In May, Elon Musk went against an investment model known as ESG, which stands for “environmental, social and governance” principles.
“ESG is a scam,” Musk, chief executive officer of electric car maker Tesla, said in a tweet. “It has been weaponized by rogue social justice fighters.”
Musk is upset that Tesla has been dropped from the Standard & Poor’s ESG index while oil company Exxon Mobil stays on. But his complaint is tied to a campaign waged by political conservatives against the ESG, or, as they are sometimes described, “awakened capitalism.”
Climate risk is investment risk.
– BlackRock CEO Larry Fink, 2020
The Red States have been implementing policies aimed at depriving investment managers of business operations whose strategies appear to promote environmental or social activism goals – say by avoiding invest in companies that produce weapons or fossil fuels or in companies with questionable social practices.
Former Vice President Mike Pence has put the fight against the heart and front of the ESG in the search for the GOP presidential nomination in 2024. During a speech in Houston in May, Pence attacked the Biden administration. for implementing “new ESG regulations that allow leftist extremists to destroy American energy producers from within”.
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Pence’s words were certainly well received in Houston, as ESG investments are often aimed at the oil and gas industry and the fossil fuel economy. For example, the US Legislative Exchange Council, a right-wing organization partly funded by the Koch network that derives most of its wealth from fossil fuels, has pushed for a model anti-ESG law. .
A Texas law passed last year that prohibits state agencies from investing in or doing business with financial companies is deemed to “boycott” fossil fuel companies by “taking any action … to punish, cause economic harm or restrict commercial relations” with such companies.
Texas state editor Glenn Hegar began a boycott of companies by asking them to disclose their policies on global warming.
In June, West Virginia State Treasurer Riley Moore notified six leading Wall Street firms by letter that they had been temporarily found boycotting fossil fuel companies, possibly leaving them inadequate. conditions for receiving state contracts. The companies are BlackRock, Goldman Sachs, JPMorgan Chase, Wells Fargo, US Bancorp and Morgan Stanley.
Goldman Sachs and US Bancorp declined my request for comment. BlackRock has not commented publicly. JPMorgan told me it hasn’t responded to Moore yet; The deadline for reply is July 10. The other two did not respond.
BlackRock, one of the largest investment management firms in the world, has been a particular target of the anti-ESG mob. Part of that is because BlackRock CEO Larry Fink warned early on the investment impact of global warming in his annual letter to the company’s CEOs in 2020. “Risks. climate is an investment risk,” Fink later wrote.
This year, Fink noted that “every company and every industry will be transformed by transitioning to a net world” (meaning reducing greenhouse gas emissions to zero). He added, “the question is, will you lead, or will you be led?”
In response, West Virginia’s Moore announced that his state would withdraw about $20 million in funds from BlackRock, out of $8 billion invested in the Treasury.
However, the states’ objections do not quite match the weight of the oil and gas industry within their borders.
According to the American Petroleum Institute, you won’t see laws penalizing banks or investment funds for oil companies shunning out of California, which ranks second nationally for most measures of oil and gas economic activity. , according to the American Petroleum Institute, or Pennsylvania (third through fifth, depending on the index), or the other top ten states like New York, New Jersey, and Illinois.
You see them in red states like Texas, Kentucky, and Tennessee. Texas leads the nation in oil and gas activity, but the other two states aren’t even in the top 15.
In Tennessee, which has enacted a law barring the state treasurer from doing business with a financial institution that refuses to fund companies in the fossil fuel industry, the oil and gas industry accounts for about 4% of jobs in the state.
It is a sign that the ESG has become a rallying cry for purpose in partisan culture wars. For Republicans and the right, the ESG is the new “critical racial theory.” It’s a silly enough concept to be made to seem offensive or evil.
The term itself can be weaponized as a catchphrase to strengthen the establishment; Insofar as the establishment doesn’t know what it means, the better.
It should be noted that state-level attacks on financial companies for the sake of advocating ESG issues, especially state laws aimed at protecting the oil and gas industry, can be costly.
According to a study by Daniel Garrett from the University of Pennsylvania and Ivan Ivanov of the Federal Reserve, the Texas Law of 2021 prohibits self-governing cities from dealing with banks with pro-ESG policies. .
They estimate that the interest cost to Texas municipalities on a $32 billion loan in the first eight months after enactment is as high as $532 million.
Conservative attacks on the ESG are not new. The Trump administration took aim at the concept in 2020, as the Labor Department tried to limit the ability of retirement account managers to provide account holders with options for sustainable investments or socially responsible. Another Trump initiative aims to make it harder for those managers to vote in favor of shareholder resolutions that advance ESG goals.
The Biden administration dropped those rules in March.
This is merely another iteration of the campaign against the “awakening,” which seems to be at the core of what some Republican offices and aspirants have to offer voters.
A prime example is Florida Governor Ron DeSantis, who made the Walt Disney Company, one of his state’s largest employers, the target of his theatrical rage because it was seen as the criticized Florida’s so-called “No Gay Saying” law, which discourages teaching in public schools about gender issues.
It’s easy to see ESG as a left-wing, radical, or fringe policy that threatens responsible, sane business managers – never mind that it’s spread through Wall Street faster than most concepts. another in recent memory.
With ESG investments now accounting for more than $20 trillion in assets under management in the US alone, according to Bloomberg Intelligence, or more than a third of all assets, ESG is now unmistakably mainstream.
For all that, ESG can be a confusing concept in practice. Deutsche Bank has been investigated by German authorities and Goldman Sachs by the Securities and Exchange Commission for allegedly labeling “ESG” on investment funds that may not be particularly strict about focusing on ESG companies. legal, a practice sometimes described as “cleansing”.
The SEC has proposed rules to “promote consistent, comparable and reliable information to investors regarding the fund’ and a mix of advisors regarding environmental and social factors. association and governance.’ Among other rules, the agency said, “Funds that focus on considering environmental factors will generally be required to disclose greenhouse gas emissions associated with portfolio investments.” their private.”
The SEC investigations and recommendations imply that investment firms are trying to cater to the public’s enthusiasm for socially responsible investing without having to work as hard to generate favorable returns. portfolio meets the criteria.
Determining what even qualifies as an ESG investment, however, is not easy. The investment world is engaged in a heated debate about whether fossil fuel companies should be excluded from the ESG portfolio entirely, or whether investing in some are trying to switch from petroleum to renewable energy but have not completed the journey is right.
Environmental and social issues often go hand in hand. Musk’s complaint about the S&P ESG index overlooked the reason Tesla was removed from the list: According to S&P, it was because of problems related to alleged racial discrimination at Tesla and questions about safety. of Tesla’s Autopilot driver assistance features.
Exxon remains on the list as an artifact of S&P’s complex industry-review process for the index, but does not represent S&P’s assessment that the oil company is a leader in environmental responsibility. school.
Not all fossil fuel companies have responded to ESG initiatives with uncompromising hostility – despite Pence’s assertion during a Houston speech that three elected directors joined Exxon Mobil’s board of directors on the ESG platform last year “is now working to sabotage the company from within”.
In fact, Exxon Mobil has taken steps to appease ESG investors – especially since the three directors elected last year in a campaign sponsored by sustainable investment firm Engine No. re-elected this year. In its year-long retrospective, Engine #1 reported that since the initial election “Exxon has taken numerous actions to reduce emissions and begin laying the groundwork for a low-carbon business strategy.” Feasibility.”
These initiatives can be seen as weakening fossil fuel companies only if it is believed that the oil and gas industry will not be affected by the consequences of global warming and transition. alternative energy of the developed world in the infinite future. As ESG investors understand, that’s not the way to bet.
https://www.latimes.com/business/story/2022-07-01/conservative-attack-on-esg-investing Hiltzik: For Republicans, ESG is the new critical race theory