever known (oil), in cheap abundant quantities, with easily available credit and seemingly unlimited mineral resources. The replacement, he notes, needs to be done when there is comparatively very expensive energy, a fragile finance system saturated in debt and not enough minerals. Most challenging of all, it has to be done within a few decades. Based on his copious calculations, the author is of the opinion that it will not go fully “as planned”.”

Economy and Society, October 25, 2022: Missouri latest state to divest BlackRock funds over 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 Washington, D.C.

Proposed SEC ESG regulations could strain resources, argues inspector general report 

According to a new inspector general’s report, ESG regulations that the Securities and Exchange Commission proposed could potentially strain the agency’s resources, “[limit] the time available for staff research and analysis, and [increase] litigation risk.” According to the Wall Street Journal:

“The Securities and Exchange Commission’s fast-paced rule-making agenda under Chairman Gary Gensler has stretched staff resources, and some officials worry it could increase the risk of lawsuits, the agency’s internal watchdog said in a recent report.

In meetings with the SEC’s inspector general, managers at the agency expressed concerns about short deadlines for staff to draft proposed rules and for public stakeholders to submit comments on them, according to the Oct. 13 report. Mr. Gensler’s rule-making teams have borrowed staff from across the agency, making it difficult to complete other parts of the SEC’s mission, managers reported.

While no one identified concrete errors in rule proposals, some managers told the inspector general that “the more aggressive agenda…potentially limits the time available for staff research and analysis, and increases litigation risk.”…

A Biden administration appointee, Mr. Gensler is pushing an ambitious list of regulatory changes through the SEC. He has proposed to require significant disclosures from public companies about climate change and greenhouse-gas emissions, has asked for greater transparency from private-equity and hedge funds, and is planning to overhaul the rules that govern stock trading.

In the first eight months of this year, the SEC proposed 26 rules—more than in each of the previous five years, the inspector general noted.”

In the States

Missouri latest state to divest BlackRock funds over ESG

Last week, Missouri Treasurer Scott Fitzpatrick (R) became the latest state financial officer to announce that he would be pulling his state’s funds from BlackRock, Inc.’s asset management in response to the firm’s ESG commitments and what the fund calls sustainability investing practices:

“Missouri State Treasurer Scott Fitzpatrick announced Tuesday morning in a statement first provided to FOX Business that the Missouri State Employees’ Retirement System (MOSERS), of which he is a member, sold all public equities managed by BlackRock. With the announcement, Missouri joins a growing list of Republican-led states who have quit BlackRock and other banks over their environmental, social and governance (ESG) initiatives.

“This is the right thing to do for Missouri state employees who rely on the assets managed by MOSERS for their retirement,” Fitzpatrick told FOX Business. “Fiduciary duty must remain the top priority for investment managers—a duty some of them have abdicated in favor of forcing a left wing social and political agenda that has failed to succeed legislatively, on publicly traded companies.” 

“We should not allow asset managers such as BlackRock, who have demonstrated that they will prioritize advancing a woke political agenda above the financial interests of their customers, to continue speaking on behalf of the state of Missouri,” he continued. “It is past time that all investors recognize the massive fiduciary breach that is taking place before our eyes, and do something about it.”…

BlackRock and other major financial institutions like State Street and Vanguard have spearheaded an effort to promote ESG standards over the last several years. The ESG movement broadly seeks to promote a green energy transition and left-wing social priorities through the financial sector.

Republican states and groups like the State Financial Officers Foundation (SFOF), though, have waged a war against the ESG movement, arguing it is anti-democratic and harms taxpayers by pushing investments that don’t result in maximum earnings for consumers….

The SFOF has successfully organized a coalition of state treasurers over the last several months to leverage their pension plans and state investments to block banks from pursuing an ESG agenda. West Virginia, Louisiana, Texas, Kentucky, Oklahoma, Florida, South Carolina, Arizona, Idaho, Utah, Wyoming, Arkansas and North Dakota have all pushed back against the ESG movement.”

19 state attorneys general announce investigation into ESG investing practices of six banks

Last week, attorneys general from 19 states announced that they were launching an investigation into the involvement of six large American banks with the United Nations’ Net-Zero Banking Alliance. Missouri Attorney General Eric Schmitt (R) said, “We are leading a coalition investigating banks for ceding authority to the U.N., which will only result in the killing of American companies that don’t subscribe to the woke, climate agenda.”

“Nineteen Republican-led states are launching an investigation into six large U.S. banks that will examine their involvement in the United Nations’ “Net-Zero Banking Alliance,” which they say is “killing” American companies.

The states, led by Missouri Attorney General Eric Schmitt, oppose the UN’s environmental, social, governance (ESG) policies that require banks in the alliance to set carbon dioxide emission reduction targets in their lending and investment portfolios, and reach net-zero emissions by 2050.

Many of America’s largest banks, investment managers like BlackRock and Big Tech companies such as Microsoft have pledged to use ESG scores to help transform society to remain in line with numerous left-wing goals, including those of the Biden administration, especially those related to climate change.

Bank of America, Citigroup, Goldman Sachs, JPMorgan Chase, Morgan Stanley and Wells Fargo were served Wednesday by the states with civil investigative demands, which acts as a subpoena, for the requested information.

These civil investigative demands include identifying which Global Climate Initiatives each bank is affiliated with, which groups or divisions within the banks are responsible for ESG implementation, and to what extent the banks’ CEOs have been involved, among others.

“The Net-Zero Banking Alliance is a massive worldwide agreement by major banking institutions, overseen by the U.N., to starve companies engaged in fossil fuel-related activities of credit on national and international markets. Missouri farmers, oil leasing companies, and other businesses that are vital to Missouri’s and America’s economy will be unable to get a loan because of this alliance,” Schmitt told FOX Business.

“We are leading a coalition investigating banks for ceding authority to the U.N., which will only result in the killing of American companies that don’t subscribe to the woke, climate agenda. These banks are accountable to American laws – we don’t let international bodies set the standards for our businesses,” Schmitt said.

Missouri, Arizona, Kentucky and Texas are states taking the lead in the investigation. Other participating states include Arkansas, Indiana, Kansas, Louisiana, Mississippi, Montana, Nebraska, Oklahoma, Tennessee, Virginia and five other states who cannot be named due to confidentiality requirements.”

On Wall Street and in the private sector 

BlackRock and Vanguard say they will not divest fossil fuel investments from portfolios

On October 18, The Financial Times reported that BlackRock and Vanguard said they would not divest from fossil fuels and did not believe that doing so was necessary for ESG investing in response to a British government inquiry:

“The world’s two biggest asset managers BlackRock and Vanguard are among the financial institutions that have told a UK inquiry they will continue to invest in fossil fuels and do not subscribe to the view that climate change plans require an end to new coal, oil and gas investment.

BlackRock is among the asset managers attempting to take a neutral investment stance after Republican attorneys-general and state governors in the US accused the institutions of staging a “boycott” on the fossil fuel sector. Missouri on Tuesday became the latest state to punish the $8tn asset manager, as Treasurer Scott Fitzpatrick announced that the state’s retirement system had pulled out $500mn from BlackRock funds.

BlackRock and Vanguard’s statements on Tuesday were in response to a request by the UK’s Environmental Audit Committee. The committee wrote in August to members of the Glasgow Financial Alliance for Net Zero, an umbrella climate finance group, asking how they would balance retiring fossil fuel assets with assuring the UK’s energy security, given the “pivotal” role of the finance sector in reaching the UK’s environmental goals.

“BlackRock’s role in the transition is as a fiduciary to our clients — it is not to engineer a specific decarbonisation outcome in the real economy,” BlackRock wrote in its response. It expected to remain a long-term investor in carbon intensive companies because of their crucial role in the economy….

Brookfield Asset Management was also among the asset managers to have told the UK committee that it had no exclusion policies for fossil fuels. It said it instead encouraged the companies it invested in to reduce their emissions.

Brookfield vice-chair and head of transition investing Mark Carney is one of the founders of the Glasgow alliance and is due to appear before the inquiry on Monday.”

One-quarter of companies with net-zero pledges are not reporting on emissions progress, according to study

According to The Independent, a new study by the climate change group South Pole shows that as many as one-quarter of companies that set net-zero carbon emission targets are not reporting on their progress towards that goal:

“A quarter of companies that set targets to meet their net-zero commitments are quietly shelving reports about their progress in a process known as ‘green-hushing’, according to a study.

A report by climate analysts South Pole found that an increasing number of climate-aware companies are supporting their net-zero commitments with science-based targets, yet one in four does not plan to talk about them.

Doing so makes corporate climate targets harder to scrutinise and limits knowledge-sharing on decarbonisation, researchers claim, potentially leading to less ambitious targets being set and missed opportunities for industries to collaborate.

“We see that sustainability-minded businesses are increasingly backing up their targets with science-based emissions reduction milestones, which is absolutely the right approach.

“But if a quarter today aren’t coming forward with details on what makes their target credible, could corporate green-hushing be spreading?…

South Pole’s findings suggest companies are continuing to set net-zero targets and increasing budgets to support them, yet this reluctance to publicise science-aligned climate targets raises questions.

Dan Botterill, founder and CEO of sustainability platform Rio, described the green-hushing phenomenon as “just as duplicitous and cynical as greenwashing”.”

In the spotlight

George Soros backing fund that will invest in ESG-related litigation

A report from Funds Europe indicates that the Soros Economic Development Fund is investing in a fund that “aims to maximise proceeds for claimants and provide a return for investors and generate resources for more [ESG-related] litigation.”

“Aristata Capital, whose investment clients include the Soros Economic Development Fund (SEDF), aims to show that litigation finance in ESG-related cases can be a profitable investment. In July, the firm had the first close for its Aristata Impact Litigation Fund I, which focuses on social impact litigation. CEO Rob Ryan, previously a director at the ClientEarth environmental charity, says Aristata has an “impact-first mentality”. 

Experience taught him that corporations were much less likely than governments to change their behaviour on climate issues in response to litigation. The not-for-profit sector has not proved itself as an effective player in commercial litigation, he says. “Traditional philanthropic approaches are not enough. Private capital is needed to solve public problems.”

The fund aims to maximise proceeds for claimants and provide a return for investors and generate resources for more litigation. Ryan says the vehicle will work in a similar way to a closed-end private equity fund. The first fundraising, for which law firm Reed Smith acted as adviser, reached an initial close at £40 million (€46 million) at the start of July. The firm aims to increase that to at least £50 million with a hard cap of £100 million. The final close is planned for June 2023, with the fund targeting an internal rate of return of 20%….

The SEDF, part of the Open Society Foundations (OSF) set up by George Soros in 1997, is also backing the fund.”

Economy and Society, October 18, 2022: South Carolina to divest BlackRock funds over 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 Washington, D.C.

Editorial argues against proposed SEC climate disclosure rule 

On October 15, The Hill carried a guest editorial by Rupert Darwall, a climate author and researcher and senior fellow at the RealClear Foundation. In it, Darwall argues that the Securities and Exchange Commission’s proposed environmental disclosure rule will be bigger, more expensive, and more intrusive than proponents argue:

“Although Democrats hail passage of the Schumer-Manchin Inflation Reduction Act, far more consequential is the Securities and Exchange Commission’s proposed climate-risk disclosure rule, currently being finalized. It will operate at the nexus of the administrative state, Wall Street and politically motivated institutional investors. The Net Zero Asset Managers initiative, part of the Glasgow Financial Alliance for Net Zero (GFANZ), has 273 signatories with $61.3 trillion in assets under management.

SEC Chair Gary Gensler tries to downplay the significance of the SEC climate-risk disclosure rule. It is essentially a bit of housekeeping, he would have us believe, that would help corporate issuers more efficiently and effectively disclose their climate-related risks. But if this really were a mere tidying-up exercise, it wouldn’t need more than 500 pages of rule-making. 

In reality, the proposed rule is about climate policy. Its practical effect would be to facilitate the ability of institutional investors and climate activists to impose, monitor and enforce climate targets on publicly traded companies, without obtaining explicit authorization from Congress.

The reason the SEC’s proposed rule is so lengthy is that it incorporates the climate-reporting framework developed by the Taskforce on Climate-related Financial Disclosures (TCFD), established by Michael Bloomberg and former Bank of England governor Mark Carney. In February 2020, as the COVID-19 pandemic was exploding, Bloomberg posted a video on Facebook. “Climate change. It’s the biggest threat to America and the world. Full stop,” Bloomberg asserted. How do you replace dirty energy, he asked? “Stop rewarding companies from making it.” Welcoming the SEC proposal, Bloomberg said it will “accelerate the transition to clean energy and net-zero emissions.” 

Carney also has been clear about the purpose of disclosure in driving climate action, tweeting in May 2021: “What gets measured gets managed. That’s why reporting climate-related financial info is critical if we are to achieve #netzero.” 

Former SEC chair Mary Schapiro, current head of the Secretariat for the TCFD and vice-chair of GFANZ, explains TCFD’s motivation: “Disclosure is at the heart of reaching net zero, and the TCFD has provided a solid foundation to support the private sector’s net zero commitments through transparency and accountability.” 

Four years ago, Schapiro was appointed vice chair of Bloomberg and a special adviser to its founder and chairman. In its comment letter to the SEC, Boyden Gray & Associates notes that Bloomberg owns the proprietary tools that are the preferred means for the financial sector to obtain data and would be the preferred tool to comply with the SEC’s proposed rule — virtually guaranteeing Bloomberg’s revenues would increase by billions of dollars. 

The SEC climate proposal demonstrates a fundamental truth: ESG is the pursuit of politics by other means. This incurs costs.”

In the States

South Carolina latest state to divest BlackRock funds over ESG

On October 9, South Carolina became the latest in a string of states to confirm that it will be removing its investments from BlackRock Inc.’s asset management because of the firm’s dedication to ESG and what the states calls its sustainability investing. On October 11, The Washington Examiner broke the story:

“South Carolina will be divesting all of its BlackRock holdings by the end of the year, the latest instance of backlash from Republican state officials over the investment firm’s stance on fossil fuels.

State Treasurer Curtis Loftis’s office confirmed the plan to the Washington Examiner on Monday. His office said Loftis has already been removing BlackRock-managed funds over the past five years and is in the process of divesting the final $200 million of BlackRock holdings by year’s end.

“I will not allow our financial partners to undermine my fiduciary responsibility to maximize investment returns while accepting a prudent level of risk for the benefit of our citizens. It is imperative that we stand up to BlackRock and resist the pressure to simply fall into line with their leftist worldview,” Loftis said….

In addition to South Carolina and Louisiana, Utah State Treasurer Marlo Oaks said he has yanked about $100 million in state funds from BlackRock, and Arkansas State Treasurer Dennis Milligan divested some $125 million out of money market accounts managed by the firm, which is the largest money manager in the world.

In total, the actions by the state treasurers will equate to more than $1 billion in divested funds by year’s end….

On Friday, BlackRock launched a webpage committed to “setting the record straight” about how it handles investment decisions and disclosure and its pursuit of ESG. BlackRock claims its views on climate risk aren’t unique, and its new webpage noted that an overwhelming majority of companies in the S&P 500 publish sustainability reports.”

On Wall Street and in the private sector 

UBS downgrades BlackRock over ESG investing risks

Last week, an analyst at UBS downgraded BlackRock Inc. stock, “based on environmental pressure to earnings and risk from the firm’s ESG positioning”:

“BlackRock’s focus on the latest Wall Street craze—environmental, social, and governance (ESG) investing—has turned into a risky affair for the world’s largest asset manager, a UBS analyst recently stated.

Brennan Hawken, an analyst at the bank, downgraded the stock of BlackRock, Inc. (NYSE:BLK) from Buy to Neutral and slashed the stock price target from $700 to $585 over growing pushback to its ESG efforts.

“We are downgrading BLK to Neutral based on environmental pressure to earnings and risk from the firm’s ESG positioning,” he said in a note, adding that BlackRock could face increased regulatory inspection and the possibility of diminished fund management business.

“BLK’s early and energetic adoption of ESG principles in its fund management and shareholder proxy activities have positioned the firm as an ESG leader in our view. However, as performance deteriorates and political risk from ESG has increased, we believe the potential for lost fund mandates and regulatory scrutiny has recently increased.”…

Despite the pushback from a whole host of Republican-led states, a recent report from PricewaterhouseCoopers argued that the demand for ESG investments outstrips supply. The study learned that nearly 90 percent of institutional investors think asset managers should be more proactive in manufacturing new ESG products. Additionally, close to 80 percent of American investors plan to bolster their allocations to ESG financial products over the next two years.

BlackRock shares were down about 2.7 percent on Friday to trade below $551. Since the beginning of the year, the firm has lost 40 percent of its market value.”

From the ivory tower

Wharton announces two new ESG/DEI majors

Last week, the Wharton School of Business at the University of Pennsylvania announced that it has, in response to high demand, decided to offer two new ESG and DEI concentrations/majors to its students:

“Over its nearly 150 years as the global leader in business education, the Wharton School’s continued curricular evolution remains a cornerstone by which the School’s excellence is sustained. This month, as the University of Pennsylvania’s fall semester unfolded, Wharton again applied this philosophy in acknowledgement of the rising relevance of two burgeoning industry priorities.

Wharton’s Curriculum Innovation and Review Committee (CIRC) voted to approve the introduction of two official curricular designations to the School’s existing fold of robust and renowned educational opportunities: 1) Environmental, Social and Governance Factors for Business (ESGB), and 2) Diversity, Equity and Inclusion (DEI). Both ESGB and DEI are available to function as either a concentration at the undergraduate level or a major at the MBA level, and will see its first students graduate in May 2025. This decision came in response to the extensive undergrad and graduate-level interest in coursework devoted to these developing areas in business. As Deputy Dean Nancy Rothbard puts it: “We are proud and delighted that Wharton will be offering these new concentrations and majors, supported by the School’s world-class evidence-based curriculum. We look forward to seeing what our graduates accomplish.””

This announcement was foreshadowed last month by Bloomberg News, which noted that the trend toward stakeholder and ESG studies is on the upswing at American business schools:

“On the role of business in society, the trend lines are clear: Shareholder primacy is out and stakeholder inclusion is in. Chief Executive Officers Jamie Dimon of JPMorgan Chase & Co. and Larry Fink of BlackRock Inc. were among the scores of corporate luminaries who in 2019 publicly made “a fundamental commitment to all of our stakeholders,” including the environment, employees, suppliers, and communities, as members of the Business Roundtable. Similar pledges now pop up everywhere, from global gatherings of the business elite to advertisements for the Australian toilet paper company Who Gives a Crap Ltd., which uses recycled materials and spends half its profits on building toilets and improving sanitation in the developing world: “Wipe your bum, change the world.”

Business schools have been slow to reflect this zeitgeist, but they’re rapidly making up for lost time. This month, the University of Pennsylvania’s Wharton School is becoming the first large MBA program to offer a major in environmental, social, and corporate governance, standards used by socially conscious investors to vet companies. Harvard Business School offers courses that ask students to question the very purpose of capitalism. And Columbia Business School has set an ambitious goal to become the nation’s top generator of leadership in the burgeoning field of social entrepreneurship….

Today’s B-school students want a career with meaning, says Witold Henisz, vice dean and faculty director of Wharton’s ESG Initiative. “They want to stand for something,” he says. “They don’t want to be part of the next scandal, whether it’s opioids or teenage depression from social media. They want to feel they’re creating value and doing good.” To serve such students, the school offers more than 30 courses dealing with sustainability, ethics, and stakeholder theory, double the number five years ago.”

In the spotlight

Dimon addresses ESG, argues conventional energy is important

The New York Post recently highlighted JPMorgan CEO Jamie Dimon’s comments on ESG and his views about the economy and energy policy in general:

“Jamie Dimon told clients this week that “some investors don’t give a s–t” about “ESG,” the woke investing approach that US companies increasingly have embraced under political pressure, sources told The Post.

The hard-charging JPMorgan CEO emphasized the importance of conventional energy sources as the nation invests in green energy, telling attendees at a company “fireside chat” that “pumping more oil and gas and using energy security” is critical for the US to maintain its financial stability and independence, according to a source briefed on the comments.

Dimon also blasted companies for “ceding governance to do-gooder kids on a committee” whose members are selected for their bona fides in so-called ESG, or environmental, social and governance.”

Economy and Society, October 11, 2022: Louisiana treasurer announces plan to divest state funds from BlackRock

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

British regulators aim to avoid EU ESG blunders

As the United Kingdom prepares the development of its own ESG regulatory framework, the European Union, Bloomberg reports, might have some important lessons to teach the British, mostly from what some analysts deem to be the mistakes it made in creating its own framework. Among other things, ESG consultants urge British regulators not to succumb to the pleas made by traditional energy interests and not to categorize gas and nuclear energy as green:

“UK regulators have been advised to avoid a number of key planks in the EU’s green taxonomy including the bloc’s handling of real estate, as Britain tries to build an ESG investing framework of its own.

The EU’s treatment of sectors including real estate, shipping, bio-energy and hydrogen in its taxonomy is potentially “very problematic,” according to the UK’s Green Technical Advisory Group. Applying the same standards as those laid out in the EU rulebook would be inconsistent with the UK’s net-zero ambitions, GTAG said on Friday.

The EU has blazed a trail in sustainable investing, building an ambitious regulatory framework that’s widely seen as a global benchmark. But the speed with which the EU project has been pushed through has left it riddled with holes and inconsistencies, and even regulators inside the bloc have demanded urgent improvements.

With the EU model as a starting point, Britain should pick and choose the elements that look appropriate for the UK market, and those that aren’t, according to Ingrid Holmes, chair of GTAG.

“We’re going further and faster in a number of areas in the UK,” she said in an interview. Britain can make “the detail shorter, easier to follow and easier to demonstrate compliance” than is currently the case in EU rules, she said. 

More broadly, however, the UK acknowledges that the EU’s taxonomy, which sets the rules for what can be treated as a sustainable activity, should serve as a template for its own ESG framework….

Divergence from the EU’s taxonomy would potentially leave the investment industry facing more post-Brexit paperwork, with investors, banks and companies subject to both jurisdictions’ regulations….

The taxonomy must “remain science-based and avoid lobbying by vested interests which may be intended to soften the technical screening criteria,” it said. 

The EU’s controversial decision to include gas and nuclear power in its “green” taxonomy has drawn particular criticism. And members of GTAG have spoken out against such an interpretation of “sustainable.””

In the States

Louisiana joins the anti-ESG crowd

On October 5, Louisiana Treasurer John Schroder (R) announced that he had joined a growing number of state public officials who have either pulled their state’s investments from BlackRock and other ESG-fund providers or have threatened to do so. In his letter to BlackRock CEO Larry Fink, also dated October 5, Schroder stated that, in his words, the firm’s “blatantly anti-fossil fuel policies would destroy Louisiana’s economy.”

“Louisiana Treasurer John Schroder penned a letter to BlackRock CEO Larry Fink, explaining the state would liquidate all BlackRock investments within three months and, over a period of time, divest nearly $800 million from the bank’s money market funds, mutual funds or exchange-traded funds. The state treasurer blasted Fink’s pursuit of so-called environmental, social and governance (ESG) standards that promote green energy over traditional fossil fuels….

Schroder added that he refused to spend a penny of state funds with a firm that will “take food off tables, money out of pockets and jobs away from hardworking Louisianans.”

Including offshore production, Louisiana drills the second-most oil and third-most natural gas in the nation, according to the Energy Information Administration. The energy industry is the state’s largest sector, accounting for 8.1% of Louisiana’s total gross domestic product…

The treasurer noted in the letter that the state has already removed $560 million from BlackRock investments, a figure that will swell to $794 million by year’s end under his agency’s plan….

BlackRock declined to comment on Schroder’s letter, but pointed FOX Business back to a letter it sent to 19 Republican attorneys general in September.

“We are disturbed by the emerging trend of political initiatives that sacrifice pension plans’ access to high-quality investments – and thereby jeopardize pensioners’ financial returns,” the firm wrote to the state officials on Sept. 7.”

Meanwhile, the CEO of the State Financial Officers Foundation pushes back against the pushback

On October 8, Derek Kreifels, the Chief Executive Officer of the State Financial Officers Foundation (SFOF) appeared in RealClearPolitics to defend state treasurers who oppose ESG and to defend his organization against charges that it is spreading misinformation on those treasurers’ behalf. Many of SFOF’s members–who are state treasurers and auditors–have rejected the use of ESG in the management of state funds, arguing that ESG is a politicized and politicizing investment strategy. In response, ESG defenders, managers, and clients have tried to flip the narrative on its head, insisting that ESG’s opponents are the ones who are politicizing investments. Additionally, some elected officials have accused the treasurers and SFOF of leading investors astray for political purposes.

In his essay, Kreifels aimed to push back against this narrative flip and defend his organization:

“Over the past few years, a growing threat called ESG (Environmental, Social, Governance) has been negatively impacting state pension systems, ultimately putting retirees at risk. Sadly, our nation’s state financial officers and the retirees they have a fiduciary responsibility to protect are increasingly under siege by ESG ideologues who are motivated by politics rather than economics. 

For instance, U.S. Rep. Sean Casten, a Democrat from a competitive district in Illinois who has come under fire for allegedly lining his own pockets with taxpayer-funded energy dollars, devoted more than half of his time in a recent congressional hearing to defaming our organization. Casten accused the State Financial Officers’ Foundation (SFOF) of “spreading disinformation” – a claim he made without evidence – while ignoring his own conflicts of interest and the catastrophic failures of his own energy strategy.

Casten is trying to strongarm bank CEOs into blacklisting us. He asserts that we are trying to “[block] the capital sector from freely allocating capital.” But our goal is precisely the opposite. We trust free people and free markets to allocate scarce resources more effectively than politicians in Washington.

History and economics are on our side. What Casten and other far-left politicians refuse to acknowledge is that economic freedom is by far the best policy for the planet and its people. As Nick Loris, vice president of Public Policy at C3 Solutions argues, free economies are twice as clean as less free economies. What Casten and others are attempting to do is to centralize the economy by using ESG principles as their manifesto. By embracing ESG cancel culture, Casten is blocking the development of affordable energy.

The one thing Casten gets mostly right is when he says SFOF is advancing “policies that are encouraging [financial institutions] to invest in areas that are struggling to attract capital.” Those areas have names – West Virginia, Texas, Utah, etc. – and the reason they are struggling to attract capital isn’t because the businesses aren’t financially sound. Indeed, 2022 has been a banner year for conventional energy sources that abound in these states. The reason they are challenged is because investment firms and financial institutions in recent years have implemented de facto boycotts of American energy producers. Firms like BlackRock have used their market power to “force behaviors,” sometimes by penetrating corporate boards, sometimes by starving unfavored businesses of capital, all in obeisance to an agenda based on subjective and ephemeral criteria, divorced from historical markers of a company’s financial strength. 

It’s not surprising that many state financial officers are fighting back…

Casten apparently believes that castigating state financial officers will be politically beneficial. We support his First Amendment right to be wrong….

By embracing economic freedom, returning to sound financial principles, and embracing the innovation of the free market, we can create prosperity for our communities, protect the planet, and build a future of which we can all be proud.”

On Wall Street and in the private sector

GFANZ insists all is well

After reports that it is falling apart under pressure being placed on large Wall Street banks, the Glasgow Financial Alliance for Net Zero (GFANZ) told Bloomberg News on October 8, that all is well and on track for a successful COP27 next month. According to Bloomberg:

“In a statement to Bloomberg News on Saturday, a spokesperson for the Glasgow Financial Alliance for Net Zero said the group has “received no indication from any of our members that they intend to leave.”

GFANZ, which brings together over 500 finance firms managing more than $135 trillion of assets, has faced possible defections from firms including JPMorgan Chase & Co., Morgan Stanley and Bank of America Corp., according to people familiar with the process. The heavyweights were unhappy with the potential addition of binding restrictions on fossil finance, the people said.

Tensions soared after a United Nations-backed group, Race to Zero, earlier this year proposed such terms as a necessary condition for net-zero claims to be credible. That language was subsequently softened, and in its statement on Saturday, GFANZ said each sub-alliance of the group is “subject only to their own governance structures,” essentially giving them the freedom to ignore such proposals.

Mark Carney, GFANZ co-chair, has already publicly admonished Race to Zero for going “too far.” Jakob Thomae, an advisory board member of GFANZ, says he expects parts of GFANZ will eventually sever ties with Race to Zero and seek a more tailored decarbonization methodology to appease members. 

But there are already concerns being raised in some corners that the ostensible sidelining of science represents a worrying development. Al Gore, the former US vice president turned climate activist, last month warned that investors are growing increasingly impatient with evidence of potential “greenwashing” amid signs that net-zero pledges made by some members of the financial industry aren’t credible….

Saturday’s statement merely reflects what had been the existing governance structure, GFANZ said, adding that many of its sub-alliances are UN-convened. But the need to reassure members of their independence was made clear in recent weeks by brewing tensions, with banks behind the scenes seeking urgent clarification, according to people familiar with the process.

Allowing the sub-alliances, whose boards are heavily represented by the finance industry, to set their own terms is a dangerous move, according to climate nonprofits.

One banker close to the situation said putting out a such a statement should be viewed as a necessary concession to Wall Street to keep the banks onside.

Lucie Pinson, executive director at environmental nonprofit Reclaim Finance in Paris, said efforts to soften the terms of GFANZ membership have the potential to “kill” the net-zero alliance.

“Even before the revelations that some banks may leave GFANZ in opposition to real climate action, there were plenty of doubts that the alliance could really deliver on net zero,” she said before Saturday’s statement was released. “The outcome of this issue will tell us decisively whether we should expect banks to lead the climate fight or act simply as agents of greenwashing.””

BlackRock steps up its defense

On October 7, BlackRock–variously characterized by analysts, supporters, and opponents, as the world’s largest asset manager, one of the world’s most outspoken major ESG supporters, and the firm most often criticized by ESG opponents–continued its defense of its positions, launching a website specifically dedicated to explaining and justifying its ESG work:

“BlackRock launched another effort to push back against those that contend the firm is “boycotting” the energy industry after some red states have penalized the firm for its ESG push.

The firm, which is the world’s largest money manager, launched a webpage on Friday committed to “setting the record straight” about how it handles investment decisions and disclosure and its pursuit of environmental, social, and governance standards, also known as ESG. The launch comes just days after Louisiana announced it is divesting all its Treasury funds from BlackRock.

“The energy industry plays a crucial role in the economy, and, on behalf of our clients, BlackRock has invested $170 billion in U.S. public energy companies,” the webpage reads. “We are also partnering with energy companies and start-ups to fund new technology and innovations that will power the global economy, now and in the future.”

While BlackRock and its CEO Larry Fink have been accused of trying to harm the energy industry, BlackRock contends that it merely asks companies to provide disclosures on material issues that affect their businesses so that investors can appraise risks, such as climate change, and make informed financial decisions.

“We believe that companies that better manage their exposure to climate risk and capitalize on opportunities will generate better long-term financial outcomes,” the company said.

BlackRock claims its views on climate risk aren’t unique, and its new webpage notes that an overwhelming majority of companies in the S&P 500 publish sustainability reports.”

Economy and Society, October 4, 2022: Texas joins investigation over S&P’s use of ESG in credit ratings

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.

Senate Banking Committee’s ranking member goes after ESG ratings services

On September 20, Senator Pat Toomey (R), the Banking Committee’s Ranking Member, sent a letter to 12 ESG ratings firms, questioning what he described as their “lack of transparency, conflicts of interest, and use of biased sources.” The letter to Sustainalytics, for example, read as follows:

“I am writing to request information about Sustainalytics’s practices related to assigning environmental, social, and governance (ESG) ratings to companies. My understanding is that these ratings are intended to help investors determine whether a company may be seen favorably from an ESG perspective.

The industry of ESG investing and related services has grown tremendously in recent years. According to Bloomberg, global ESG assets are projected to reach $50 trillion by 2025, accounting for one-third of total projected assets under management globally.1 ESG ratings firms, such as Sustainalytics, play a key role in this activity by evaluating the degree to which more than 10,000 companies meet certain qualitative standards. As a result, they have the ability to influence capital flows to many companies.

Notably, ESG ratings take into consideration information about companies that go beyond the extensive public disclosures firms are required to make under federal securities laws. For example, existing law requires that companies describe their business, properties, legal proceedings, and risk factors. Companies must also provide management’s discussion and analysis of the firm’s financial condition, results of operations, liquidity, and capital resources. Each of these disclosure areas are legally required to include any material climate change information so that the disclosures are not misleading under the circumstances. In determining a company’s ESG rating, however, many ESG ratings firms consider information that is not material or financially relevant under federal securities laws.”

Toomey proceeded to ask for documents from each company on proprietary methodologies and for answers to questions regarding compliance burdens their ratings might create for rated companies, veracity of the data they use, and any potential conflicts of interest.

Toomey gave the firms until September 28 to respond to his request.

In the States

Texas joins investigation over S&P’s use of ESG in credit ratings

On September 28, Texas Attorney General Ken Paxon (R) announced that he and his state had joined in a multi-state investigation of S&P and its use of ESG factors in creating credit ratings, an issue that was first highlighted in April by Utah Treasurer Marlo Oaks (R). The press release from Paxon’s office read as follows:

“Attorney General Paxton joined a Missouri-led multistate investigation into S&P Global Inc. for potential violations of consumer protection laws. This is the second investigation by state attorneys general into a company providing Environmental, Social, and Governance (ESG) ratings, based upon alleged consumer fraud and deceptive trade practices.  

S&P’s published ESG credit indicators, ESG scores, and ESG evaluations appear to politicize what should be a purely financial decision and may deceptively confound the distinction between subjective opinions and objective financial facts.   

“Too many consumers and investors have been hurt by the woke ESG movement’s obsession with radical social change and willingness to ignore the law,” said Attorney General Paxton. “We’re investigating S&P Global to find out if they’ve engaged in the types of destructive, illegal business practices that are so pervasive in the ESG movement. If so, they will have to answer for their actions.””

On Wall Street and in the private sector

CNBC: “There’s an ESG backlash inside the executive ranks at top corporations”

On September 29, CNBC released the results of its recent survey of corporate Chief Financial Officers (CFOs) regarding their beliefs and preferences about ESG. The results appeared to show frustration with and hostility to ESG practices and requirements:

“In public, U.S. corporations say the right things about environment, social and governance factors as part of their mindset. But how do executives really feel about the push to make ESG a core component of management philosophy?

Inside the C-suite, there is concern about the value of ESG metrics, while there is also support for recent political pushback against ESG by Republican leaders at the state level including Florida Governor Ron DeSantis and Texas Governor Greg Abbott.

That’s according to results from a new CNBC survey of chief financial officers at top companies in the U.S. which shows executive frustration with both regulators and asset managers when it comes to current ESG momentum….

Only 25% of CFOs surveyed by CNBC support the SEC’s climate disclosure proposal, according to the survey. More than half (55%) of CFOs are opposed to the SEC climate rule, and 35% say they “strongly oppose” it….

A critical issue for CFOs with the new SEC climate disclosure is the lack of a clear correlation between the climate data and financial statements. The closest reporting analog CFOs have to this new approach is non-GAAP metrics that within industries have become accepted in the dialogue between Wall Street and management (if not always by the SEC). But non-GAAP metrics within an industry are different from a blanket assertion across industries like greenhouse gas emissions.  

“Proponents are saying we need to do something here because there are costs that are coming to companies in the economy if we don’t understand carbon transition better. Then the next question is ‘how do we understand it better?’ … The SEC is speculating that general GHG disclosure will facilitate that understanding. Requiring information with the expectation or hope that it will be meaningful to investors is an uncommon approach to disclosure mandates,” said Jay Clayton, former SEC chairman and a senior policy advisor at Sullivan & Cromwell….

CFOs…were more broadly in favor of the ESG pushback from states, according to the CNBC survey, with 45% of CFOs saying they supported the moves by states to ban investment managers that use ESG factors from state pension fund business. While 30% of CFOs said they were neutral on the issue, only 25% of CFOs said they opposed the state moves, and only 5% expressed “strong” opposition….

Another reason why CFOs at publicly traded companies may support pushback against the asset management community and firms like BlackRock has less to do with fund performance than proxy battles. As the large index fund managers have come to dominate investment flows and represent as much as one-third of the shareholder base of companies, they have been increasingly using that power to influence the outcome of shareholder votes on ESG issues, and on climate most prominently.”

Fox News op-ed questions the ethics of ESG

In an op-ed piece for Fox News, Allen Mendenhall, an associate dean and Grady Rosier Professor in the Sorrell College of Business at Troy University, made the case that the large asset management firms’ focus on sustainability and other ESG criteria are both doing a disservice to their clients and behaving unethically. He wrote:

“[T]he biggest asset managers – companies like BlackRock, Vanguard and State Street – have gained voting rights in publicly traded companies and are pushing those companies into “wokeness.” Rather than divesting from the corporations that don’t satisfy vague ESG standards, the asset managers use their proxy power to change the corporations in leftward directions. 

This raises troubling questions: Aren’t the true owners of these companies the clients of the asset managers, the people whose money the asset managers are investing and supervising? When an asset manager aggregates hundreds of funds, which include companies in which it enjoys voting rights and companies that directly compete, how can the asset manager vote in the best interests of any one of these companies? Aren’t there conflicts of interest? 

The unethical character of companies like BlackRock is finally coming to light. 

Responding to warnings from Republican state attorneys general, BlackRock, earlier this month, denied that it “dictated” specific emissions targets to companies. Now New York Comptroller Brad Lander, the custodian and delegated investment adviser to the New York City Retirement Systems and a man of the left, decries the apparent contradiction: “BlackRock cannot simultaneously declare that climate risk is a systemic financial risk and argue that BlackRock has no role in mitigating the risks that climate change poses to its investments by supporting decarbonization in the real economy.””

New York Times guest essay: “One of the Hottest Trends in the World of Investing Is a Sham”

On September 29, the New York Times published a guest essay by Hans Taparia, a clinical associate professor at the New York University Stern School of Business, in which the professor insisted that ESG–“One of the Hottest Trends in the World of Investing”–is, in his words, a “sham.” Taparia argues that ESG could be of benefit to markets, investors, and stakeholders but that its practitioners are preventing that from happening. Taparia concludes that the system must be changed. “The current system,” he writes, “needs an overhaul. Reform may not be as kind to corporate America, but it would make it easier to invest in the future of our society and planet.”:

“Wall Street has been hard at work on a rebrand. Gone is the “Greed is good” swagger that embodied its culture in the 1980s. “Greed and good” may best summarize its messaging today as it seeks to combine high profits with lofty intentions.

“To prosper over time,” Laurence D. Fink, the founder and chief executive of the investment giant BlackRock, wrote in a remarkable public letter in 2018, “every company must not only deliver financial performance, but also show how it makes a positive contribution to society.”

At the heart of this rebranding is a new industry of funds, created by BlackRock and peers such as Vanguard and Fidelity, that purport to invest in companies that are good corporate citizens — that is, companies that meet certain environmental, social and governance criteria. These E.S.G. criteria are wide ranging, pertaining to issues such as carbon emissions, pollution, data security, employment practices and the diversity of corporate board members.

On the face of it, E.S.G. investing could be transformative, which is why it’s one of the hottest trends in the world of investing. After all, allocating more capital to companies that do good helps them grow faster and lower their cost of capital, creating an incentive for all companies to be more socially and environmentally conscious.

But the reality is less inspiring. Wall Street’s current system for E.S.G. investing is designed almost entirely to maximize shareholder returns, falsely leading many investors to believe their portfolios are doing good for the world.

For E.S.G. investing to achieve its potential, Wall Street players will have to change their system. More likely, the Securities and Exchange Commission will have to change it for them….

[C]ontrary to the spirit of E.S.G. investing (and likely unknown to most investors), the leading rating agencies are not scoring companies on their degree of environmental or social responsibility. Instead, they are measuring how much potential harm E.S.G. factors like carbon emissions have on companies’ financial performance….

McDonald’s, for instance, was given an upgrade of its E.S.G. rating last year by MSCI, which cited reduced risks to the company’s bottom line as a result of changes that the company made concerning packaging material and waste. But greenhouse gas emissions from the operations and supply chain of McDonald’s, which is one of the world’s largest buyers of beef, grew by 16 percent from 2015 to 2020. Those emissions are a direct cause of climate change, but because MSCI didn’t see them as posing a financial risk for McDonald’s, they didn’t negatively affect the rating.

This is hardly an isolated case.

This system works well for Wall Street. It keeps the raters in business because it ensures that their customers, the investment firms, have lots of stocks with which to construct portfolios. It enables financial institutions to present themselves as contributing to the well-being of society and the planet. And it allows them to charge higher fees to investors, because E.S.G. funds are seen as different from conventional index funds, in part because they tap into investors’ consciences.

But this system isn’t good for the world.”

Economy and Society, September 27, 2022: House Financial Service Committee addresses 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 Washington, D.C.

House Financial Service Committee addresses ESG

Last week, the House Financial Service Committee held a hearing called “Holding Megabanks Accountable,” at which the CEOs of a handful of large consumer-facing banks testified about the banks’ various interests and activities. The hearing hit on ESG and related issues.

At one point, Congresswoman Rashida Tlaib (D) challenged the bank CEOs to agree to stop doing business with fossil fuel companies. She was rebuffed by all, with J.P. Morgan-Chase CEO Jamie Dimon generating headlines with his response:

JPMorgan Chase CEO Jamie Dimon is not committing to divesting from fossil fuels and shrugged off the notion as a “road to hell for America” during a House hearing.

At an Oversight Committee hearing Wednesday, Rep. Rashida Tlaib (D-MI) pressed a cadre of banking executives sitting before the investigatory panel on whether they would commit to stop funding new fossil fuel projects.

“Absolutely not, and that would be the road to hell for America,” Dimon quipped during a tense exchange with the “Squad” member.

Seemingly expecting that answer, Tlaib encouraged those poised to receive student loan relief with accounts at JPMorgan Chase to close their accounts with his company.

“Sir, you know what? Everybody that got relief from student loans [that] has a bank account with your bank should probably take out their account and close their account,” she said. “The fact that you’re not even there to relieve many of the folks that are in debt, extreme debt, because of student loan debt. And you’re out there criticizing it.”…

Dimon, who is widely regarded as one of the foremost voices in the world of finance, previously slammed environmentalists pushing to curb oil and gas production, arguing such steps could lead to increased coal use in developing countries.

“We aren’t getting this one right,” Dimon added. “Investing in the oil and gas company is good for reducing CO2.”

Following the exchange, Tlaib peppered the other banking executives in attendance about their positions on fossil fuels. Executives from Citigroup and Bank of America explained that they are collaborating with their clients to help reduce carbon dioxide emissions.

Also during the hearing, Congressman Sea Casten (D) asked the CEOs if they were aware that their companies were sponsors of the State Financial Officers Foundation (SFOF) and encouraged them personally to see that their companies’ support was withdrawn.

SFOF is a nonprofit organization that aims to encourage state auditors and treasurers to be diligent about being good stewards of the funds entrusted to them by their constituents. As such, it has aimed to help some state officials understand the issues surrounding ESG investing and how it can be seen, in the view of some, as an overtly politicized misuse of taxpayer funds.

Of late, SFOF has become the focus of increased media attention, with The New York Times recently placing it at the center of a conspiracy to, in its view, “‘weaponize’ public office against climate action.” Because of this increased negative publicity, SFOF has also become a political target of those who support ESG and wish to see it become the default investment strategy for state pension funds.

Within hours of the hearing, SFOF CEO Derek Kreifels responded to Casten’s comments in an email blast:

A few hours ago, a member of the house financial services committee grilled the CEOs of JPMorgan Chase and Wells Fargo bank about their support for an organization you may have heard of called State Financial Officers Foundation, claiming that we are “spreading disinformation” about the climate and urging them to stop supporting us.

The congressman goes on to say that SFOF “is blocking the capital sector from freely allocating capital.” As you know, nothing could be further from the truth. At SFOF, we believe that economic freedom has been one of the single greatest drivers of progress and prosperity in human history, and our group of treasurers and auditors promote fiscally responsible financial policy that makes sense for their states and constituents.

It certainly is remarkable to have a sitting congressman calling for SFOFs corporate sponsors to stop supporting us in a U.S. House committee meeting, but rather than feeling threatened by one representative’s demands for SFOF’s cancellation, I take them as confirmation that the work of our organization is doing to push back against ESG investing is making an impact and has our opponents panicked.

In the States 

CalPERS struggles

The California Public Employee Retirement System (CalPERS) is not only the largest public pension system in the United States, but it was also one of the first prominent asset managers to adopt ESG and other sustainability guidelines.

In his book-length critique of ESG, The Dictatorship of Woke Capital, financial analyst Stephen Soukup argued that CalPERS’ decision to “go green” hurt its clients and, by extension, the taxpayers of California:

According to a December 2017 report from the American Council for Capital Formation (ACCF), “One key factor behind this consistently poor performance, according to the ACCF report, is the tendency on the part of CalPERS management to make investment decisions based on political, social and environmental causes rather than factors that boost returns and maximize fund performance.”  The report also noted “that four of the nine worst performing funds in the CalPERS portfolio as of March 31, 2017, focused on supporting Environment, Social and Governance (ESG) ventures. None of the system’s 25 top-performing funds was ESG-focused.”

In his “Best of the Web” column on September 22, The Wall Street Journal’s James Freeman cited years of his newspaper’s coverage of CalPERS to reiterate the case the ESG is costing the pensioners and taxpayers of California money:

There is no such thing as a free lunch. Activists who think they can use public companies to pursue political agendas without endangering shareholder returns are indulging in a fantasy. Disappointing results at a giant government pension fund cannot all be tied to political agendas, but the retired workers who rely on Calpers have every right to demand that fund managers adopt a singular focus on maximizing returns. Heather Gillers reports in the Journal:

The nation’s largest pension fund got a scathing performance review Monday when its new investment chief highlighted the retirement system’s underperforming returns…

The unusually candid presentation to board members of the California Public Employees’ Retirement System, known as Calpers, showed returns lagging behind other large pensions in almost every asset class during the past 10 years, with private equity trailing the most, 1.3 percentage points…

“I am a little disappointed, and I get it, I know there’s lots of things that go into the buckets of why our performance has been poor,” said board president Theresa Taylor.

Let’s hope Calpers finally gets it, and a good fresh start would include a determination to urge portfolio companies to simply pursue profits, not politics. For years, the big fund has been fairly active in pursuing the latter, despite early red flags.

The Journal’s Carolyn Cui reported in 2010:

New funds are springing up that blend quantitative investing, using financial data and computer models, with socially responsible investing, a method of picking stocks based on a company’s environmental, social and governance practices, known as ESG… Calpers has committed $500 million to ESG investing, mainly by avoiding stocks that rank low on the ESG scale. But the returns haven’t been satisfactory, Calpers said.

That should have been the end of what was a relatively small experiment by Calpers standards, but the big pension fund pressed ahead….

By 2018, the political agenda was clearly annoying a lot of the people who rely on Calpers to fund their retirements. That year former SEC commissioner Paul Atkins wrote in the Journal:

The California Public Employees’ Retirement System this month said no thank you to pension-fund activism. Government workers unseated Priya Mathur, the sitting Calpers president. She was defeated by Jason Perez, a police-union official who criticized Ms. Mathur’s focus on environmental, social and governance investing, or ESG. Mr. Perez emphasizes the agency’s fiduciary duty to maximize investor returns.

Calpers represents almost two million California public employees, retirees and families. Yet it mostly makes headlines for its activism, such as divestiture from the tobacco industry. “It’s been used more as a political-action committee than a retirement fund,” said Mr. Perez. “I think the public agency [employees] are just sick of the shenanigans.”…

Calpers’ disappointing decade is another reminder that taking care of retirees’ investments requires profits, not politics.

On Wall Street and in the private sector

U.S. banks are considering leaving the Glasgow Financial Alliance for Net Zero

On September 20, the Financial Times reported that several large U.S. banks and are considering leaving Glasgow Financial Alliance for Net Zero because they are increasingly uncomfortable with the legal risks posed by participating in the effort.

Wall Street banks including JPMorgan, Morgan Stanley and Bank of America have threatened to leave Mark Carney’s financial alliance to tackle climate change because they fear being sued over increasingly stringent decarbonisation commitments.

In tense meetings in recent months, some of the most significant members of the Glasgow Financial Alliance for Net Zero have said they feel blindsided by tougher UN climate criteria and are worried about the legal risks of participation, according to several people involved in internal discussions.

“I am close to taking us out of these global green commitments — I’m not going to allow third parties to create legal liabilities for us and our shareholders. It is immoral and irresponsible,” one senior executive at a US bank said. “What if we get it wrong, make a mistake or someone lies? Then the bank can be sued, that is an unacceptable risk.”…

European banks including Santander have also expressed misgivings.

The potential loss of some of the world’s biggest and most influential banks would be a serious blow for Carney’s Gfanz group, which was formed last year and took centre stage at the COP26 climate talks in Glasgow in November.

More than 450 finance companies accounting for $130tn of assets have joined Gfanz, which is co-led by Carney, a Canadian and former Bank of England governor, who is currently a Brookfield Asset Management executive.

The banks’ biggest concern is over strict targets on phasing out coal, oil and gas introduced over the summer by the UN’s Race to Zero campaign, a UN-led net zero standard-setting body that accredits pledges made by Carney’s alliance….

Of the 116 banks that have signed up to the Net Zero Banking Alliance (NZBA), the Gfanz banking subsidiary, none are from China or India, while Sovcombank is the only Russian lender. By comparison, Liechtenstein has three members.

Notable quotes

Strive shifts from energy to tech

Strive, the post-ESG asset management firm co-founded by entrepreneur and author Vivek Ramaswamy launched a new S&P 500 tracking fund recently and used the occasion to send shareholder letters to Disney and Apple, asking them to focus on excellence not politics. The letter to Apple included the following:

Strive Asset Management recently became a shareholder of Apple. On behalf of our clients, we write to deliver a simple message to your board: hiring should be based on merit – not race, sex, or politics. 

Apple is one of the world’s greatest companies, ceaselessly showcasing American innovation on the global stage. Your success is undoubtedly powered by your talented workforce. We admire your track record in repeatedly attracting the best and brightest minds to work at Apple. However, we are concerned that over the last year, Apple has faced severe pressure from its large institutional “shareholders” – including BlackRock, the world’s largest asset manager – to adopt value-destroying human resources policies that jeopardize Apple’s ability to hire top talent in the future. We believe these externally imposed hiring constraints create severe economic, legal, and reputational risks for Apple.

In particular, we are concerned by Apple’s recent decision to conduct a “racial equity audit” in response to a 2022 shareholder proposal that received support from BlackRock and certain other of your shareholders. We believe this decision jeopardizes Apple’s value by elevating divisive identity politics above its commitment to excellence, while also raising serious legal and commercial risks for the company.

Racial equity audits do not benefit the companies that conduct them. They are non-neutral evaluations designed to embarrass the companies who elect to conduct them, and there is no evidence to suggest that such audits increase shareholder value. Indeed, the 2022 shareholder proposal essentially admits as much: its proponents claimed that such an audit was required to determine “how [Apple] contributes to social and economic inequality” and to force Apple to “identify, remedy, and avoid adverse impacts on its stakeholders.” Color of Change—one of the activist groups pushing for a racial equity audit at Apple—explains that its mission is “to hold companies accountable for the ways they perpetuate white supremacy.” The purpose of advocacy groups such as Color of Change may be to agitate for social change, but the role of Apple’s board of directors is to serve its shareholders.

Economy and Society, September 20, 2022: ESG a campaign issue in state auditor race

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 

ESG a campaign issue in state auditor race

Last Thursday, under the headline “Wait. There’s a ‘Real Issue’ in the State Auditor’s Race?” the MinnPost, a nonprofit, online newspaper that focuses on local issues ran the following, illustrating the impact that ESG and the pushback against it are having, well beyond the bounds of Wall Street:

Many of the campaign issues in Minnesota are issues in races across the country as well, put there by partisan strategists who see them as potent for bringing the right voters to the polls.

Similar talking points on public safety, abortion, inflation and school curricula can be seen and heard in congressional and state campaigns in every state, Minnesota included. And now some national Republicans are trying to add ESG to the list – or, as they call it, “woke investing.”…

Supporters of ESG say it makes financial sense to begin avoiding businesses with financial models that may well be unsustainable, leading to reduced value in the future. 

Opponents, including high-profile Republicans like Texas Gov. Greg Abbott and Florida Gov. Ron DeSantis, have attempted to cite it as the political left using public funds to further political goals. So far, the issue has emerged in only one statewide Minnesota race. As one of four members of the State Board of Investment, the state auditor helps set policy for how the $130 billion in state funds are invested.

“I will not play politics with our pensions,” GOP nominee Ryan Wilson said during the only debate so far with the incumbent DFL Auditor Julie Blaha. “We must put return on investment first.”

Unlike the way some Republicans are stepping gingerly around the issue of abortion and some Democrats are trying to finesee the issues around public safety, Blaha is running toward this political fire rather than away from it. She said considering ESG factors is the trend in retirement fund investing, not just by public systems but by private investors.

“Even if you don’t care about the environment at all, you need to think about climate change in investments,” she said during the WCCO radio debate. “There are significant risks and there are significant opportunities in how climate is changing and how we’re transitioning energy.”

Blaha blamed “MAGA auditors and treasurers” who are trying to discredit ESG in investment decisions. “The evidence is overwhelming, and it’s also common sense. How many of us are sinking our savings into coal right now?”…

Blaha, first elected in 2018, said she called “dibs” on the issue over the other board members – Gov. Tim Walz, Attorney General Keith Ellison and Secretary of State Steve Simon. The board has recently begun assessing how environment, social and governance factors might influence how investment decisions are made. The board has already directed Chief Investment Officer Mansco Perry to remove from the state’s investment portfolio “publicly traded companies which derive 25 percent or more of their revenue from the extraction and/or production of thermal coal …”

In addition, the board has commissioned several analyses from consultants to advise whether it should divest from other industries and, if so, how. And it has recently acted to support federal Securities and Exchange Commission (SEC) rules to require and make uniform disclosures of climate-related factors for all publicly traded companies….

Wilson said he was aware of the issue after looking into the duties of the auditor but decided to focus on it after hearing on the campaign trail from teachers and firefighters who said they were concerned about the health of their pensions. He said he considers ESG investing to be less about maximizing returns and more about furthering political ideals about climate change and equity.

“Return on investment needs to be first,” he said during an interview. The state pension system is in good shape now but he said he worries about its long-term health if decisions are made that damage financial returns.

Democratic states push back against the ESG pushback

On September 15, Quartz ran a short opinion piece, detailing efforts by Democratic states to flip the script on their Republic state counterparts and to argue that Republican treasurers who oppose ESG are the ones who are, in their view, putting retirement assets at risk:

Treasury officials in US states on either end of the political spectrum are butting heads over climate-friendly investing—and both are using the same argument to reach opposing conclusions.

The latest round of shots was fired on Sept. 14 by a dozen Democratic Party state treasury officials, who argued that their Republican peers are working against the fiduciary interests of their constituents in pursuit of a pro-fossil fuel political agenda….

The new letter from Democratic treasury officials in New York, Massachusetts, and California, and 11 other states echoes BlackRock [which wrote a letter to the states, noted in this newsletter last week]. States that penalize climate-conscious investors and “use blacklists to obstruct the free market,” they write, “will miss potential growth because their focus is on preserving the status quo.”…

Rare is the economist who will argue that climate change is immaterial to investment considerations, especially those like pensions with a long time horizon. The longer it takes anti-ESG officials to admit that, the more their constituents’ savings will be at risk.

On September 17, Oregon Treasurer Tobias Read penned an op-ed for the New York Times, explaining and expanding upon the case he and other Democratic state officials are making in rebuttal to ESG-opposing Republican officials’ case:

In several Republican-led states, the officials who oversee pension funds for millions of state workers are being told, or may soon be told, to ignore the financial risks associated with a warming world. There’s something distinctly anti-free market about policymakers limiting investment professionals’ choices — and it’s putting the retirement savings of millions at risk….

These are short-sighted political moves from a party that typically champions the free market, and that is why 12 other state treasurers and New York City’s comptroller recently joined me to urge that these policies be reversed. The people who will likely suffer are the public servants whose retirement money won’t be managed for a world being disrupted by a rapidly changing climate….

Climate change is already affecting the profitability of entire industries in which my fund is invested. Fires, floods and droughts are snarling supply chains and destroying property. It is clear that we need to consider which of our pension fund assets are most exposed.

For people in my position to actively avoid information about such profound risks is a breach of their duty as a fiduciary. For policymakers to mandate willful ignorance about an entire category of risk and block private companies from doing business with their states because they might not share the same ideology is un-American.

If you still don’t believe that the financial risks are real — and that pension funds should be mitigating them — then consider the actions of comparable institutions with enormous balance sheets and investment horizons that span decades. This year, the U.S. Navy released a climate strategy that aims to help its bases to adapt to rising seas and other changes. Insurers continually strive to understand the evolving risks posed to properties in areas increasingly prone to flooding and wildfire. Oil and gas companies go through “scenario planning” exercises to investigate how severe weather and climate change may hurt future business.

Unlike Texas and Florida, these institutions are committed to considering how environmental risks will affect their bottom line now and in the future.

Why is it that the elected officials in these states are so far out of sync? The answer is politics. These state officials are putting their political views before the best interests of the firefighters and teachers they serve….

I encourage those charged with oversight of state funds and pension funds to return to the core values we all share: Transparency and accountability are good for investors. Markets should be free from excessive manipulation. Prudent investors should be allowed to weigh long-term risks.

State officials were not the only ones who spent the last week accusing state Republicans of misunderstanding ESG and therefore misinterpreting their fiduciary responsibilities to their clients/constituents. Large pension funds also got into the act, according to Bloomberg:

After watching key GOP figures launch an all-out political attack on ESG, senior officials from the $57 trillion global pension industry are speaking out against the risks such an agenda poses to long-term savings.

Matti Leppala, chief executive at PensionsEurope, said efforts to lambaste ESG based on an assessment of short-term returns are “ridiculous” and “meaningless.”

“We would argue that not taking ESG into consideration is in fact the real risk factor that will have an impact on long-term, sustainable returns,” Leppala, whose association represents firms overseeing a combined $7 trillion in assets, said in an interview….

Brian Graff, chief executive of the American Retirement Association, said US savers ought to be free to get ESG-integrated plans if that’s what they want.

“We believe that, you know, American workers who are interested in investing in this area should have the option to do so,” said Graff, who represents the interests of his association’s more than 34,000 members. He also suggested that the debate around ESG has become riddled with confusion.

“People tend to—even policymakers—they just conflate, they conflate everything,” Graff said in an interview….

“If you don’t take ESG into consideration, then you increase the risk that you are not able to pay for pensions policyholders,” Leppala said.

For those designing the principles guiding ESG investing, protecting savings has always been an essential element.

“The fiduciary debate is at the very, very core” of how ESG is viewed, said Helena Viñes Fiestas, rapporteur of the EU Platform on Sustainable Finance and a member of the United Nations Secretary General High-Level Expert Group on net-zero pledges.

“If you think about the whole movement of ESG, it is in a way questioning the current economic model and saying, ‘Look, it’s no longer finance on one hand and environmental and social aspects on the other, it has to be unified,’” she said.

Notable quotes

Former BlackRock employee argues “ESG Does Neither Much Good nor Very Well”

In an op-ed published on September 12 by The Wall Street Journal, Terrence R. Keeley became the second high-profile former BlackRock employee to argue that, in his view, ESG doesn’t do much of anything at all. He joins former global head of sustainable investing, Tariq Fancy, who expressed his disillusionment with BlackRock just over a year ago:

Trillions of dollars have poured into environmental, social and governance funds in recent years. In 2021 alone, the figure grew $8 billion a day. Bloomberg Intelligence projects more than one-third of all globally managed assets could carry explicit ESG labels by 2025, amounting to more than $50 trillion. Yet for a financial phenomenon this pervasive, there is astonishingly little evidence of its tangible benefit.

The implicit promise of ESG investing is that you can do well and do good at the same time. Investors presume they can make a market return while advancing causes such as lowering carbon emissions and income inequality. But multiple studies find ESG strategies are doing little of either. Bradford Cornell of the University of California, Los Angeles and Aswath Damodaran of New York University reviewed shareholder value created by firms with high and low ESG ratings—scores provided by professional rating agencies. Their conclusion: “Telling firms that being socially responsible will deliver higher growth, profits and value is false advertising.”

What Messrs. Cornell and Damodaran found at the micro level is also apparent on a macro basis. Over the past five years, global ESG funds have underperformed the broader market by more than 250 basis points per year, an average 6.3% return compared with a 8.9% return. This means an investor who put $10,000 into an average global ESG fund in 2017 would have about $13,500 today, compared with $15,250 he would have earned if he had invested in the broader market.

Did the forgone $1,750 somehow do $1,750 worth of good for mankind? Apparently not. A new report from researchers at the universities of Utah, Miami and Hong Kong finds there is “no evidence that socially responsible investment funds improve corporate behavior.” But this shouldn’t come as a surprise. The same outcome followed decades of investors avoiding so-called sin stocks—alcohol, tobacco, firearms and gambling. In doing so, investors sacrificed returns while the behavior they disapproved of continued. Impact investors want their capital decisions to create outcomes that wouldn’t have existed otherwise, not perpetuate the status quo.

Economy and Society, August 30, 2022: Texas lists 10 funds ineligible for business with state over ESG policies

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 

Texas issues list of funds ineligible for business with the state over ESG policies

On August 24, the government of Texas joined West Virginia in issuing a list of companies and funds that are ineligible to do business with the state because of their ESG policies and/or statements. The list – an outgrowth of a law passed last year – hits many of the biggest names in ESG investing, including BlackRock:

“Texas comptroller Glenn Hegar on Wednesday accused ten financial companies, including investing titan BlackRock, and 350 investment funds of taking steps to “boycott energy companies.”

The move could force certain Texas government funds, such as retirement funds for state workers, to sell any shares in these companies. It also places these companies alongside lists of other classes of companies covered under Texas divestment statutes, such as companies with “links to foreign terrorist organizations” and ties with Iran and Sudan.

The list, which grows out of an investigation first announced in March, is an effort to publicly highlight companies that are, in Hegar’s view, advancing agendas that threaten the energy industry in Texas, which is the top oil and natural gas producing state in the country. Texas produced 43% of the total crude oil produced in the United States in 2021 and 25% of its natural gas, according to the U.S. Energy Information Administration (EIA). Texas also has 31 petroleum oil refineries representing 32% of the nation’s refining capacity, making it the state with the most refineries and refining capacity of any state in the country.

Hegar said the focus on environmental, social and corporate governance (ESG) standards in finance had become a proxy for political agenda setting….

In response to the announcement from Hegar on Wednesday, BlackRock said it objected to the ruling.

“We disagree with the Comptroller’s opinion. This is not a fact-based judgment. BlackRock does not boycott fossil fuels — investing over $100 billion in Texas energy companies on behalf of our clients proves that,” a BlackRock spokesperson told CNBC in a statement.”

In fact, the very next day, BlackRock responded to the move by the Texas government, insisting that the declaration was, in its view anti-competitive:

“BlackRock has come out fighting against Texas’s decision to single it out as hostile to fossil fuels, calling the state’s targeting of it “opportunistic”, “anti-competitive” and “bad for business”.

The world’s biggest asset manager was the only US company included by Glenn Hegar, Texas comptroller, on a list of 10 financial institutions that “boycott” fossil fuels. The groups face possible divestment by state pension funds.

“Trying to stop a US company from doing business in its own backyard is bad for business,” said Mark McCombe, the head of BlackRock’s US business, who made multiple trips to Texas to lobby state officials while the list was being drawn up. “It looks opportunistic in this climate.”

“We have never turned our back on Texas oil and gas companies,” said McCombe, noting that BlackRock is the single largest investor in the state’s oil and gas industry and has $290bn in Texas-based assets. “This is anti-competitive.”…

Hegar denied in an interview that the list was politically motivated. Companies on the initial list of 19 as well as the 150 behind the specific investment funds were invited to explain their position on fossil fuels, he said. He added that some were able to provide information that allayed the state’s concerns.

Those who did not, and those who failed to respond, were put on the final list of 10, which included Credit Suisse, UBS and BNP Paribas, among others.

“The process was open and transparent,” Hegar told the Financial Times. “No matter what you do you run the risk of criticism.”…

The financial groups on the list have 90 days to convince Texas to change its mind. State pension funds will then have to notify the comptroller of their holdings, but the law gives them some flexibility on selling out if it affects their fiduciary duty to retirees.”

Texas state Senate committee seeks documents from funds, including BlackRock, in ESG probe

In addition to the state comptroller’s actions, last week, state senators in Texas jumped into the ESG battlespace, demanding documents from large asset management firms about their ESG investment strategies in the state and those strategies’ effectiveness:

“A Texas state Senate committee is demanding that four top financial services firms hand over details of their investment practices as part of an investigation into the companies’ so-called environmental, social, and governance (ESG) standards and how they impact the state’s public pensions.

The Texas Senate Committee on State Affairs, led by Chairman Bryan Hughes, sent letters to investment giants BlackRock Inc., State Street Global Advisors, and The Vanguard Group, along with Institutional Shareholder Services Inc. (ISS) on Aug. 10, requesting documentation related to the companies’ decision-making involving their respective ESG practices….

Neither BlackRock, State Street, Vanguard nor ISS immediately responded to FOX Business’ request for comment on the letters they received from the Texas Senate committee, but Hughes said all have responded to the state via attorneys and signaled that they would comply.

But if the institutions refuse to hand over the documents or the committee finds them insufficient, the panel will start issuing subpoenas. That means lawmakers could force company leaders like Larry Fink, CEO of BlackRock – the largest asset management firm in the world handling more than $10 trillion – to testify under oath about their institution’s ESG initiatives….

Texas lawmakers are particularly interested in the practices of the major financial firms because of their involvement with the Teacher Retirement System of Texas and the Employee Retirement System of Texas, which have entrusted the companies with managing their investments. Hughes says those companies “have a duty to maximize returns, not to play politics, not to push their left-wing agenda.””


DeSantis declares win in an effort against ESG

Last week, the Florida State Board of Administration agreed to changes Governor Ron DeSantis (R) had requested concerning ESG investing. Although the decision was not unexpected, it gave the Governor an opportunity to declare a win over ESG:

“Gov. Ron DeSantis of Florida yesterday advanced his campaign against environmental, social and governance investing. The State Board of Administration, on which he sits, adopted his proposal to ban the consideration of “social, political or ideological interests” when making investment decisions for the state’s pension fund.

“Corporate power has increasingly been utilized to impose an ideological agenda on the American people through the perversion of financial investment priorities under the euphemistic banners of environmental, social and corporate governance and diversity, inclusion and equity,” DeSantis, a Republican, said in a statement.

The resolution imposes broad limits on the pension fund’s investments. State administrators will be instructed to prioritize “the highest return on investment for beneficiaries, without consideration for nonpecuniary beliefs or political factors.”…

Red and blue states are increasingly split: In the past year, more than a dozen have introduced new initiatives, either to divest state pension funds from gun and ammunition companies, or oil and gas companies and coal companies — or, conversely, to divest from ones that boycott fossil fuel companies.

Asset managers may not be as divided as states, according to Joshua Lichtenstein, a partner at the law firm Ropes & Gray who has been tracking the battle. “Florida and Texas have a lot of money, but it’s not clear we’ll see enough money line up for the red states to change things,” he said, noting that the European Union has already adopted E.S.G. investment principles. When it comes to pensions, managers play a long game, and ignoring E.S.G. could be risky.”

On Wall Street and in the private sector

The SEC isn’t scaring people away from ESG

The Securities and Exchange Commission (SEC) has, for more than a year, been warning ESG providers that it will be paying close attention to them and to the promises they make to investors. And regulators in the European Union have, if anything, been even more aggressive with investors than the SEC has, going so far as to strip some companies of their ESG/sustainable designation. That has not, however, stifled the growth in the industry, at least as measured by companies offering new ESG products:

“In the U.S., the Securities and Exchange Commission may soon start requiring managers to disclose additional information about how environmental, social and governance principles fit into their investment strategies. Industry trade groups, including the Investment Company Institute, and some asset managers are already opposing parts of the SEC’s plan.

And in Europe, almost a quarter of funds claiming to “promote” sustainability were stripped of their ESG labels by influential market researcher Morningstar Inc. because they fall short of applicable standards.

Given this backdrop, one would think managers would be hesitant about bringing more ESG-labeled funds to market, but instead, that’s exactly what they’re doing.

“If a new fund is created in the EU, there’s a good chance it’s sustainable — at least in name,” wrote BloombergNEF analyst Maia Godemer in a note published last week. In fact, 67% of exchange-traded funds introduced since 2020 factor in sustainability, she said.

While BlackRock Inc., the world’s largest asset manager, said it supports the overall push to clarify asset managers’ strategies, the firm added that the SEC’s proposal to require new disclosures for funds that just consider ESG criteria among many other factors may further confuse the situation. It could end up overstating the significance of ESG considerations for some funds, BlackRock said.”

Notable quotes

To Delist or not to Delist. That is the Question.

Scott Shepard, the Director of the Free Enterprise Project and the National Center for Public Policy Research, used his regular column at RealClear Markets to argue that the delisting of Chinese companies from American stock exchanges is likely to create significant problems for investors and for American corporations:

“Chinese government-owned companies are beginning to delist from American stock exchanges. While this might seem like a minor win for those who seek to decouple the American and Chinese economies in the wake of, among other things, tensions over Taiwan, the bigger story is – as is so often true these days – one of the so-called ESG movement and the insurrection of the C-suites. That story is predictably one of giant investment managers and lenders holding American publicly traded companies to debilitating and stifling political-policy-driven standards that they do not apply to private-equity firms or to foreign companies with which these managers and lenders happily deal.

Last week two companies owned by the Chinese government delisted from American exchanges: PetroChina Sinopec and China Life Insurance. Reports indicate that Aluminum Corporation of China and Sinopec Shanghai Petrochemical will also delist soon, and some analysts expect that other China-owned companies will follow. Alibaba, meanwhile, has released plans to have dual primary listings in both New York and Hong Kong, raising its secondary Hong Kong listing to primary.

By delisting from American exchanges, these corporate arms of the Chinese government – and therefore of the Chinese Communist Party – excuse themselves from having to submit to audits by the Public Company Accounting Oversight Board (PCAOB), a federal statutory oversight outfit. By moving now, the companies are also getting out before the SEC finalizes new disclosure rules that, as proposed, would force companies traded on American exchanges to make highly expensive and speculative carbon-emission disclosures – including the emissions created by all of a company’s suppliers….

Fink and other stewards of Americans’ assets are once again faced squarely with a test of their fidelity. They have already violated their fidelity to their fiduciary duties by embracing the ESG push that privileges their personal policy preferences over their duty to invest the assets entrusted to them only in consonance with the law (broken by equity-based discrimination) and complete and objective research (the opposite of which underpins their activist-schedule decarbonization demands). Now we will see if they even have fidelity to the policy positions that they have staked out here in the States.”