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Economy and Society: SEC proposes additional disclosure rules for ESG Funds

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.

Former Vice President Pence continues opposition to ESG

Former Vice President Mike Pence (R), who, three weeks ago, gave a speech critiquing ESG, continued his opposition on May 26 with an op-ed for The Wall Street Journal:

“[I]n 2022 the woke left is poised to conquer corporate America and has set in motion a strategy to enforce their radical environmental and social agenda on publicly traded corporations.

A sudden abundance of liberal shareholders isn’t what’s driving this new trend of woke capitalism, and it certainly isn’t a reflection of consumer demand. Rather, the shift is entirely manufactured by a handful of very large and powerful Wall Street financiers promoting left-wing environmental, social and governance goals (ESG), and ignoring the interests of businesses and their employees.

ESG is a pernicious strategy, because it allows the left to accomplish what it could never hope to achieve at the ballot box or through competition in the free market. ESG empowers an unelected cabal of bureaucrats, regulators and activist investors to rate companies based on their adherence to left-wing values. Like the social credit scores issued by the Chinese Communist Party, a low ESG score can be devastating, making it virtually impossible for a company to raise capital—and that is exactly the point….

Without government intervention, the ESG craze will only get worse.

Mastercard recently announced that it will begin “linking employee compensation to ESG goals.” In other words, paychecks will no longer be based on an employee’s performance but on how well they conform to the woke political opinions of their supervisors.

In April, a California court struck down state laws requiring corporations to select board members based on race and sex, delivering a victory for the right to equal treatment guaranteed by the Constitution. States, cities and Congress should follow suit by adopting measures to discourage the use of ESG principles.

States with large employee pension funds invested in the stock market would be well advised to rein in massive investment firms like BlackRock, State Street and Vanguard, which manage a combined $22 trillion in assets and are pushing a radical ESG agenda. State and local governments should entrust their money to managers that don’t work against their residents’ best interests. States should also pass model legislation developed by the American Legislative Exchange Council requiring government pension-fund managers to vote the state’s shares, rather than delegating that authority to huge Wall Street firms.

Most important, the next Republican president and GOP Congress should work to end the use of ESG principles nationwide. For the free market to thrive, it must be truly free.”


Former Senator Graham op-ed opposes stakeholder capitalism 

On May 23, The Wall Street Journal ran an op-ed from former Senator Phil Gramm (R) (currently a non-resident fellow at the American Enterprise Institute) and Mike Solon, a partner at US Policy Metrics, in opposition to the emerging idea of what proponents call stakeholder capitalism:

“The 18th-century Enlightenment liberated mind, soul and property, empowering people to think their own thoughts and ultimately have a voice in their government, worship as they chose, and own the fruits of their own labor and thrift. As Enlightenment economist Adam Smith put it, “the property which every man has in his own labor, as it is the original foundation of all property, so it is the most sacred and inviolable.”

The British Parliament repealed royal charters, permitted businesses to incorporate simply by meeting preset capital requirements, and established the rules of law governing private competition. Most important, laws were made through a process of open deliberation with public votes. This democratic process replaced the intimidation of medieval stakeholders, who under the communal concept of labor and capital took a share of what others produced….

In the post-Enlightenment world, people were empowered to pursue their own private interests. Private interests and free markets accomplished what no benevolent king’s redistribution, no loving bishop’s charity, no mercantilistic protectionism, and no powerful guild ever did—deliver broad, unending prosperity.

Remarkably, amid the recorded successes of capitalism and failures of socialism rooted in Marxism, pre-enlightenment socialism is re-emerging in the name of stakeholder capitalism. These stakeholders claim that “you did not build your business” and that your labor and thrift should serve their definition of the public interest.

The initial target of this extortion is corporate America. Stakeholders argue that rich capitalists who own big businesses already get more than they deserve. But since roughly 70% of corporate revenues go to labor, the biggest losers in stakeholder capitalism are workers, whose wages will be cannibalized. And of course, the idea that rich capitalists own corporate America is largely a progressive myth. Some 72% of the value of publicly traded companies in America is owned by pensions, 401(k)s, individual retirement accounts, charitable organizations, and insurance companies funding life insurance policies and annuities. The overwhelming majority of involuntary sharers in stakeholder capitalism will be workers and retirees.

The mantra that private wealth must serve the public interest has been boosted by one of capitalism’s great innovations, the index fund. What investors gained in the efficiency of the index fund’s low fees, they are now losing as index funds use the extraordinary voting power they possess in voting other people’s shares. Whether their motives are promoting the marketing of their index funds, doing “good” with other people’s money, or, as Warren Buffett’s longtime partner Charlie Munger claimed, playing “emperor,” they have empowered the environmental, social and governance (ESG) agenda. Other stakeholders are sure to pile on, as evidenced by Sens. Bernie Sanders and Elizabeth Warren’s effort to get BlackRock to use its share-voting power to pressure a private company to yield to union demands.

Stakeholder capitalism imperils more than prosperity, it imperils democracy itself. Self-proclaimed stakeholders demand that workers and investors serve their interests even though no law has been enacted imposing the ESG agenda.”


SEC proposes additional disclosure rules for ESG Funds

Last week, the Securities and Exchange Commission (SEC) proposed new rules for funds that profess to be compliant with Environmental, Social, and Corporate Governance principles.  Since the start of the Biden administration, the SEC has argued that many purported ESG investment products are playing fast and loose with the term and are providing investors something less than what they promise. The SEC’s enforcement division has been investigating some such products for more than a year, and now the full Commission has proposed a new disclosure scheme to promote transparency:

“Regulators proposed new disclosure and naming requirements for investment funds that tap into public angst regarding climate change or social justice, in an effort to address concerns about “greenwashing” by asset managers seeking higher fees.

The Securities and Exchange Commission voted Wednesday to issue two proposals that aim to give investors more information about mutual funds, exchange-traded funds and similar vehicles that take into account ESG—or environmental, social and corporate-governance—factors. One of the proposed rules, if adopted, would broaden the SEC’s rules governing fund names, while the other would increase disclosure requirements for funds with an ESG focus.

The financial industry is split—between asset managers and those who buy their products—on the need for more SEC oversight of ESG funds. The Investment Company Institute, which lobbies Washington on behalf of asset managers, said it planned to review the proposals with its members closely but had a number of concerns, including about costs that it said investors will ultimately bear….

“What we’re trying to address is truth in advertising,” SEC Chairman Gary Gensler told reporters in a virtual press conference after the commission’s vote.

Hester Peirce, the lone Republican on the four-person commission, voted against both proposals, saying they would impose undue burdens on asset managers and nudge them toward capital-allocation decisions that only some investors favor….

The American Securities Association, a lobbying group that represents regional brokerages and financial-services firms, applauded the SEC’s proposals, saying it is appropriate to scrutinize ESG funds’ advertising, performance and fees.

“ASA supports efforts by the SEC to stop misleading and deceptive marketing gimmicks surrounding ESG funds,” the group’s chief executive, Chris Iacovella, said in an emailed statement….

Earlier this week, the SEC fined the investment-management arm of Bank of New York Mellon Corp. $1.5 million for misleading claims about the criteria it used to pick ESG stocks. BNY Mellon neither admitted nor denied wrongdoing.

Authorities are also probing Deutsche Bank AG’s asset-management arm after The Wall Street Journal reported last year that DWS Group overstated its sustainable-investing efforts. At the time, a DWS spokesman said the firm doesn’t comment on questions related to litigation or regulatory matters. A spokesman for Deutsche Bank declined to comment.”

In the States

Kentucky’s Attorney General describes ESG as inconsistent with Kentucky law

Kentucky Treasurer Allison Ball (R) recently asked her state’s Attorney General, Daniel Cameron (R), about ESG, specifically, “Whether “stakeholder capitalism” and “environmental, social, and governance” investment practices in connection with the investment of public pensions funds are consistent with Kentucky law governing fiduciary duties.” On May 26, the Attorney General’s office replied:

“There is an increasing trend among some investment management firms to use money in public and state employee pension plans—that is, other people’s money—to push their own political agendas and force social change. State Treasurer Allison Ball asks whether those asset management practices are consistent with Kentucky law. For the reasons below, it is the opinion of this Office that they are not….

[W]hile the public pension plans administered by the Kentucky Public Pension Authority has shown year-over-year improvement in funding, there is a concern that this trajectory may be threatened by extreme approaches to investment management—particularly those that put ancillary interests before investment returns for the benefit of public pensioners and state employees.

One such approach is “stakeholder capitalism.” According to its advocates, “[s]takeholder capitalism is an expansion of corporate management fealty beyond shareholders to include the workforce, supply chain, customers, communities, societies, and the environment.” What this means in reality is that investment management firms who embrace stakeholder capitalism propose prioritizing activist goals over the interests of their public and state employee clients.

To achieve this version of “capitalism,” investment management firms are adopting “environmental, social, and governance”—or “ESG”—investment practices. ESG investing is an “umbrella term that refers to an investment strategy that emphasizes a firm’s governance structure or the environmental or social impacts of the firm’s products or practices.”

American economist Milton Friedman once criticized an earlier version of this trend whereby one set of stockholders sought to convince another set of stockholders that business should have a “social conscience.” As he explained, “what is in effect involved is some stockholders trying to get other stockholders (or customers or employees) to contribute against their will to ‘social’ causes favored by activists. Insofar as they succeed, they are again imposing taxes and spending the proceeds.” Friedman found this problematic because “the great virtue of private competitive enterprise” is that it “forces people to be responsible for their own actions and makes it difficult for them to ‘exploit’ other people for either selfish or unselfish purposes. They can do good—but only at their own expense.”

Today, in perhaps an even more pernicious version of the trend, the debate is no longer left to stockholders. In fact, there is little-to-no debate. Investment management firms in some corporate suites now use the assets they manage—that is, other people’s money—to enforce their preferred partisan sensibilities and to seek their desired societal and political changes. Investment management firms have publicly committed to coordinating joint action for ESG purposes, such as reducing climate change….

Whether these ancillary purposes are societally beneficial is beside the point when speaking of the duty of fiduciaries. Fiduciaries must have a single-minded purpose in the returns on their beneficiaries’ investments….

While asset owners may pursue a social purpose or “sacrifice some performance on their investments to achieve an ESG goal,” investment managers entrusted to make financial investments for Kentucky’s public pension systems must be single-minded in their motivation and actions and their decisions must be “[s]olely in the interest of the members and beneficiaries [and for] the exclusive purpose of providing benefits to members and beneficiaries….””



Elon Musk continues push back against ESG

ESG Developments This Week

In Washington, D.C.

Documenting ESG pushback

On May 19, The Wall Street Journal carried an op-ed by Jonathan Berry, a Trump administration Labor Department official, and Boyden Gray, former White House Counsel to President George H. W. Bush. The piece focuses on index funds/ETFs, highlighting efforts made in the states in opposition to ESG, and suggesting that there may, in the near future, be federal efforts following the same tack. The two wrote the following:

“Passive investing through index funds lets ordinary Americans own the market. Those funds and similar vehicles spread risk and keep fees low. The resulting rates of return have triggered seismic shifts from active to passive funds.

The problem is that there’s been an equally seismic power shift to those passive funds’ investment managers. They’re trying to remake corporate America to suit their personal politics.

In truth, it’s the Big Three investment managers who now own the market. BlackRock, Vanguard and State Street control more than $20 trillion in assets. In 90% of public companies, one of the Big Three is the largest shareholder. More money means more votes: At S&P 500 companies, the Big Three cast about 20% to 25% of all shareholder votes. And that vote bloc will only grow as more Americans move their savings into passive funds.

That concentration of voting power in three like-minded investment companies, given the diversity of all other voting interests, means the Big Three can often direct the outcome of board elections and shareholder proposals….

Fortunately, it looks as if more of our elected representatives are waking up. West Virginia’s state treasurer recently fired BlackRock from a state investment board over its China ties and hostility to fossil fuels. Florida’s top officials have moved to claw back proxy voting power from outside fund managers over Chinese entanglements and politicized investment decisions. Texas (with other states to follow) has gone so far as to demand fair treatment in financing for industries that don’t fit the politics of Mr. Fink et al.—think fracking, guns and oil.

Congress is joining the conversation. This week, the Senate took up a major bill, the Investor Democracy is Expected Act. The Index Act requires passive investment managers to cast funds’ most important votes in accord with the wishes of actual investors. This kind of reform dissipates the political power amassed by the Big Three as an incident to the rise of passive investing. It would push America’s public companies to respond to the desires of ultimate investors—i.e., regular people.

Happily, the writing is already on the wall. Facing pushback, Mr. Fink has lately muted the imperious tone from his annual letter to CEOs, and BlackRock has started extending “proxy voting choice” to larger clients, representing 40% of index equity assets under management. So why not finish the job and send the rest of the power back?

American corporations are supposed to work for their shareholders. An ideal, yes, but requiring asset managers to pass voting power back to investors would bring it closer to reality.”

On Wall Street and in the private sector

Documenting the pushback against the pushback to ESG

Throughout May, numerous defenses against efforts in opposition to the ESG investment movement have appeared. Bloomberg ran two columns (one reprinted at The Washington Post) which argued that, in the view of the pieces, pushback efforts in opposition to ESG are somewhat less than they are cracked up to be. The first of these, by Liam Denning, ran May 19:

“Recently, it may feel as if your 401K is just a mathematical distillation of every wrong decision you’ve ever made. Even worse, though, what if your investments are nothing less than the means by which a shallow and divisive agenda is foisted on millions of unsuspecting Americans by an “ideological cartel”?

That choice phrase comes from Vivek Ramaswamy, a former biotech executive, author and now cofounder of a new investment firm seeded by, among others, the billionaire Peter Thiel. Strive Asset Management seeks to take on the Big Three — BlackRock Inc., State Street Corp. and Vanguard Group Inc. — accusing them of coordinating a campaign to push political objectives that are at odds with their clients’ best interests. In essence, BlackRock CEO Larry Fink et al. decide that they want to prioritize tackling climate change or systemic racism or whatnot and then use the trillions of passive dollars they invest to force companies to prioritize that, too. Strive will do the opposite, pushing instead “excellence capitalism” — that is, nudging companies to ditch the political stuff and focus on delivering good products and services….

Ramaswamy’s core argument is a warning about the growing power of passive money managers. This has merit. The Big Three own, on their clients’ behalf, about one-fifth of each S&P 500 member, on average, with potentially negative implications for governance and competition. There is already lively debate and a body of academic literature about this. 

Still, it remains a leap to conclude that there now exists a cartel — a loaded term — that effectively forces certain political stances on US companies and Americans in general. It is far from clear that corporations set the pace on social issues rather than take their cues from below. For example, plenty of people — indeed, a majority in the US — are concerned about climate change, and that didn’t require the imprimatur of any corporate executive….

Google articles about Strive and you will find terms like “ESG,” “SRI” — socially responsible investing — and stakeholder capitalism used interchangeably. Similarly, Ramaswamy’s book uses the catch-all term “woke”:

Basically, being woke means obsessing about race, gender, and sexual orientation. Maybe climate change too. That’s the best definition I can give.

If you say so. Dismissing climate change as just another activist obsession speaks to the logical disconnect of exhorting Exxon to focus on delivering a high-quality product without acknowledging that said product carries an inherent, climate-related flaw that requires a strategic response. One person’s liberal hobby horse is another’s systemic risk….

Strive’s timing is impeccable, effectively taking the opposite side of what has become a crowded trade.

That timing also makes it suspect. Strive launches amid a gathering Republican campaign against companies taking positions that oppose the party line on wedge issues. The day after Strive’s announcement, former Vice President Mike Pence gave a speech in Texas attacking ESG and socially minded investing, making a wild claim that Exxon’s new directors were “now working to undermine the company from the inside.” As much as Strive touts itself as “depoliticizing corporate America,” I’m afraid you don’t get to do that credibly while also boasting about seed money from Thiel.”

The argument that pushback against ESG is politically tinged is an argument reiterated in the second Bloomberg pieceby Jeff Green and Saijel Kishanpublished the following day, May 20:

“Heading into the hotly contested midterm elections, the American political right has a new rallying cry: Down with ESG.

Conservatives have identified the popular investing strategy, which accounts for environmental, social and governance risks, as part of a broader narrative about left-wing overreach and “ wokeness” run amok. Utah Treasurer Marlo Oaks calls it “corporate cancel culture.” Behind the rhetoric lie policies designed to sap the momentum of one of Wall Street’s most successful initiatives in recent years, now worth $35 trillion globally. If it works, it will firmly ensconce ESG in the culture wars, galvanize voters and weaken the resolve of big asset managers to act on climate change and other big, societal issues.

West Virginians are already all too familiar with ESG, according to state treasurer Riley Moore. He’s preparing a list of banks that, he says, will lose the state’s business unless they declare they aren’t boycotting the coal industry and other fossil fuels. “Certainly ‘woke capitalism’ is something they are very familiar with,” he said. “We’re facing threats from that in my state, right now.”

The attacks on ESG escalated last week when former Vice President Mike Pence made the strategy a key theme in an energy-policy speech in Houston. A potential candidate for the 2024 Republican presidential nomination, Pence said large investment firms are pushing a “radical ESG agenda” and took aim at BlackRock Inc., whose Chief Executive Officer Larry Fink is a champion of sustainable investing, and others who have pressed for progress on climate change….

With gas prices rising and energy a key factor in Russia’s invasion of Ukraine, it’s becoming easier for Republicans to tie ESG to pocketbook issues of their constituents. Just as Critical Race Theory grew from a catchall for parents unhappy or worried about what their children were learning in public schools to successful efforts to seize control of local school boards, ESG opponents see an opportunity to aim voters’ fears of inflation at the finance industry’s efforts to combat global warming and other social ills. 

It’s also a new front in a longstanding battle against further restrictions on fossil-fuel industries, which give generously to Republican party candidates, and more corporate accountability. At the state level, Republican governors and other officials are finding new ways to block major Wall Street firms from state business, including managing pension funds and bond issues, if they apply ESG principles to other parts of their portfolios.

Nationally, the broadsides against ESG bolster calls to abandon, or at least relax, environmental standards in favor of “energy independence.” It’s also a partisan issue at the US Securities and Exchange Commission, which is trying to require companies to report on their greenhouse gas emissions. In a virtual meeting on the plan in March, the agency’s only Republican commissioner, Hester Peirce, turned off her camera in protest, saying that she was trying to reduce her carbon footprint.

Republicans are increasingly using banks and “woke” companies as cudgels for their base voters, said Reed Galen, a co-founder of the anti-Trump group, The Lincoln Project. “If you’re taking on a company who has environmental and social justice goals, you don’t have to explain ESG to the voters. All you have to do is say ‘woke corporation.’”…

Few expect the Republican attacks on ESG to vaporize the industry. As of now, roughly $3.4 trillion of public retirement money is invested in line with ESG strategies of some sort, according to the sustainable-investing industry group US SIF. Some of the bigger, more liberal states like California and New York are pushing for more restrictive ESG screens for state funds, not less. What’s more, many of the world’s biggest financial institutions have their own goals to cut emissions, which include reducing the amount of business they do with heavy polluters — whether they bill it as ESG or not. Many also have set targets for workforce diversity and elevating women in management, neither of which are politically popular among the right.

Still, the political pressure seems to be taking a toll. BlackRock sent a letter this week to the Texas state comptroller, rebutting the assertion that the firm boycotts the oil and gas industries, and Fink has made it clear he opposes divesting from fossil-fuel companies. The firm also said this year that it won’t back as many shareholder efforts to push companies to reduce their emissions compared with 2021. JPMorgan Chase & Co. is also taking steps to re-establish itself in Texas’s muni-bond market, about eight months after a new law forced that bank out of most deals because of its policies on guns and fossil fuels.”

In the spotlight

Tesla dumped from S&P ESG Index; CEO Elon Musk calls ESG a scam

Over the last several months, this space has documented the paradoxical but serious battle between the ESG gatekeepers and Tesla, the world’s best-known and most valuable maker of automobiles without greenhouse-gas-producing internal combustion engines.  Over the last several weeks, a war of words between ESG advocates and Tesla, a maker of automobiles without greenhouse-gas-producing internal combustion engines, has heated up.

First, Tesla got kicked out of the S&P 500 ESG index:

“This week, S&P Global SPGI +2.51% ’s (SPGI) S&P Dow Jones Indices division said that Tesla (TSLA), which CEO Elon Musk says he founded to put the world on a path to a sustainable-energy future, doesn’t have a comprehensive low-carbon strategy and no longer qualifies for inclusion in the S&P 500 ESG Index (SPXESUP). 

Tesla was “ineligible for index inclusion due to its low S&P DJI ESG Score,” Margaret Dorn, head of ESG Indices, North America, at S&P Dow Jones Indices, wrote in a blog post explaining the decision. “So, while Tesla’s S&P DJI ESG Score has remained fairly stable year-over-year, it was pushed further down the ranks relative to its global industry group peers.””

After that, its CEO Elon Musk called ESG a scam:

“This week, a major move to cut Tesla from a closely followed environmental, social and governance (ESG) index brought anger and relief in nearly equal measure.

Defiance was on display from Standard & Poor’s, which rejected Tesla from its ESG index; annoyance emerged from Tesla TSLA, 1.20% investors, including well-known asset manager and Tesla bull Cathie Wood. There was also a seething snapback from Elon Musk….

“ESG is a scam. It has been weaponized by phony social justice warriors,” tweeted Musk, lamenting that ExxonMobil topped Tesla.

“Ridiculous,” was Wood’s terse response to Tesla’s removal.”



Economy and Society: ESG Task Force issues first enforcement action

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.

Wall Street Journal notes opposition to SEC’s rapid rule-making, including among Democrats        

Two weeks ago, The Wall Street Journal’s editorial board published a piece that highlighted objections to what it described as rapid rule-making at the SEC under Chairman Gary Gensler. It noted that even some Democrats have been frustrated by the tactics Gensler has employed:

“Progressives lobbied President Biden to appoint Gary Gensler as Securities and Exchange Commission Chairman because of his record as a hell-for-leather financial regulator during the Obama days. But now even some House Democrats are asking the Chairman to tap the brakes.

“We write to express concern over some of the Securities and Exchange Commission’s comment periods for complex rulemakings that may hamper the ability for the public to provide effective and meaningful input,” 47 House Members, including 28 Democrats, wrote Mr. Gensler recently. They cite two new proposed rules that would expand SEC control over private markets.

One rule would impose stringent disclosure requirements for fees, expenses and annual independent audits on private fund advisers that are similar to those for public advisers. A second would require private funds to report more information to the SEC about investment losses, among other things, supposedly so the agency can monitor systemic financial risks….

The rule-makings aren’t exactly beach reading and will require teams of lawyers and analysts to sort through their implications. Yet Mr. Gensler provided a mere 30 days for public comment. “This abbreviated period will likely hinder engagement from Congress, investors, and other market participants,” the House Members write.

House Members want Mr. Gensler to extend the public comment period to at least 90 days, which was the norm for highly complicated rules during previous administrations. The Office of the Federal Register suggests that agencies may provide up to 180 or more days for “complex” rule-makings. Mr. Gensler’s drive-by regulation seems to be a pattern.

Energy companies this week also asked Mr. Gensler to extend the 60-day public comment for a proposed 506-page climate disclosure rule, which would require businesses to report their greenhouse gas emissions including those of their suppliers and customers. “SEC should give the public ample time to consider the full impacts of this wide-ranging rule designed to deny financing to the energy sources that meet 80% of global demand now and well into the future,” they write.

Under the Administrative Procedure Act, agencies must take into account public comments. If they disagree with the comments, they have to explain why. A short public comment period will mean fewer detailed comments, which will let the agency finalize the proposals faster with few changes.

The SEC has undertaken more than 50 rule-makings that would affect nearly every investor and public company in America, and many private ones too. Mr. Gensler is rushing to complete as many of them as he can before next January, when Republicans appear likely to take control of the House and could use their appropriations power to rein him in.”

On May 9, the SEC acceded to demands from interested parties and agreed to extend the comment period for the three rules noted above by 30 days each:

“The Securities and Exchange Commission today announced that it has extended the public comment period on the proposed rulemaking to enhance and standardize climate-related disclosures for investors until June 17, 2022. The SEC also announced that it will reopen the comment periods on the proposed rulemaking to enhance private fund investor protection and on the proposed rulemaking to include significant Treasury markets platforms within Regulation ATS for 30 days.

“Today, the Commission acted to provide the public with additional time to comment on three proposed rulemakings that have drawn significant interest from a wide breadth of investors, issuers, market participants, and other stakeholders,” said SEC Chair Gary Gensler. “The SEC benefits greatly from hearing from the public on proposed regulatory changes. Commenters with diverse views have noted that they would benefit from additional time to review these three proposals, and I’m pleased that the public will have additional time to provide thoughtful feedback.””


Some observers are expecting Gensler’s climate disclosures to fail

On May 2, Shivaram Rajgopal and Bruce Usher, two professors at Columbia Business School, penned a piece for Bloomberg Law in which they looked at SEC’s climate disclosure proposal, as well as the possibility that it may be disrupted, and then examined possible alternative means for achieving the same goals. They wrote:

“[E]ven though the ink has barely dried on these newly released SEC climate rules, it’s important to recognize that the 510 pages of regulations may never be enacted. There is no consensus in Congress to act on the climate problem, Republican lawmakers have already urged the SEC to withdraw their proposal, and a more conservative U.S. Supreme Court could view the new rules as an overreach. And, state attorneys are also vowing to challenge the SEC’s proposal.

So if these rules are dead on arrival, where are the areas of promise? There are a few….

Here’s what could happen next.

First, this momentum toward climate disclosure might encourage businesses to change strategy, taking steps to move capital out of fossil fuels and toward renewable technologies and other solutions to climate change….

Second, it’s likely that the need for climate leadership will lead to businesses adding expertise. While companies like Apple, Facebook, Google, and Microsoft already report extensive emissions data, many companies lack the same level of expertise.

The Big Four accounting firms along with other professional-service firms have already started to invest in climate expertise. Ernst & Young announced that it will spend $10 billion over the next three years on audit quality, sustainability, and technology, and KPMG is planning to spend more than $1.5 billion over the next three years on climate-change-related initiatives and training on ESG issues….

Third, increased climate literacy will allow for more scrutiny of green claims, meaning capital will be more likely to flow to truly sustainable projects. As tougher climate policies are proposed and implemented, the days of corporate greenwashing—and investors being misled—could finally come to an end.

That could lead to more money flowing to projects like Apple’s Green bonds which raise capital for projects with environmental benefits, and recently funded over a gigawatt of clean power globally, equivalent to removing 200,000 cars from the road. More companies are likely to follow Apple in investing in truly sustainable projects with more regulation around climate reporting.”

Though not noted in professors Rajgopal and Usherarticle, some analysts in the capital markets and related investment community are expecting publicly traded corporations to comply with disclosure standards whether the SEC passes them or not:

“The International Sustainability Standards Board (ISSB) is rallying regulators from the U.S., Europe, Japan and other jurisdictions around common rules for disclosures about climate risk and other environmental, social and governance (ESG) issues.

The working group of regulators will meet this month and in July to craft a “global baseline” of ESG disclosure standards, according to the ISSB, which in March released for public comment proposed rules on how a company should disclose the ways it gauges and manages ESG risks. A company would also need to publicly describe how sustainability risks, such as drought or flood, affect its total value.

“There is strong public interest in seeking to align where possible the international and jurisdictional requirements for sustainability disclosures,” ISSB Chair Emmanuel Faber said in a statement. 

The ISSB, aiming to bring consistency across borders, intends to urge regulators worldwide to consider adopting its proposals as a foundation for their own domestic sustainability disclosure rules, including those focused on carbon emissions….

The ISSB, backed by the architects for global accounting rules, has asked for public feedback on its proposal by July 29. It plans to complete standard-setting by the end of 2022.

The ISSB was created by the IFRS Foundation, a London-based group that oversees the International Accounting Standards Board (IASB), and launched in November during the COP26 climate conference in Glasgow.

As with IASB rules, companies could voluntarily adopt the ISSB standards or a regulator could endorse the guidelines and require compliance by companies under its jurisdiction.


SEC’s Climate an ESG Task Force issues first enforcement action 

Among other ESG tasks, the Securities and Exchange Commission has promised to keep ESG practitioners honest. To ensure compliance with promises made, the SEC created an ESG enforcement task force in early 2021. That task force has now issued its first enforcement action:

“The SEC’s Climate and ESG Task Force has now issued its first enforcement action.  The SEC has brought a 76-page complaint in federal district court against Vale, S.A., a Brazilian mining company, alleging that Vale “ma[de] false and misleading claims about the safety of its dams.”  Significantly, Vale “regularly misled local governments, communities, and investors about the safety of the Brumadinho dam through its environmental, social, and governance (ESG) disclosures.”…

In essence, the SEC has brought a classic enforcement action against a company for allegedly misleading disclosures–and these disclosures are not just present in typical SEC forms (e.g, 20-F and 6-K), or in investor presentations, but in the separate ESG reports issued by Vale.  As stated in the SEC’s complaint, the “false statements to investors [were] in SEC filings, the 2016 and 2017 Sustainability Reports, and the 2018 ESG Webinar.”  This enforcement action by the SEC demonstrates that statements made in ESG reports should now be considered as ripe for litigation–whether public enforcement actions or private securities litigation–as classic sources of disclosures.    

Notably, the complaint also features allegations concerning corporate governance failures and problems with the auditing process related to the ESG reports and other disclosures.  The presence of these allegations may act to reinforce the SEC’s focus on corporate governance and attestation in its proposed mandatory climate disclosures.”

In the spotlight: Tesla joins Musk in pushing back against ESG 

While Tesla is, by definition, a company that exists specifically to reduce carbon emissions from internal combustion engine vehicles, Elon Musk and others at the company have been reluctant to share ESG-related information with ratings agencies and have, therefore, been given relatively poor ESG scores. Now, Musk and his company are pushing back:

“Tesla Inc., whose Chief Executive Officer Elon Musk has criticized ESG for making little sense, said current ways of measuring environmental, social and governance issues are “fundamentally flawed.”

In a 144-page annual report, the electric vehicle-maker said ESG ratings are based on how corporate profits are affected by ESG-related factors, rather than gauging a company’s real-world impact on society and the environment. The ratings are used by money managers to help decide where to invest. 

In effect, individual investors who park their money in ESG funds managed by large asset managers are unaware that their capital is being used to buy shares of companies that are exacerbating the effects of climate change, rather than mitigating it, Tesla said. 

“We need to create a system that measures and scrutinizes actual positive impact on our planet, so unsuspecting individual investors can choose to support companies that can make and prioritize positive change,” the Austin, Texas-based company said. It added that large investors, ratings agencies, companies and the public need to push for change.” 

Musk has been a recent critic of ESG, and has said its investment principles should be “deleted if not fixed.”



Economy and Society: Academic pushback against SEC climate action

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.

Academic pushback against SEC climate action 

On April 25, 22 law and finance professors submitted a comment letter to the Securities and Exchange Commission (SEC), questioning the Commission’s proposed climate-change disclosure rule. Professor Lawrence A. Cunningham of George Washington University issued a press release detailing the professors’ motivation and chief complaints. The letter began as follows:

“The enthusiasm of many Commissioners and Staff of the Securities and Exchange Commission (the “SEC”) to participate in the global debate about climate change is understandable. After all, protecting the earth’s sustainability is perhaps the most compelling issue of our time. It’s an issue all must take seriously and everyone must do their part. But each of us, and particularly governmental authorities, must always act in accordance with law and fairness.

The undersigned, a group of professors of law and finance, are concerned that the SEC’s recent proposal to impose extensive mandatory climate-related disclosure rules on public companies (the “Proposal”) exceeds the SEC’s authority. In addition, rather than provide “investor protection,” the Proposal seems to be heavily influenced by a small but powerful cohort of environmental activists and institutional investors, mostly index funds and asset managers, promoting climate consciousness as part of their business models.”

The letter continued, explaining in detail three lines of argument that the group of professors believes demonstrate that the SEC is, in their view, exceeding its authority:

“The following analysis raises concerns that the Proposal is neither necessary nor appropriate for either investor protection or the public interest and will not promote other statutory goals. The SEC would do better to withdraw the Proposal and revisit the subject with a fresh approach focused on America’s ordinary investors rather than an elite global subset. The three parts of this letter address each statutory issue in turn, as follows:

I. “Investor Demand” versus “Investor Protection”

A. Investor Varieties: Diverse Institutions and Individuals

B. Climate Shareholder Proposals: Few Are Made, Most Lose, Many Are Political

C. The Ample Supply of Climate Disclosure

D. Correlation of Climate Practices with Economic Performance Is Not Causation

II. Authority of Others and the “Public Interest”

A. The Environmental Protection Agency’s Statutory Jurisdiction

B. State Corporate Law Prerogatives on Purposes, Powers and Business Judgments

C. Risk of Unconstitutional Compelled Political Speech

III. Other Statutory Considerations

A. Certain High Costs versus Highly Speculative Benefits

B. Impairs Investment Industry Competition

C. Compliance Burdens Discourage Public Company Registrations”

Finally, the professors concluded:

“We respectfully urge the SEC to withdraw the Proposal. We are concerned that the passions of this topic have led the SEC to overzealous rulemaking that exceeds its authority. Governments, above all, must adhere to the rule of law, especially when officials believe honestly and fervently in a specific agenda. The federal securities laws focus on investor protection generally, while the Proposal prioritizes the demands of a subset of the global investment industry. We encourage the SEC to focus on all American investors, not just the most vocal and activist voices.”

State-level ESG pushback gains supporters in Congress

For much of the year, state-level government officials in states including Texas, Florida, and West Virginia have led political opposition to ESG and related investment issues. Last week (as detailed in our last issue) elected officials from Utah responded critically to an ESG rating applied to them by S&P Global. According to Roll Call, some Republican members of Congress have been inspired by state-level action to get involved in an effort against ESG themselves:

“Republican state lawmakers are berating U.S. financial institutions for increased reliance on environmental, social and governance metrics to screen investments and analyze credit risk factors, with some of the critics attracting support in Congress.

Utah state Treasurer Marlo Oaks coordinated a response to S&P Global Inc., blasting the financial services firm’s credit rating division for plans to supplement its analysis of states with a score on certain ESG indicators, such as exposure to climate risk and demographic trends….

Notably, Oaks was joined by Gov. Spencer J. Cox, other state officials, and Utah’s entire congressional delegation: Republican Sens. Mitt Romney and Mike Lee and Reps. John Curtis, Blake D. Moore, Burgess Owens and Chris Stewart.

Stewart said he and his colleagues are encouraging other GOP members to have similar conversations with their state treasurers and financial regulators on the proliferation of ESG metrics.

If Republicans take back control of the House at the midterm elections, they will look to utilize appropriation riders to curb additional ESG regulations. This would be akin to the long-standing rider that prevents the Securities and Exchange Commission from pursuing rulemaking on corporate political spending disclosure, he said in an interview Tuesday.

“We’re going to be able to put some limits on this, precluding the Securities and Exchange Commission, for example, from using their regulatory authority to implement policies that are really out of bounds of their actual authority,” said Stewart, who sits on the House Appropriations Committee. “We’ll have some ability to push back on that starting next winter.”

The letter and Stewart’s remarks underscore the latest effort from Republican politicians who are pushing back against the financial sector’s embrace of ESG metrics in credit analysis and investment decisions.”

In the States

West Virginia joins opposition to S&P ESG indicators

Last week, West Virginia Treasurer Riley Moorewho has waded into the ESG debate beforefollowed his Utah counterpart, Treasure Marlo Oaks, in opposing S&P Global’s new state ESG ratings and calling for them to be scrapped. According to Bloomberg:

“West Virginia’s Republican treasurer called on S&P Global Ratings to scrap a new system scoring U.S. states on their environmental, social and governance efforts, calling the ratings scale a “politically subjective” scheme that will force states to yield to “woke capitalists.”

“This new ESG rating system is just the beginning of a new wave of judging states – and their people – not by valid financial metrics, but by the preferred political views and outcomes of a select global elite,” West Virginia State Treasurer Riley Moore said in a statement released earlier this week. “The ESG movement is nothing but a slippery slope whereby our states and our people will be forced to bend the knee to the woke capitalists or suffer financial harm.”

S&P’s new system scores governments on categories like human rights, social integration, low-carbon strategies, climate measures and sustainable finance. The company released its first scorecard March 31.

S&P declined to comment.

West Virginia, a Republican-controlled state, received a negative social score and a moderately negative environmental score. The vast majority of states’ ratings were neutral. West Virginia has an AA- bond rating from S&P, its fourth-highest.

“So despite our state’s excellent financial position, our taxpayers could now be punished with higher borrowing costs simply because S&P doesn’t like our state’s industries and demographic profile,” Moore said. “This ratings scheme will affect our state and its municipalities, and begs the question: at what point will this stop? Will individuals soon get ESG ratings as part of their credit scores? Where will it end?””

On Wall Street and in the private sector

Declining ESG demand in Europe 

For several years, supporters of ESGincluding those in various government agencieshave pointed to the continually rising inflows into ESG funds as evidence that investment strategy is popular with average investors as well as the large asset managers who promote ESG as part of their broader business strategy. This year, however, that argument has become more difficult to make, as ESG demand has dropped among European investors, according to a story in The Financial Times:

“Flows into exchange traded funds that are focused on better environmental, social and governance (ESG) outcomes amounted to €13bn in the first quarter, less than half of the €27bn that went into them in Q4 2021, Morningstar data for Europe show.

Just 30.4 per cent of total money put into ETFs in Europe in Q1 went into ESG funds, down from the 79 per cent record high in Q4 last year.

Thematic ETFs, like ESG portfolios and other funds that also tend to come with a quality growth bias, have seen demand shrink amid the disastrous performance of recent months. Flows into these types of funds amounted to €0.6bn in Q1 2022, down from €2.1bn in the previous quarter.

Morningstar observes that this was the first quarter since 2019 in which thematic ETFs failed to attract at least €1bn of net inflows.”

In the spotlight

Bonuses tied to ESG performance continue in popularity

Another American company has announced that it has joined a trend previously most popular in Europe and Canada of rewarding executives based on their achievement of ESG-related, rather than purely pecuniary goals. This time, it’s Wendy’s:

“Wendy’s will tie executive compensation to environmental, social and governance performance and is also working to target reductions across Scope 1, 2, and 3 emissions, according to its 2021 corporate responsibility report.

Additionally, the fast-food company reported its 2020 climate data to the CDP for the first time in 2021. Wendy’s is continuing to move toward sustainable packaging and move away from hard-to-recycle single use products, according to the report.

The company’s board of directors made the decision to begin tying executives’ 2022 incentive compensation linked to the company’s achievements with its Food, People and Footprint goals. The company says it believes the move will drive more progress toward achieving its ESG goals.

Wendy’s compensation plan is similar to restaurant chain Chipotle, which is also tying up to 15% of its executives’ annual incentives to ESG progress….

In 2021 Wendy’s says it reduced water usage by 25% in its US restaurants and facilities compared with a 2018 baseline. The company also exclusively grew tomatoes and lettuce in greenhouses last year, which resulted in using 90% less water, and sourced coffee which met standards for protecting natural areas and waterways.”



Economy and Society: Utah pushback against S&P ESG indicators

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

Utah pushback against S&P ESG indicators

In late March, S&P Global released a credit indicator report on the state of Utah that went beyond traditional versions of such reports. This year, S&P, which among other things, rates corporate ESG preparedness, included an ESG component in its reports on each of the 50 states as well. On April 20, Utah Governor Spencer Cox (R), Senators Mike Lee (R) and Mitt Romney (R), all of the state’s congressmen, along with its treasurer and attorney general, sent a letter to S&P, arguing that the ESG component of its report is inherently political and therefore unfair. Bloomberg reported on the letter as follows:

“Utah’s governor and its federal lawmakers are objecting to S&P Global’s move to publish ESG indicators for U.S. states, calling it an undue politicization of the ratings process.

In a letter sent to the firm on Thursday, the politicians — all Republicans — lay out a lengthy rebuke of S&P’s move to release environmental, social and governance assessments, known as ESG. Despite Utah’s results falling in line with many other states, the officials argue S&P should focus strictly on financial fundamentals.

“S&P’s ESG credit indicators politicize what should be a purely financial decision,” reads the letter, which was obtained by Bloomberg News. It was signed by Governor Spencer Cox, Senators Mike Lee and Mitt Romney, all four of the state’s members of the House, as well as its treasurer and attorney general. 

The letter also demands the report is withdrawn, seeks more information from S&P and says the state won’t cooperate in gathering ESG criteria.

S&P has said ESG credit factors are those that “can materially influence the creditworthiness of a rated entity or issue and for which we have sufficient visibility and certainty to include in our credit rating analysis,” and that they are “applied after the credit rating has been determined.””

The Bloomberg piece subsequently explains how and why ESG has become so important to asset managers and corporations but, in the view of some analysts, fails to explain the connection of the corporate ESG trend to the states:

“The row is the latest saga in the emergence of the indicators, which advocates say give a full picture of an entity’s outlook but critics say stray too far from core financial matters. 

Institutional investors like Blackrock Inc. and pension funds are demanding greater clarity from companies on their efforts to diversify their workforces and address a changing climate. Companies seen as under-performing on certain ESG metrics risk challenges to their board from activist investors.

Meanwhile, GOP lawmakers and powerful industry groups, including the U.S. Chamber of Commerce, have opposed increased activity by financial watchdogs on ESG issues. Some Republicans have complained that ESG indicators are skewed to a progressive viewpoint, and have encouraged companies and other organizations to reject the metrics.

S&P’s ESG indicators include categories like human rights, social integration, low-carbon strategies, climate measures and sustainable finance.”

Neither the Bloomberg piece nor S&P addressed the Utah representatives’ concerns or explained why the new ratings are deemed to be relevant and not, in the view of opponents, political. According to Bloomberg, “The ratings agency declined to comment.”

On Wall Street and in the private sector

BlackRock reiterates its commitment to ESG

Over the last several monthswhile energy shortages have gripped Europe and as the Russian war with Ukraine appears to have exacerbated those shortagesBlackRock CEO Larry Fink has, in the view of some analysts, appeared to stray from ESG orthodoxy. Fink has stated that he and his company believe that fossil fuel production is necessary and that it is wise, at this point, to be invested in traditional, fossil-fuel-based energy companies.

Recently, Fink clarified his comments, stating that he still believes firmly in ESG and what he describes as sustainability in particular; however, he simply believes that the path to sustainability is more complicated than many ESG investors have come to believe. Barron’s reports:

“BlackRock CEO Larry Fink, one of Wall Street’s most vocal advocates for sustainable investing, said the transition to greener energy isn’t a straight line, and the past quarter’s lagging performance of environmental, social, and governance, or ESG, funds doesn’t change his long-term outlook for this approach.

“In all my letters, I said an energy transition isn’t a straight line. It’s a 30- to 50-year time frame for us to move that forward. It isn’t today. It isn’t tomorrow,” Fink said in the investment management firm’s first-quarter earnings call.

Fink, who heads the world’s largest asset manager, pointed to first-quarter inflows as evidence of continued interest in sustainable investing, often called ESG investing. 

“We had about $19 billion of sustainable flows,” Fink said.” Obviously that is down from prior quarters, but certainly up from two years ago.”

He added that BlackRock is the largest investor for pension funds and retirements, and has “a long-term responsibility in making sure over the long run that our beneficiaries achieve their long-term aspirations and goals and so there is no question this energy transition is real, but it’s going to be not a straight line.”

Fink also said one of the biggest opportunities in alternatives in the years ahead would be the intersection of infrastructure and sustainability. 

“The interconnectivity between sustainable investing in infrastructure is going to be enormous,” he said.

He noted that, in response to the energy crisis caused by the war, many countries are re-evaluating their energy dependencies and looking for new sources of energy. This may mean increasing production of traditional energy sources in the near term, but longer term, there will be a shift toward greener sources of energy, Fink said.”

Mastercard links all employee bonuses with ESG goals 

Continuingand expanding upona trend that has become more prominent in Europe, Canada, and now the United States, Mastercard has now linked all of its employee bonuses to ESG measures. Previously, ESG-tied performance incentives were largely the purview of management teams. Mastercard, however, has taken the idea one step further:

“Payment processor Mastercard Inc (MA.N) will link all employee bonuses to environmental, social and corporate-governance (ESG)initiatives, expanding an earlier program which was limited to its senior executives, Chief Executive Michael Miebach said on Tuesday.

The move will help Mastercard achieve its goals of cutting carbon usage, improving financial inclusion and gender pay parity. Mastercard in November accelerated its net zero timeline by a decade, to 2040 from 2050.

“We’re tying compensation to emissions, financial inclusion and the gender pay gap because we have a substantial impact in these areas and because they closely align with our vision,” Miebach wrote in a note on the company’s website….

Last March, Mastercard said it would link compensations for executive vice presidents and above to ESG initiatives.”

From the ivory tower

Harvard Business Review: “An Inconvenient Truth About ESG Investing”

In late March, the Harvard Business Review published a piece by Sanjai Bhagat, the Provost Professor of Finance at the University of Colorado. Whereas most finance-derived critiques of ESG have focused on the questionable nature of the investment technique’s promise to deliver better-than-market returns, Professor Bhagat focuses instead on its capacity to effect actual environmental or social change. He writes:

“As of December 2021, assets under management at global exchange-traded “sustainable” funds that publicy set environmental, social, and governance (ESG) investment objectives amounted to more than $2.7 trillion; 81% were in European based funds, and 13% in U.S. based funds. In the fourth quarter of 2021 alone, $143 billion in new capital flowed into these ESG funds.

How have investors fared? Not that well, it seems.

To begin with, ESG funds certainly perform poorly in financial terms. In a recent Journal of Finance paper, University of Chicago researchers analyzed the Morningstar sustainability ratings of more than 20,000 mutual funds representing over $8 trillion of investor savings. Although the highest rated funds in terms of sustainability certainly attracted more capital than the lowest rated funds, none of the high sustainability funds outperformed any of the lowest rated funds….

Unfortunately ESG funds don’t seem to deliver better ESG performance either.

Researchers at Columbia University and London School of Economics compared the ESG record of U.S. companies in 147 ESG fund portfolios and that of U.S. companies in 2,428 non-ESG portfolios. They found that the companies in the ESG portfolios had worse compliance record for both labor and environmental rules. They also found that companies added to ESG portfolios did not subsequently improve compliance with labor or environmental regulations.

This is not an isolated finding. A recent European Corporate Governance Institute paper compared the ESG scores of companies invested in by 684 U.S. institutional investors that signed the United Nation’s Principles of Responsible Investment (PRI) and 6,481 institutional investors that did not sign the PRI during 2013–2017. They did not detect any improvement in the ESG scores of companies held by PRI signatory funds subsequent to their signing . Furthermore, the financial returns were lower and the risk higher for the PRI signatories….

The conclusion to be drawn from this evidence seems pretty clear: funds investing in companies that publicly embrace ESG sacrifice financial returns without gaining much, if anything, in terms of actually furthering ESG interests.”

In the spotlight

A proxy preview from a different perspective

For years, at the start of annual shareholder meeting season, As You Sow, an environmental activist group in the capital markets generally in favor of ESG positions and in favor of making changes to boards and management in order to advance sustainability commitments has issued its annual “Proxy Preview.” This massive publication details all of the ESG-related shareholder proposals on the proxy statements of large, publicly traded companies and advises investors on how to vote on them. 

Over the last couple of years, however, a new proxy preview publication has been issued, specifically to counter the influence of As You Sow’s effort and to give investors a choice in their decision-making process. This previewtitled the “Investor Value Voter Guideis in its third annual edition and is published by the Free Enterprise Project, a program of the National Center for Public Policy Research that describes itself as the “only full-time conservative shareholder activist” organization. The guide offers a different perspective from other such publications and promises its readers a much different investment strategy. It begins as follows:

“The time has come for the center and the right to begin to emulate the left – not, certainly, in worldview, but in tactics. As shareholders, we must begin to sue corporate managers when they forsake their fiduciary duties to us, the company’s owners. And in response to the pretenses of stakeholder capitalism, ESG, wokeism and the rest, we must brace ourselves to new duties:

–  as engaged customers, objecting in person and in writing, in the world and on the Internet;

–  as discerning customers, who, if they decide to abandon a particularly noxious company, let that company know clearly and in certain terms what it is that pushed them away;

–  as community activists, organizing and participating in protests of the worst corporate malefactors, directors and self-appointed masters, at corporate headquarters, annual shareholder meetings and other high-profle locations and occasions;

–  as proud employees, resisting (when possible) corporate racism and sexism regardless of the race or sex of the target (all racism is racism; all sexism is sexism – the standards have to be objective, and uniformly applied), including by litigation;

–  as insistent investors, not only with individual corporations, but with investment houses, demanding exchange-traded funds (ETFs) and other investment options that cater to our moral and ethical concerns and interests, as the ESG funds cater to the left; and

–  as motivated constituents, demanding legislation at the state level that would forbid companies from using monopoly power to deny equal service without discrimination to all customers, regardless of their viewpoints or political participation; that would require investment houses to vote proxies according to the wishes of their own investors, not according to their own personal policy preferences; and other enactments that would help to end this monopolist threat to the Republic.”  



Economy and Society: State pension funds draw scrutiny for 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.

Congress, the SEC, and disclosure

The Competitive Enterprise Institute’s Senior Fellow Richard Morrison published a roundup of congressional pushback against the proposed SEC rule mandating public company disclosure of environmental and sustainability data. The recent update is as follows:

“Skeptical members of Congress have begun weighing in on the Securities and Exchange Commission’s (SEC) recent climate disclosure proposal, and their objections are significant. Earlier this week, letters went out from Republicans in the House and Senate urging the SEC to table or withdraw the new rule, which the agency initially released on March 21. The deadline for the public to submit comments on the proposed rule, “The Enhancement and Standardization of Climate-Related Disclosures for Investors,” is May 20, 2022.

The letters from House and Senate members cover similar territory, and include the following objections:

  • The SEC does not have statutory authority to issue this rule.
  • The rule would violate First Amendment protections against compelled speech.
  • Existing SEC regulation and guidance already cover relevant risk disclosures, including climate-related risks.
  • The rule would change the definition of “materiality” for the worse.
  • The proposed rule is a backdoor attempt at substantive climate legislation.
  •  The SEC does not have the technical expertise to evaluate the required submissions.
  • The rule will be extremely costly to firms and shareholders.
  • Small companies, not normally subject to SEC requirements, will be swept up under this rule.
  • This is the worst possible time for such a regulation, given inflation, high energy prices, and concerns about long-term economic growth….

Our nation’s lawmakers have decided that new laws in this area—and new powers for the SEC—are not needed and should not be approved. Members of Congress did not “forget” to authorize this approach; they made an affirmative decision not to do so….

Individual members of Congress are moving even further along with legislation that would stop the SEC from promulgating this proposal. As I wrote about earlier this week, Rep. Beth Van Duyne (R-TX) and a dozen co-sponsors recently introduced the Stopping Excessive Climate Reporting Act (H.R.7355), which would stop the SEC from requiring climate change and greenhouse gas disclosures, but leave companies free to share whatever such information they believed was material to shareholders and potential investors.

This increasing skepticism in Congress of environment, social, and governance (ESG) investing dovetails perfectly with policies that governors and legislators are advancing at the state level.”

SEC flexes its enforcement muscle

While most of the recent attention on the SEC involves its plans to mandate new disclosures, the rest of the Commission continues its day-to-work, including its enforcement division, which recently laid out its priorities for the rest of the year. Those priorities include stepped-up policing of ESG:

“On 30 March 2022, the Division of Examinations (the Division) of the U.S. Securities and Exchange Commission (SEC) released its examination priorities for the 2022 fiscal year. The Division highlighted five “significant focus areas”: (1) private funds, (2) environmental, social, and governance (ESG) investing, (3) standards of conduct (including satisfaction of fiduciary duty), (4) information security and operational resiliency, and (5) financial technology and crypto-assets. In addition, the Division identified core programmatic areas for registered investment advisers (RIAs) and broker-dealers as cornerstones of its examination program.

Collectively, the priorities reflect the overarching goal of the Division—and the SEC as a whole—to continue to incentivize managers to provide accurate and complete disclosure to investors, and to maintain fulsome and tested compliance programs, particularly with respect to newly emerging approaches to investment management and the risks they may pose….

Consistent with prior pronouncements, task force initiatives, and other recent regulatory actions by the SEC and its staff, the Division will focus on ESG-related advisory services and investment products, highlighting in the priorities the lack of standardization in ESG investing terminology, variability among the approaches to ESG investing, and the extent to which RIAs and funds seek to effectively address legal and compliance issues with new lines of business and products (which RIA and fund efforts, in the Division’s view, may not be sufficient). By reviewing RIAs’ portfolio management processes and practices, the Division will focus on whether RIAs and registered funds are accurately disclosing ESG investing approaches and ensuring continued accuracy of such disclosures. This is again consistent with the SEC’s demonstrated interest in ESG disclosures, including from an enforcement perspective, as indicated by recently reported investigations by the SEC’s Division of Enforcement regarding this issue.

In addition, the Division will examine whether client securities are voted in accordance with proxy voting policies and procedures and with client ESG-related mandates conditioning investments in a company on the strength of its ESG program. Finally, demonstrating the Commission’s concerns over “greenwashing” (i.e., exaggerating the extent to which an investment program marketed as ESG-focused actually invests in assets that achieve ESG goals), the Division will consider whether RIAs have overstated or misrepresented in their marketing materials the extent to which ESG factors are considered in portfolio selection.”

In the States

State pension funds draw scrutiny for ESG

On April 15, The American Conservative published a long piece by Kevin Stocklin, a writer and film director, on the issues of ESG and what analyst Stephen Soukup has described as woke capital in pension funds, specifically state pension funds. Stocklin and the experts he cited make a case against the practice of ESG in pension funds:

“State pension fund managers who have declared that they will include environmental and social justice goals in their investment decisions collectively control more than $3 trillion in retirement assets and include the five largest public pension plans in the U.S. Among them are The California Public Employees Retirement System (CalPERS), California State Teachers Retirement System (CalSTRS), the Teachers Retirement System of Texas, New York City pension funds, New York State Common Retirement Fund, Maryland State Retirement and Pension System, and the New York State Teachers Retirement System.

Perhaps their most high-profile success came in June 2021, when CalSTRS, CalPERS, and NY State Common Retirement Fund joined three of the world’s largest asset managers, BlackRock, Vanguard, and State Street, in voting to elect clean-energy advocates to the board of Exxon and divert its investments away from oil and gas and toward alternative fuels. All of these pension fund and money managers except Vanguard are members of Climate Action 100+, an initiative dedicated to making fossil fuel companies “take necessary action on climate change.”

But state officials are starting to question what they see as a misappropriation of public money, and whether climate and social investing is actually delivering any benefit in return….

“States are recognizing that the financial system is being weaponized against industries that are the life blood of a lot of heartland states,” said Jonathan Berry, former regulatory head at the Department of Labor and a partner at Boyden Gray. “Pension plan proxy votes are often being used against both the economic and political interests of a lot of government workers.”

Derek Kreifels, CEO of the State Financial Officers Foundation, said corporate executives often confide to him that “they hear from folks on the left on a daily basis. Up until the fall of last year, they rarely heard from those of us who were right of center.”

Kreifels said it takes time to explain to people how their retirement money is being used to promote a progressive agenda. “But once you do, frankly people are pretty outraged by it.”

In an attempt to de-politicize their pensions, state officials are working to hold fund managers personally liable if they misuse retirees’ money. Last week, a conference of state officials, working through the American Legislative Exchange Council (ALEC), crafted model legislation that compels state pension fund managers to invest solely according to financial considerations. It also prohibits fund managers from voting the shares owned by the pension fund “to further non-pecuniary or non-financial social, political, ideological or other goals.”

If pension fund managers “use politically based investing that costs pensioners their return on investments,” said ALEC Chief Economist Jonathan Williams, “people need to be held accountable.” Maximizing returns becomes more critical in light of what ALEC reports is a $5.8 trillion shortfall in states’ ability to pay their pension obligations.

A study by the Boston College Center for Retirement Research in October 2020 found that for state pensions, ESG investing reduced pensioners’ returns by 0.70 to 0.90 percent per year. It attributed much of this underperformance to ESG fund fees, which were on average 0.80 percent higher than non-managed funds for the same asset type.

“Before this explosion of ESG investing,” said Jean-Pierre Aubry, co-author of the study, “most asset management firms were being squeezed in terms of fees” because investors were opting for low-fee “passive” index funds rather than pay asset managers to try to actively to pick winners and losers. ESG, he said, “just seems like a repackaging of active management.”

In addition, an April 2021 report by researchers at Columbia University and London School of Economics found that companies in ESG funds have “worse track records for compliance with labor and environmental laws, relative to portfolio firms held by non-ESG funds managed by the same financial institutions,” and that ESG ratings are driven more by companies’ public statements than by what they actually do….

Regarding “stakeholder capitalism,” an August 2021 study at the University of South Carolina and the University of Northern Iowa found that “the push for stakeholder-focused objectives provides managers with a convenient excuse that reduces accountability for poor firm performance.” Specifically, the report found a correlation between CEO’s underperformance and how vocal they were in supporting more nebulous, less quantifiable ESG goals.

“The original promise of ESG is that you could do well by doing good; it turns out you do less well, and you’re not doing any good either,” said financial analyst and author Stephen Soukup. “So the basic promise of ESG is a fraud on both ends.””

In the spotlight

Study: Investors know little about ESG, including potential downsides

According to a Barron’s story published on April 12, a recent study shows that despite the attention it has received over the last several years, retail investors still know little about ESG investing:

“Environmental, social, and governance, or ESG, investing is a hot trend, but retail investors are unfamiliar with the approach and have a hard time explaining what it means. About one in four people believes the acronym stands for “earnings, stock, growth,” according to a new study.

“Retail investors don’t understand ESG investing—only 9% say that they have ESG-related investments, and the familiarity with the concept is not as high or as broad as some of the coverage on the topic of ESG investing might suggest,” says Gerri Walsh, president of the FINRA Investor Education Foundation, which conducted the retail investor survey with NORC of the University of Chicago.

Only 24% of the 1,228 investors surveyed could correctly define ESG investing, and just 21% knew what the letters in ESG stood for. 

Walsh says the finding is “both surprising and concerning.”…

Survey respondents indicated that financial factors are the most important consideration when making investment decisions, including whether an investment has the potential to earn high returns, the amount of risk it entails, and the associated fees. Environmental factors were the least important. ESG investors, however, are highly motivated by ESG factors, especially the environment, according to the survey.

Most non-ESG investors don’t hold ESG-specific investments because they are unfamiliar with the concept. “It just doesn’t occur to them,” Walsh says. “There’s an education gap and a knowledge gap about what ESG investing is.”…

When it comes to ESG funds’ performance, a plurality (41%) of investors believe that returns for companies that prioritize their impact on the environment and society will be the same as the broader market while 14% expect ESG investments to outperform the market.”



Economy and Society: SEC disclosure rule continues to attract attention

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.

Panel highlights potential concerns with SEC disclosure rule

Last week, the Bipartisan Policy Center hosted an event discussing the proposed SEC sustainability disclosure rule for public companies and its likely implications. Some observersin this case, the Competitive Enterprise Institute’s Senior Fellow Richard Morrisonwere surprised at how earnestly the matter was discussed, and how honestly the panelists discussed potential problems with the rule:

“The BPC’s Tim Doyle and former SEC Commissioner Troy Paredes discussed the substance of the rule and the concerns many agency observers have already begun to voice about it.

While I was expecting a very middle-of-the-road tone to BPC’s event that basically assumed the legitimacy of the rule, I was pleasantly surprised to hear both Doyle and Paredes highlight some significant concerns with it. The participants didn’t necessarily agree with all of these potential objections, but the fact they flagged them as reasonable concerns was reassuring….[H]ere are a few potential red flags that caught my attention:

  • The SEC may not have the statutory authority to enact this rule in the first place.
  • Enacting affirmative climate policy and expanding corporate disclosure to benefit investors are two different things; the SEC may inappropriately be trying to do both.
  • The agency’s itself admits that it has been “unable to reliably quantify” the cost-benefit impact of the rule.
  • The proposal suggests that basing new regulations on existing voluntary frameworks will reduce burdens, but they underestimate the costs and risks of moving from partial voluntary compliance to legally mandated disclosure.
  • The comment period (60 days) may be too short to properly evaluate a rule with such sweeping implications.
  • The rule moves from a “principles-based” approach to disclosure to a more prescriptive approach that is out of step with the SEC’s usual procedures.
  • Disclosing “scope 3” greenhouse gas emissions is vague and problematic; the promised “safe harbor” from fraud liability may be much less valuable that advertised.

These concerns are similar to the major issues that SEC Commissioner Hester Peirce flagged when she delivered her sternly worded dissent from the Commission’s majority vote to move forward with the proposal….

[F]ormer Commissioner Paredes reassured cynical listeners that the SEC does, in fact, take regulatory comment letters seriously and encouraged the audience to participate in the proceeding. You have until May 20 to do so.”

Senator Joe Manchin (D) argues rule will harm energy industry

Meanwhile, West Virginia Senator Joe Manchin (D) wrote a letter to the SEC Chairman Gary Gensler expressing his unease with the proposed rule, which he argues will harm the energy industry. Politico reported:

“In a letter Monday to SEC Chair Gary Gensler, Manchin questioned the need for the measures released for public comment last month. The West Virginia Democrat suggested that making firms measure and track greenhouse gas emissions could chill investment in fossil fuel businesses while imposing costs on all affected companies.

“[T]he proposed rule has the potential to run counter to the SEC’s long-standing commitment to its mission by adding undue burdens on companies, while simultaneously sending a signal of opposition to the all-of-the-above energy policy that is critical to our country right now,” wrote Manchin, who leads the Senate’s Energy and Natural Resources Committee….

Manchin’s criticism comes on the heels of his opposition to Sarah Bloom Raskin, President Joe Biden’s one-time pick to lead the Federal Reserve’s Wall Street oversight. Manchin effectively killed Raskin’s nomination over concerns about her calls for the financial system to insulate itself against climate change-driven shocks. He raised similar concerns in his critique of the SEC’s proposal.

“The most concerning piece of the proposed rule is what appears to be the targeting of our nation’s fossil fuel companies,” Manchin wrote. “Not only will these companies face heightened reporting requirements on account of their operations, but they will also be subjected to additional scrutiny for the Scope 3 emission disclosures of other companies that utilize their services and products.”…

Manchin claimed the rule would “seemingly politicize a process aimed at assessing the financial health and compliance of a public company.””

The SEC is not, however, a one-hit ESG wonder

In a piece published last Thursday, April 7, The National Law Review suggested that those who expect the SEC’s ESG efforts this year to be limited to its new disclosure rule haven’t, in their view, been paying attention. The SEC has additional plans as well:

“As part of the focus on ESG investment issues, the SEC made clear that it will scrutinize disclosures by registered investment advisors (“RIA”) that advertise ESG strategies or that allege that they take into consideration ESG criteria. The goal of the SEC’s efforts is to ensure that false, inaccurate or misleading statements are not made to the public about investment options. The SEC recognized that due to the current lack of uniformity in ESG investment metrics or factors, there is risk to investors due to firms using a wide array of ESG measuring techniques….

The SEC indicated that its focus in 2022 will be to ensure that RIAs are “(1) accurately disclosing their ESG investing approaches and have adopted and implemented policies, procedures, and practices designed to prevent violations of the federal securities laws in connection with their ESG-related disclosures, including review of their portfolio management processes and practices; (2) voting client securities in accordance with proxy voting policies and procedures and whether the votes align with their ESG-related disclosures and mandates; or (3) overstating or misrepresenting the ESG factors considered or incorporated into portfolio selection (e.g., greenwashing), such as in their performance advertising and marketing.”

The SEC’s examination priorities will place a heightened level of scrutiny on RIAs, many of which already use ESG statements in their marketing of investments.”

On Wall Street and in the private sector

Financial Times: “Punishing start to the year for ESG investment”

On April 8, The Financial Times carried a long piece noting the poor performance of ESG investments this calendar year, and also that many investors are not interested in what they see as a tired and poorly supported investment play:

“Reports are starting to show it was a punishing start to the year for the environmental, social and governance (ESG) investment sector. Cash into ESG funds fell to $75bn, the lowest level since the third quarter of 2020, according to a report published by the Institute of International Finance on Thursday. The inflows in March, $15bn, were at their weakest since March 2020. The paltry sum stemmed from concern about technology stocks, which were heavily favoured by ESG funds, the IIF said. And higher oil prices tempted investors to shelve their eco-enthusiasm for energy stocks.

The figures again raise the question: Did ESG peak in the first quarter of 2021?…

As questions around energy security take the main stage, there are whispers over whether ESG will be “cancelled”. And they’re coming from former ESG advocates themselves.

After 11 years in the world of pension funds, Anne Simpson entered the private capital world in January as Franklin Templeton’s global head of sustainability. Since then, she’s been beating a new drum: RIP to ESG.

“This marks the end of looking at financial markets through ESG,” Simpson said on Tuesday at a private capital conference in New York. “We cannot capture the true risks of what’s going on simply by this cute little acronym that has gotten popular.”

Privately, other ESG proponents have also begun to groan that the language of the financial movement has become mere fluff — and that Simpson is just taking on the mantle as spokesperson. They say it’s time to get serious, forget the acronyms, the myriad task forces and the soggy alphabet soup that the ESG world has become stuck in over the past years….

A realistic, just transition is going to require some trade-offs — a point that many are keen to dismiss, Simpson said. But, short-term trade-offs are needed to uphold investors’ long-term duty to stakeholders….

As even ESG’s backers start to turn on their own industry, many are wondering what the future of corporate sustainability will look like — especially in the face of a global crisis. Industry veterans have started to shout the answer: drop the aesthetics of ESG and start answering the hard questions.”

In the spotlight

CEOs, incentives, and ESG metrics

As has been noted occasionally in this section of this newsletter, one of the most significant management trends of the past several years is the move to ESG-based payment incentives. In Canada, the United States, and various spots in Europe, more and more companies are rewarding CEOs not for profits or stock performance but for meeting various ESG criteria in their management of the business. On April 11, The Irish Times reported that the trend has taken hold in Ireland as well:

“Three-quarters of top 20 companies on the Irish stock market are now linking executive bonuses in some way to environment, social and governance (ESG) targets, as international investors increasingly demand that publicly-quoted groups adopt these non-financial goals as part of remuneration packages.

The move, from an almost standstill position two years ago, has been accelerated in the latest slew of annual reports in recent months, as companies prepare to hold in-person annual general meetings (agms) for the first time since the onset of the Covid-19 pandemic….

Building materials giant CRH, whose chief executive Albert Manifold received an Iseq-record remuneration of €13.9 million last year, said in its annual report that it is proposing that 15 per cent of awards under its executive performance share programme for 2022 be tied to ESG targets. These include measures on driving the company towards carbon neutrality, inclusion and diversity and revenue from products “with enhanced sustainable attributes”.

Paddy Power owner Flutter said it included “extremely challenging” safer gambling targets for two of its four divisions in its management bonus plans last year and will widen these out to all divisions in 2022. The company is also “actively considering” using remuneration to “support and incentivise our wider ESG agenda”.

A fifth of Kerry Group’s executive long-term incentive plan since last year was tied to the company achieving milestones against its targets of reducing carbon emissions by 55 per cent and food waste by 50 per cent by the end of the decade….

European companies are ahead of US peers in terms of climate-related financial disclosures.

A quarter of US companies included some form of ESG metric as part of their executive incentives last year, according to Glass Lewis, a proxy advisory company that makes recommendations to institutional investors on corporate governance matters and agm votes.”



Economy and Society: SEC set to impose environmental disclosure rules

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.

The SEC is finally set to impose environmental disclosure rules

After nearly a year of waiting on what the SEC planned concerning disclosure rules, the Securities and Exchange Commission released its 510-page proposal called “The Enhancement and Standardization of Climate-Related Disclosures for Investors.” The new disclosure standards will have to be approved by a majority vote of Commissioners, but given that the panel is currently composed of three Democrats and one Republican (due to the retirement in January of Commissioner Elad Roisman), observers expect that passage is virtually guaranteed. The following summary from the Wall Street Journal details what investors should expect from the new rules:

“The proposal would force publicly traded companies to report greenhouse-gas emissions from their own operations as well as from the energy they consume, and to obtain independent certification of their estimates. In some cases, firms also would be required to report greenhouse-gas output of both their supply chains and consumers, known as Scope 3 emissions. Companies would have to include the information in SEC filings such as annual reports….

SEC commissioners, staff and advisers have spent months negotiating the contours of the proposal. Their challenge is to reconcile two conflicting goals: To make public as much information about climate change and associated risks as they can feasibly demand from companies, and to craft rules that withstand legal scrutiny in federal courts that have grown increasingly conservative. The Biden administration has deemed climate change a major risk to the financial system.

A sticking point in the deliberations were the circumstances in which the SEC would mandate disclosure of Scope 3 emissions, which is typically much larger than a company’s direct greenhouse-gas output. But companies struggle to accurately estimate the emissions from their suppliers, who may not offer their own calculations of greenhouse-gas output, or from customers who use their products and services.

The rules proposed Monday would allow firms a degree of flexibility. Disclosure of Scope 3 emissions would be mandatory only if output of those greenhouse gasses is material, or significant to investors, or if companies outline specific targets for them.

For instance, if a firm announces plans to reach “net-zero” emissions by a certain date, it would have to specify whether that goal includes all scopes of greenhouse-gas output. If so, disclosure of its Scope 3 emissions would have to be included in its SEC filings starting in 2025 for large firms. Companies wouldn’t, however, be required to obtain independent assurance that their Scope 3 estimates are accurate and wouldn’t be held liable for the estimates if they were provided in good faith.

An SEC official said most companies in the S&P 500 would likely have to report Scope 3 emissions.

Many regulators say the threats to companies from global warming fall into two buckets: First are the so-called physical risks posed to a company’s facilities and operations by the increased frequency of extreme weather events—droughts, floods, wildfires and hurricanes—in regions where such occurrences used to be rare. Second are “transition risks” resulting from efforts to both wean the economy off fossil fuels and prepare for the effects of climate change.

The SEC’s proposal would require publicly traded companies to include in their financial statements estimates of the impact of both sets of risks. Firms also would have to provide broader explanations about their long-term vulnerabilities to climate change and their processes for addressing those concerns.”


SEC Commissioner Peirce argues against new rules

The lone Republican on the Commission, Hester Peirce, delivered a critical response statement decrying both the real fiscal costs of compliance with the new rules and risks associated with expanding the SEC’s mandate so determinedly and, in her opinion, without a legal right to do so:

“Contrary to the hopes of the eager anticipators, the proposal will not bring consistency, comparability, and reliability to company climate disclosures.  The proposal, however, will undermine the existing regulatory framework that for many decades has undergirded consistent, comparable, and reliable company disclosures….

The proposal turns the disclosure regime on its head.  Current SEC disclosure mandates are intended to provide investors with an accurate picture of the company’s present and prospective performance through managers’ own eyes.  How are they thinking about the company?  What opportunities and risks do the board and managers see?  What are the material determinants of the company’s financial value?  The proposal, by contrast, tells corporate managers how regulators, doing the bidding of an array of non-investor stakeholders, expect them to run their companies.  It identifies a set of risks and opportunities—some perhaps real, others clearly theoretical—that managers should be considering and even suggests specific ways to mitigate those risks.  It forces investors to view companies through the eyes of a vocal set of stakeholders, for whom a company’s climate reputation is of equal or greater importance than a company’s financial performance.

As you have already heard, the proposal covers a lot of territory.  It establishes a disclosure framework based, in large part, on the Task Force on Climate-Related Financial Disclosures (“TCFD”) Framework and the Greenhouse Gas Protocol.  It requires disclosure of: climate-related risks; climate-related effects on strategy, business model, and outlook; board and management oversight of climate-related issues; processes for identifying, assessing, and managing climate risks; plans for transition; financial statement metrics related to climate; greenhouse gas (“GHG”) emissions; and climate targets and goals.  It establishes a safe harbor for Scope 3 disclosures and an attestation requirement for large companies’ Scope 1 and 2 disclosures. 

Some elements are missing, however, from this action-packed 534 pages:

–          A credible rationale for such a prescriptive framework when our existing disclosure requirements already capture material risks relating to climate change;

–          A materiality limitation;

–          A compelling explanation of how the proposal will generate comparable, consistent, and reliable disclosures;

–          An adequate statutory basis for the proposal;

–          A reasonable estimate of costs to companies; and

–          An honest reckoning with the consequences to investors, the economy, and this agency….

We are here laying the cornerstone of a new disclosure framework that will eventually rival our existing securities disclosure framework in magnitude and cost and probably outpace it in complexity.  The building project upon which we are embarking will consume our attention and enrich many, as any massive building project does.  The placard at the door of this hulking green structure will trumpet our revised mission: “protection of stakeholders, facilitating the growth of the climate-industrial complex, and fostering unfair, disorderly, and inefficient markets.”  This new edifice will cast a long shadow on investors, the economy, and this agency.”

On Wall Street and in the private sector

Does ESG distort markets?

In the past few days, the Financial Times has published several stories on ESG and what its writers argue is its distorting impact on all sorts of markets, from capital markets to business markets to talent markets.

First, the paper takes on ESG and what is argued is its propensity to “misprice dangers for investors” in credit markets:

“Last year, environmental, social and governance-linked (ESG) bond funds netted roughly $102bn, a record level of net inflows, according to data from research group EPFR. Searches for “ESG” in Google reached an all-time high in February 2022. And investors around the world advertised the sophisticated ESG standards that they apply across asset classes.

However, ESG products are still often treated separately from the core investment business and ratings are still not always a primary or decisive part of the credit risk assessment process. And, even when they are, there is no universal standard for what constitutes an ESG risk.

For example, in 2021, there were still upgrades in the credit ratings of coal companies, mortgage booms in flood zones, and schools embroiled in sexual assault cases that successfully raised money in the municipal bond market.

“It’s obvious to me that there are ESG risks that are not priced into fixed income markets,” warns Tom Graff, head of fixed income at Brown Advisory, the investment manager….

ESG risk is similarly underpriced in the municipal bond market, argues Erin Bigley, head of fixed income responsible investing at AllianceBernstein. Issuers that are providing educational or healthcare services, for example, may be assumed to embody ESG principles, even when they do not.

“We have found that there are issuers where our ESG scores have indicated risks that are not priced into the market,” says Bigley. “Even on the very high-quality side.””

Next, FT addresses the distortions being caused by “the boom in ESG ratings” and the confusion that it’s argued they often sow:

“There is a new gold rush under way in finance. It is not Wall Street bankers rushing for the latest big takeover deal or to list speculative acquisition vehicles.

It is the race to carve out market share in the very lucrative business of providing advice to investors on environmental, social and governance issues — particularly in the form of rating and ranking how companies fare on such factors.

It is being driven by the sheer weight of money flooding into ESG funds as issues such as climate change and sustainability move up the investor agenda. About $2.7tn of assets are now managed in more than 2,900 ESG funds, according to Morningstar. In the fourth quarter of last year alone, there were about $142.5bn of inflows into the sector.

A flourishing industry of ESG rating consultants has sprung up to assist these investors. Mike Zehetmayr, a specialist for EY on financial service risk and compliance technology, says his firm identified about 100 providers in October, double what it had found the year before….

However, there is an emerging problem in the diversity of approaches and methods used by providers, all of which have their own theoretical biases. With so many consultants and methods around, it can distract some investors and make it harder to draw meaning from aggregate ratings and rankings….

Meanwhile, the companies themselves are overwhelmed with data access requests not only from ESG data providers and shareholders but also from other stakeholders such as suppliers and customers, says EY’s Zehetmayr. And corporates are wary lest they release any inappropriate data, miring them in controversies.”

Finally, the paper takes on what it argues are the distortions introduced into talent markets by ESG:

““Competition to secure experts in sustainable investing has led to a battle for talent that is driving bidding contests by fund managers and pushing salaries up by half for top hires.

Head hunters and executives say competition is so intense that people are fielding multiple job offers, on top of concerted efforts by current employers to retain them.

“We have a big ESG team and we haven’t lost too many of them, but I think they are the stars of the asset management world right now. Once upon a time, it was the star equity manager; now it’s the star ESG professional,” said Mark Versey, chief executive of Aviva Investors.

Efforts to align investments with climate goals and social good have been building for a decade, but have taken off in the past few years. According to data from Morningstar, assets in sustainable funds grew 53 per cent year-on-year to $2.74tn in 2021.

Demand for people to manage these investments has exploded as a result, but the pool of qualified candidates is small. In a CFA Institute analysis of 10,000 investment jobs advertised on LinkedIn, 6 per cent required sustainability skills, yet less than 1 per cent of the 1m investment professional profiles included in the study listed these skills on their profiles.

In response, fund managers are not only poaching staff from rivals, they are also taking the unusual step of hiring from outside the industry as they struggle to fill vacancies.”

In the spotlight

Who is driving ESG?

In a piece published March 21, Institutional Investor magazine confirmedalbeit unwittinglythat one of the biggest arguments about ESG investing is potentially true. Many ESG opponentsincluding SEC Commissioner Hester Peircehave argued that ESG and sustainability investments and policies are being driven not by actual investors but by the investment professionals whose interests may or may not align perfectly with those of their clients. Institutional Investor cites research that suggests this may, indeed, be the case:

“For better or worse, institutional investors tend to rely on asset managers when it comes to environmental, social, and governance practices. Some managers are jumping on the opportunity to grow their businesses.

In a study from Chestnut Advisory Group, a boutique growth strategy consultant with a focus on asset managers and outsourced chief investment officers (OCIOs), CEO Amanda Tepper wrote that while ESG is a hot-button issue in the investment world, managers and asset owners are left to their own devices when it comes to crafting and implementing specific philosophies….

Sixty-three percent of institutional investor respondents say they’re “just getting started” in their overall ESG efforts, while only 13 percent of asset managers said the same. “That means [that institutional investors] are relying on whatever it is the asset managers are doing to address ESG. They’re not doing it themselves,” Tepper told Institutional Investor….”

The magazine goes on to note that this distinction is inevitable and also potentially provides certain benefits. 



Economy and Society: The Labor Department and 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., and around the world

The Labor Department continues to ponder its ESG role

The Biden administration Department of Labor made news last year when it overturned a Trump-era advisory statement to retirement-plan managers regarding ESG in ERISA (Employee Retirement Income Security Act)-covered plans. Now, it appears that the Labor Department is extending its inquiry into ESG and the role it might play in the investment products the Department regulates:

“The Department of Labor under the Biden administration has made environmental, social and governance investing a key focus during its first year-plus in office and is now seeking public input on a wide array of questions around climate change and retirement savings that could lead to further guidance or requirements, industry sources said.

Following a May 2021 executive order from President Joe Biden that directed federal agencies to assess and mitigate financial risks related to climate change, the Labor Department’s Employee Benefits Security Administration issued a request for information last month asking the public what it should do to “protect retirement savings and pensions from risks associated with changes in climate.”…

The executive order on which the RFI [request for information] is based calls on the Labor Department to identify actions it can take under the Employee Retirement Income Security Act of 1974 and the Federal Employees’ Retirement System Act of 1986 to mitigate climate risks.

The RFI includes 22 questions that delve into a range of topics, from data collection: should EBSA use Form 5500 annual returns/reports to collect data on climate-related financial risk to pension plans?; to lifetime income products: do any guaranteed lifetime income products (e.g., annuities) help individuals efficiently mitigate the effects of at least some climate-related financial risk?; to oversight of the $780.6 billion Thrift Savings Plan, Washington: what actions, if any, should the TSP’s asset managers take to incorporate climate-related financial risk, consistent with FERSA’s terms and their duty of prudence?”

This expanded inquiry has some concerned that the Labor Department may be pushing too far on the ESG question:

“Will Hansen, Arlington, Va.-based executive director of the Plan Sponsor Council of America and chief government affairs officer at the American Retirement Association, is concerned that the Labor Department could require plan sponsors to disclose their analysis of environmental factors on a Form 5500.

“Any attempt to make that information available on a publicly available form is then opening up the plan sponsors to future litigation,” Mr. Hansen said. “I do have concerns that mandating any sort of new information on a Form 5500 that could be subjective is going to create a whole new era of frivolous litigation against plan sponsors.””

Additionally, it appears that the Labor Department is taking aim with its RFI (request for information) at the government’s own retirement plan, the Thrift Savings Plan:

“The Labor Department in its RFI posed several questions on the Federal Employees’ Retirement System Act of 1986; the Federal Retirement Thrift Investment Board; and the Thrift Savings Plan, the retirement system for 6.5 million federal employees and members of the uniformed services.

Referencing a 2021 Government Accountability Office report that said the Thrift board, which administers the TSP, “has not taken steps to assess the risks to TSP’s investments from climate change as part of its process for evaluating investment options,” the Labor Department asked what data, if any, should the Thrift board collect on TSP’s exposure to climate-related financial risk. The DOL also asked what types of data, if any, should it collect from asset managers regarding climate-related financial risk.

Mr. Campbell noted that the Labor Department has oversight authority with respect to the TSP, but it does not have enforcement or policymaking authority.”


ESG goes to war, continued

The fallout from the Russia-Ukraine war continues to impact ESG investors and the very concept of ESG itself. On March 10, The Financial Times cited a European finance expert who argued that, in their words, ESG failed the test that Russia provided:

“Russia’s invasion of Ukraine has exposed the failings of asset managers and data analytics firms in their assessment of environmental, social and governance risks, according to a senior sustainable finance executive.

Vladimir Putin’s war in Ukraine has prompted some asset managers to stop new investments in Russia, while others have said they will divest from the country when they are able to do so.

However, Sasja Beslik, a sustainable finance expert, said the war showed that ESG investors “have failed” by not managing risks associated with Russian investments before the latest invasion.

Beslik said companies should have learned from Russia’s annexation of Crimea in 2014.

Most fund managers and ESG analytics firms “did nothing” eight years ago, said the former head of responsible investments at Nordea Asset Management.”

Meanwhile, other problems derived from ESG practices began to manifest in the face of the war, including some issues with the practice of using ESG in passive investments. Last Thursday, Bloomberg reported the following about two ESG giants, noting that ESG index funds added Russian holdings just before invasion:

“As Vladimir Putin amassed military forces on Ukraine’s borders in January, Vanguard Group and Northern Trust Corp. increased their holdings in Russia’s leading bank via some unlikely portfolios: their ESG funds, which invest with a mandate to minimize “environmental, social and governance” risks.

Big asset managers, including Blackrock Inc., State Street Corp. and Amundi SA, also hold shares via ESG funds in Sberbank PJSC, and in Russian oil companies Gazprom PJSC and Rosneft PJSC, according to data compiled by Bloomberg. In total, ESG funds held at least $8.3 billion in Russian assets before Putin invaded Ukraine.

The Northern Trust and Vanguard portfolios, which meet the official European standards for a sustainability label, are index funds, and the uptick in Sberbank holdings was probably tied to a rebalancing of stocks in the index or distribution of new money, not an active choice based on the company’s fundamentals. But the timing, just weeks before Russia’s invasion of Ukraine, and now the challenges of dumping Russian stocks point to one of the challenges of passive investing for ESG investors.

“Passive investing and sustainable investing aren’t good bedfellows,” said Jack Nelson, portfolio manager at Stewart Investors’ Sustainable Funds Group. “If you’re investing in an active fund, you can make a judgment. If you’re doing it passively, you’re switching into a robot.”…

Once limited to broad market portfolios like the S&P 500, the explosion of niche index products has made it possible — and cost-effective — for ESG investors to adopt the same strategy. ESG indexes provided by firms like FTSE Russell and MSCI Inc., and the funds that track them, favor companies with high ESG ratings, underweight those that score poorly, and screen for additional problem sectors such as weapons, coal and tobacco. 

This means that even stocks with traditionally low ESG credentials, such as fossil-fuel companies or autocratic state-owned banks, find their way into ESG-labeled funds. As the fund grows, or the poorly rated companies do, those positions increase. 

Sustainable funds, including ESG offerings, collectively oversee about $2.7 trillion worth of assets. But as the broad category has grown in its appeal, the industry has come under fire for failing to match its rhetoric with changes in the real economy, and remains divided on its purpose and methods. The death toll in Ukraine has surfaced those divisions again and with new urgency.”

Additionally, because of the scrutiny applied to ESG providers with respect to Russia, other investments are being scrutinized by various outlets. Here, for example, Bloomberg notes ESG connections to Myanmar and its ongoing internal struggles:

“Hundreds of ESG funds run by some of the world’s biggest money managers have a combined $13.4 billion stake in companies that supply weapons and technology to the Myanmar military, according to a report.

The funds, which say they take into account environmental, social and governance risks, have investments across 33 companies that the United Nations and two advocacy groups say provided weapons, communications and technologies to the military, Inclusive Development International and ALTSEAN-Burma said in a report released Wednesday.

The report comes as investors, particularly in the ESG universe, face new questions about how they should approach armed conflicts. Roughly 14% of sustainable funds globally held Russian assets before the war began, an allocation that now looks questionable on principle and in practice….

David Pred, executive director of Inclusive Development International, said there’s no place for arms manufacturers in ESG funds, “full stop.” 

“And certainly not companies that supply regimes that are using those weapons on innocent civilians and for non-defensive purposes,” he said. “For us, it is about the human impact of the company and its product, there’s just no reasonable argument for arms makers to be in these funds.””

In the spotlight

Elon Musk pushback against ESG

While some providers (and ratings services) love Tesla for its electric vehicles, others shy away from the company because of its perceived poor history of reporting ESG data and its eccentric CEO Elon Musk. Now, Musk is pushing back:

“Tesla and SpaceX CEO Elon Musk has said corporate rules designed to guide ethical investing have been ‘twisted to insanity’ and should be ‘deleted if not fixed.’

Elon weighed into a debate on whether ethical rules should be updated to allow for investment in defensive weapons amid Russia’s invasion of Ukraine. 

Musk was criticizing ESG, a European Union-sponsored checklist of ‘environmental, social and governance’ criteria companies are supposed to keep in mind when making decisions about what to invest in. Along with entrepreneur and software engineer Marc Andreessen, he mocked the ‘ethical’ rules on Twitter after the suggestion they could now be changed to allow for investment in weapons used against Russia.

Under the European Green Deal, the EU provides a list of what sectors are considered ‘green’ or ‘ESG.’

Normally, companies exclude investing in firearms to win an ‘ESG’ stamp, but US banks are now suggesting the EU could classify the defense sector as an ethical investment – as long as it was used against Putin.

Andreessen tweeted out a screenshot on Tuesday of a Reuters article which referenced a note from analysts at Citigroup.

Citigroup said defense is ‘likely to be increasingly seen as a necessity that facilitates ESG as an enterprise, as well as maintaining peace, stability and other social goods’ following Russia’s invasion of Ukraine. 

On the other hand, energy companies seen to be supporting Russia will be considered unethical under the same framework.

Andreessen said: ‘The plan: ESG funds will invest in defense companies to make the weapons required to fight wars with hostile regimes we buy energy from, because ESG funds won’t invest in energy companies.’

Musk tweeted in response that ESG rules were being ‘twisted to insanity’, condemning the criteria which has been pushed by both the EU and the Biden administration.

They should be ‘deleted if not fixed,’ he added.”



Economy and Society: Arizona AG argues ESG may be antitrust violation

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.

ESG goes to war, continued

The New York Times reported last week that some ESG investors are keen to change the way ESG considers some seemingly long-settled issues; two CITI analysts argue that social responsibility means “putting your investment money into the stocks of companies that make weapons”:

“Russia’s invasion of Ukraine has upset the world order. It could conceivably alter the way some people think about investing, too.

At least that’s the view of two analysts with Citi, who argue that the height of social responsibility at this moment requires putting your investment money into the stocks of companies that make weapons.

“Defending the values of liberal democracies and creating a deterrent, which preserves peace and global stability,” is so important that weapons makers should be included in funds that carry an E.S.G., or “environmental, social and governance,” label, the two analysts, Charles J. Armitage and Samuel Burgess, wrote.

That labeling seems utterly bizarre for some E.S.G. investors, however.

It certainly does to Andrew Behar, the chief executive of As You Sow, an advocacy and research group that frequently files shareholder proxy proposals on E.S.G. issues.

“We don’t think that you should have any weapons systems in an E.S.G. fund,” he said. The group provides an online tool on the web site Weapon Free Funds that enables investors to screen mutual funds and exchange-traded funds on this issue.

Leslie Samuelrich, president of the Green Century Funds, which was founded by nonprofit groups, including the California Public Interest Research Group and the Citizen Lobby of New Jersey, was appalled by the notion.

“This is absurd,” she said. “It feels very opportunistic and shallow.” She added that Ukraine needed to be defended. “I’m part Ukrainian,” she said. “Of course, they need weapons.”

But she said that had nothing to do with investing in funds devoted to socially responsible investing. “Those who argue that weapons belong in a sustainable portfolio are capitalizing on the horrific attack,” she said. “Excluding military and civilian firearms has been a long-held screen by authentic responsible investors.”

Mr. Armitage and Mr. Burgess, the Citi analysts, make a vigorous counterargument. Essentially, it boils down to this: Without strong militaries capable of “defending the values of liberal democracies and creating a deterrent” against geopolitical adversaries like Russia and China, there can’t be much progress on other pressing global issues.”


Financial Times: “Putin’s war on Ukraine exposes the folly of ESG”

In London’s Sunday Times newspaper, associate editor Oliver Shaw argues that, in his view, the Russian war in Ukraine “exposes the folly of ESG” investing as a whole:

“Putin’s invasion of Ukraine has transformed reality in Europe and blown away the cosy assumptions on which it had operated since the fall of the Berlin Wall. The investment industry has some hard questions to answer in this bleak new light. They say the first casualty of war is truth; in finance, it has been the ESG movement’s credibility.

For some time, the monomaniacal focus of certain investors on compliance with environmental, social and governance metrics has been proving counterproductive. In some cases it has even begun to undermine the tenets of democracy, as decisions that should be made by governments are instead taken by fund managers based on external pressure from campaigners. Putin’s thinly veiled threats of nuclear war on Nato expose the dangerous folly of what has become a fully fledged industry.

The clearest examples of this rude awakening are in defence and energy.

Arms companies have traded on tobacco-type multiples in recent years as they have been shunned by ever more banks and investors. Ironically, the charge has been led by institutions in Germany and the Nordics, now feeling the heat of Putin’s ambitions. Last year, the state-owned Bayerische Landesbank stopped doing business with companies sourcing more than 20 per cent of their revenues from munitions, ruling out loans to national champions such as Airbus Defence and Space. Swedish banks have been doing similar things.

Most seriously, some investors have started ditching companies involved in nuclear weapons, on the basis that nukes are nasty and shouldn’t be funded. Last November, for example, the Norwegian pension fund KLP sold $147 million of shares in 14 groups including Babcock and Rolls-Royce, because their work touched on “controversial” weapons.

It is difficult to put this cowardice and idiocy into words. KLP and its clients are presumably happier in a world where Russia and North Korea have to think twice before starting a nuclear war. The 14 companies’ customers are sovereign states whose electorates have voted to maintain a nuclear deterrent. And yet, for the sake of a press release, KLP took away a sliver of their capital.

On its own this would be meaningless, but multiplied many times it raises the cost of operating for defence companies. And multiplied many times it is. Robert Stallard, an analyst at consultancy Vertical Research Partners, told the Financial Times that the sector had been “blacklisted by many European investors — and even if defence companies replanted the Amazon, they would still be on the blacklist”.

Germany’s decision to address years of anaemic defence spending with a €100 billion fund flips the narrative. It has become painfully clear that in an unstable era, hard power is not a “nice to have”. It is perfectly ethical for states to reinforce themselves against tyranny.

The situation is more advanced in energy, where financial backers have — more understandably — been trying to push companies to phase out fossil fuels….”


Debates about whether Russian investments mean potential ESG black mark 

Over at Bloomberg, three reporters make the case that, for some investors, simply having been invested in or having done business in Russia is now a potential black mark in the ESG world:

“An investing movement that promotes itself as a protector of people and the planet has somehow found itself providing capital to the autocratic regime behind Europe’s worst military conflict since World War II.

Funds labeled ESG — an acronym that denotes a commitment to environmental, social and governance interests — own shares of Russia’s state-backed energy behemoths Gazprom PJSC and Rosneft PJSC, as well as its biggest lender Sberbank PJSC. The funds also hold Russian government bonds, providing money that ultimately helped pad the coffers of President Vladimir Putin’s autocracy.

Paul Clements-Hunt, who led a group that coined the term ESG back in the mid-2000s, said it’s now clear that “ESG investors have failed.”

“ESG is being used ineffectively,” said Clements-Hunt, founder of advisory firm Blended Capital Group. Investors should be measuring risks across entire systems not just corporate risks, but instead, “the obsession with easy money-making is overriding everything,” he said.

Russia’s invasion of Ukraine is rapidly laying bare unexpected exposure in much of the ESG universe. Industry researchers at Morningstar Inc. estimate that 14% of sustainable funds globally held Russian assets right before the war. That’s as sustainable investing morphs into a $40 trillion industry embraced by the financial behemoths of Wall Street, where funds that track benchmark indexes are ubiquitous.”

In the process of reporting on the ESG aspects of the conflict, the Bloomberg reporters stumble on one of the key rifts in the ESG world:

“But those representing the more mainstream side of ESG investing argue the term is widely misunderstood. It is, in fact, just a screening tool to protect investments from environmental, social and governance risks, according to some of the biggest firms working with and analyzing ESG data.

“There are still people who inappropriately conflate sustainability and ethics,” said Hortense Bioy, Morningstar’s global head of sustainability research. “Sustainable and ESG funds aren’t the same as ethical funds.”

For that reason, ESG funds can buy everything from makers of conventional weapons to producers of fossil fuels. The world’s biggest ESG-focused exchange-traded fund — BlackRock Inc.’s $23.7 billion iShares ESG Aware MSCI USA — holds shares of companies ranging from Raytheon Technologies Corp. to Exxon Mobil Corp. 

Bioy said ESG portfolio managers, “just like any other managers holding Russian assets or not, will be evaluating the situation and trying to understand the broader implications of the conflict and impact on their portfolios.” The war “has broader implications for ESG investors than just ethical ones,” she said.”


Will war put ESG on the backburner?

Finally, over at MarketWatch, Debbie Carlson writes that oil and gas are the new kings and that the war in Ukraine means that ESG will be put on the backburner:

“There’s nothing like sticker shock to make consumers rethink priorities, and interest in climate action may be one of those.

Assets under management in environmental, social and governance (ESG) exchange traded funds and mutual funds have grown sharply, coinciding with greater public demands to mitigate climate change.

But near-term crises can overshadow long-term threats, and Russia’s war against Ukraine kicked concerns about climate change off headlines, replaced by oil and gas shocks, and geopolitical worries.

Crude oil prices have topped $100 a barrel and retail gasoline prices jumped 20% in a week, leading President Biden to announce a release of oil from the Strategic Petroleum Reserve to take the edge off prices. European consumers will pay astronomical prices for energy since they are much more dependent on Russian oil supplies.  

Fossil-fuel proponents are using the high prices to call for greater U.S. hydrocarbon production to ease prices on consumers in the short-term and secure domestic energy independence in the long-term. In Europe, Germany proposed Sunday to build two liquefied natural gas terminals to import U.S. natural gas, while also calling to speed up its transition to all renewable energy by 2035. 

The acute need for energy supplies now has climate concerns taking a back seat, say several sustainable fund managers.

“I think probably the ‘drill, baby, drill’ mentality is back in the U.S.,” says Tony Tursich, co-portfolio manager at Calamos Global Sustainable Equities Fund.”

In the states

Is ESG an antitrust violation?

Arizona attorney general Mark Brnovich wrote an op-ed, published by the Wall Street Journal, suggesting that ESG investing may amount to an antitrust issue that his state and others might pursue. He wrote:

“The biggest antitrust violation in history may be in plain sight. Wall Street banks and money managers are bragging about their coordinated efforts to choke off investment in energy. It’s nearly impossible to raise money to explore for oil and gas right now, and we may all be experiencing rising energy costs because of this market manipulation. Russian and Chinese aggression overseas also is exacerbating inflation.

Here’s what is happening: The biggest banks and money managers seek to implement a political agenda, such as compliance with the Paris Climate Accord. Then a group mobilizes: Climate Action 100+, for example, comprised of hundreds of big banks and money managers that together manage $60 trillion. The group uses its coordinated influence to compel companies to shut down coal and natural-gas plants. The activism can include pushing climate goals at shareholder meetings and voting against directors and proposals that don’t comport with the agenda, even if other decisions may benefit investors.

Firms report their plan to carry out these activities back to Climate Action 100+ headquarters. This helps ensure maximum coordinated effort toward the common goal of overhauling the energy industry. Money managers wield influence over these companies because they represent investors who are shareholders, often through their 401(k)s or pension plans. In other words, your retirement funds are likely helping facilitate these political campaigns to advance far-left policy goals, with consumers bearing the costs of increased energy prices.”