A Banner Year for the Fight against ESG

By Derek A. Kreifels

Thursday, February 02, 2023

 

It was time to say, “No more.” Last year, the State Financial Officers Foundation and its members decided to take on the insertion of environmental, social, and governance (ESG) investing into state finance. The challenge was not only to raise awareness of what had been an arcane subject, but to take the lead with substantive action in pushing back against those who would weaponize Americans’ pension and investment dollars to advance a political agenda.

 

West Virginia treasurer Riley Moore led the charge by taking on behemoth investment firm BlackRock and its CEO Larry Fink, who had become synonymous with ESG. It’s worth noting that Fink has criticized and undermined traditional American energy production and agriculture (through increased cost of natural gas and fertilizer, and burdensome regulations) while pushing radical, left-wing social policies, even as BlackRock poured billions of investors’ dollars into China — a nation infamous both for the pollution for which it is responsible and for its appalling human-rights record.

 

This time last year, Moore announced that his state would be divesting from BlackRock and other financial institutions that boycott fossil-fuel projects. “We are not going to let them play games with our money,” Moore said. “And if they want to continue to play stupid games, then they can win stupid prizes like losing contracts with the state of West Virginia.” Seven additional states have followed suit so far, bringing the divestment total to more than $5 billion.

 

Soon thereafter, additional state treasurers, auditors, and other state financial officers likewise took action to deal with the issues raised by ESG. Idaho treasurer Julie Ellsworth, for example, shepherded legislation to mandate that all proxy votes made on behalf of Idaho taxpayers be fully transparent and that they be displayed on the state website. Missouri treasurer Scott Fitzpatrick asked the state pension board to remove proxy-voting power from activist asset managers. Several state treasurers sent letters to S&P pushing back against its use of ESG factors when determining a state’s credit rating.

 

Members have also acted in concert; 23 states sent a comment letter to the U.S. Department of Labor requesting information on possible agency actions to “protect life savings and pensions from threats of climate-related financial risk.” And 23 states issued a comment letter to the Securities and Exchange Commission calling out rule changes that supported “irrational climate exceptionalism.” Morningstar received a letter from 18 states complaining that their ratings for certain companies appeared to reflect an anti-Israel bias by incorporating criteria from the boycott, divestment, and sanctions (BDS) movement.

 

In May, Kentucky treasurer Allison Ball became the first state treasurer in the country to ask for an official legal opinion from her state’s attorney general on whether factors such as “stakeholder capitalism” could be used in making investment decisions involving public pension funds. Attorney General Daniel Cameron responded that Kentucky law is clear on ESG: Investment managers “must be single-minded in their motivation and actions” and their decisions must be “solely in the interest of the members and beneficiaries [and for] the exclusive purpose of providing benefits to members and beneficiaries.”

 

In October, Missouri attorney general Eric Schmitt led 19 state attorneys general in announcing a probe of six major banks which focused on their involvement with the U.N.’s “Net-Zero Banking Alliance,” an organizing body for global climate activism. The alliance’s goal is “aligning their lending and investment portfolios with net-zero emissions” by 2050, essentially an effort to restrict the flow of capital to the fossil-fuel industry.

 

Momentum continues to build. Florida governor Ron DeSantis approved measures to protect the Sunshine State’s investments from ESG, ensuring that all investment decisions would focus solely on economic return.

 

Already, there are signs that the ESG pushback is starting to work. When West Virginia warned six major financial institutions — Goldman Sachs, U.S. Bancorp, Morgan Stanley, Wells Fargo, JPMorgan, and BlackRock — against entering into state contracts for policies limiting commercial engagement and lending with the fossil-fuel industry, U.S. Bancorp saw the light and backed down from barring fossil-fuel lending. Because of that, U.S. Bancorp was omitted from the ban list when it was finalized last July. In December, investment giant Vanguard announced its withdrawal from the Net Zero Asset Managers (NZAM) initiative.

 

It’s front-page news today, but not that long ago, few Americans had ever heard of ESG. The job is far from finished, however. SFOF is continuing to push back by working to increase the public’s awareness about ESG directly — how it harms their families, their finances, and their businesses, and how it conflicts with their personal values. We cannot rest until we have regained control of our finances from those who would hijack them for political purposes.