Republicans in state capitals across the country are targeting an investment concept known as environmental, social and corporate governance criteria, or ESG for short.
Describe these investment criteria as “woke up” and “misguided activism”, GOP officials argue that by considering these factors when making investment decisions, financial institutions are putting ideology ahead of money-making. Experts on these investment criteria say it’s the other way around, and that Republicans are losing money for their constituents by unnecessarily restricting the options of the financial institutions the state does business with.
Nineteen Republican Attorneys General wrote a letter to BlackRock, the world’s largest wealth manager, managing $10 trillion, corresponding Insider, in August. The letter accuses BlackRock of making decisions based on its alleged political agenda rather than the welfare of state pensions.
“A governance engagement strategy that focuses primarily on BlackRock’s climate agenda necessarily overlays ESG factors on the core index portfolios that make up a significant portion of many government pension funds,” the attorneys general said in their letter. They added: “BlackRock’s commitment to the financial return on state pensions should be undivided.”
Attorneys general in Arizona, Arkansas, Georgia, Idaho, Indiana, Kansas, Louisiana, Missouri, Montana, Nebraska and Ohio were among those who signed the Aug. 4 letter.
In his answerCalling the attorneys general’s statements inaccurate, BlackRock wrote: “We are concerned by the emerging trend of policy initiatives that sacrifice pension plans’ access to quality investments – thereby jeopardizing retirees’ financial returns.”
The same group of attorneys general, along with Virginia’s AG, have joined one detection The Missouri Attorney General is investigating whether Morningstar, a financial services company, violated consumer protection laws when evaluating company performance on ESG issues.
Republican Governor of Florida Ron DeSantis has also addressed the issue. On August 23 he successfully pushed through a ban on taking ESG criteria into account when investing in state pension funds.
DeSantis said of his victory over ESG investing: “We reaffirm the authority of Republican governance over corporate dominance, and we prioritize the financial security of the people of Florida over whimsical notions of a utopian future.”
But Witold Henisz, vice dean and faculty director of the ESG initiative at the University of Pennsylvania’s Wharton School, said such policy developments are bad news for taxpayers in those states.
“When states say they can’t do business with financial institutions that take climate risk and other ESG factors into account, that means they don’t do business with the largest and most advanced financial institutions in the US and the world, which means they have to issue bonds and interact with smaller financial institutions, which have fewer economies of scale and scope and therefore charge higher fees,” he said.
Corresponding Deloitte, by 2024, half of all professionally managed assets worldwide will be invested in companies that take ESG issues into account. BlackRock has seven of the top 10 ESG funds, to Barronsand its ESG-integrated portfolios comprised $2.9 trillion in assets, according to its Sustainability Report 2020.
A 2021 opinion poll on Responsible Investing by Nuveen, a wealth manager, found that 75% of employees totally or somewhat agreed that employers who offer ESG and responsible investment options care about their retirement outcomes.
The Securities and Exchange Commission Resource for Investors notes that the environmental component of such investment strategies “may focus on a company’s impact on the environment or the risks and opportunities associated with the impact of climate change on the company, its business and its industry.” The social criteria can relate to human rights issues or labor rights, and governance has to do with the behavior of the company.
Alison Taylor, executive director of Ethical Systems at New York University, said that climate issues, which Republicans are most critical of when discussing ESG investing, are actually one of the better factors to consider when making those investment decisions.
“Depending on the issue, there is more or less a ‘business case,’ more or less evidence that that issue will affect the organization’s bottom line,” she said. “Now that everyone has landed is climate change. I think this is problematic for the Republican position because there are some of these issues where there is mixed evidence or there isn’t as much evidence that the issue will have a dramatic impact on the bottom line over the long term. But climate is certainly an issue where there is a lot of evidence that if you don’t manage climate risk now, there will be adverse long-term financial implications.”
North Carolina and Texas politicians have also spoken out about ESG investing. Texas Comptroller Glenn Hegar (R) forbidden several financial companies not having contracts with its state, meaning Texas pension funds can no longer work with big companies like BlackRock, UBS Group AG and Credit Suisse Group AG. Hegar said he decided to focus on banning companies that “boycott energy companies” in his Aug. 24 announcement of the decision.
Hegar said government agencies must notify his office no later than 30 days after viewing the banned companies list of financial firms in which they have interests. They must also “submit to the Speaker of each House of the Legislature and the Attorney General an annual report identifying all securities sold, redeemed, disposed of or retired under the Texas Government Code.”
Texas has been investing in ESG for some time. Wayne Christian, a Republican on the Texas Railroad Commission, which regulates oil and gas, criticized ESG in January 2021 as potentially damaging to energy jobs. corresponding Bloomberg. In May 2021, he said the SEC should protect oil and gas companies from ESG investing, according to the outlet reported. The following month, Texas Gov. Greg Abbott (R) signed legislation that says the state’s pension funds must divest, sell, retire and buy back companies he characterizes as boycotting energy companies.
North Carolina State Treasurer Dale Folwell, who manages the state’s pension fund, has also criticized ESG investing said top1000funds.com that the pension fund will take a different approach to environmental factors by having shareholders vote through fund managers rather than through proxy voting.
“We do not want our authority to be used to promote policies unrelated to our fiduciary responsibilities; Using these assets and voting on these assets in a way that is contrary to our fiduciary responsibility, we will no longer do so,” said Folwell, who has done so criticized for his finances decisions in the past.
Taylor said she sees Republican efforts to attack ESG investing as similar to the Republican focus Critical Race Theory in the sense that policymakers took a concept that many Americans were unfamiliar with and used it to their advantage to achieve specific policy goals.
“You can think of ESG as an attempt to bring critical race theory into the private sector,” she said.
Taylor added, “This stuff is shaky and technical and it’s really controversial and a lot of people use the term in different ways. It’s exploiting a bit of a misconception, and I think they’re hoping that people will say, ‘Well, Disney really overdid it.'”