A panel led by two conservative Louisiana legislators is working to understand and ultimately eliminate the use of progressive corporate principles known as ESG that often advocate sustainable energy and socially responsible ways of doing business. Is.
The acronym – which stands for environmental, social and corporate governance – is mainly used in the investment and insurance sectors, and has become the latest target of politicians who see it as a threat to the fossil fuel industry. Huh.
Rep. Valerie Hodges, R-Denham Springs, sponsored House Resolution 246 in this year’s legislative session. It constituted the Environmental, Social and Governance Criteria Study Group.
The study group held its first meeting last week, during which chairman Rep. Larry Freeman, R-Ebitda Springs, said its goal is to understand what ESG is and “hopefully to use it in all of our sectors and industries in our state of Louisiana.” will end.”
On the insurance side, ESG is a set of metrics used to rate a company’s exposure to risk factors that fall under the categories of environmental, social and corporate governance risks.
According to Chris Fiedler of the CFA Institute, one example is an insurance underwriter assessing the environmental risk of a company in a flood-prone area. The CFA Institute is cited in Hodges’ proposal.
A social factor may include whether a company exploits cheap foreign labor, and a governance factor may include whether the company’s executive board has a conflict of interest. Fiedler said the “G” in ESG is the least controversial category of the three.
In the financial sector, some banks offer rebates to corporate borrowers who meet various ESG targets. Washington Post,
Similarly, investors can use ESG factors to decide which companies they want to invest in as a way to make a profit while impacting society at the same time. It’s called impact investing, Fiedler said. Investors can use their own personal ESG criteria and select companies or invest in pre-packaged ESG funds offered by brokerage firms that have already assessed the companies.
Fidler said there is no universally accepted set of standards defining what can be included under ESG categories. For example, some firms have “sustainable” ESG funds that include nuclear power companies, while others exclude nuclear investments from their portfolios, he said.
ESG investing can span the political spectrum, although usually under a different name. Some brokerages use the concept of impact investing to create funds that they can market to conservatives. For example, Point Bridge Capital sells a MAGA ETF that invests in 150 Republican-friendly companies.
“ESG investing encompasses a broad number of techniques and motivations,” Fidler said. “Investors may incorporate religious or moral values to avoid companies with which they do not agree.”
In a phone interview Monday, Hodges said he is concerned that ESG is forcing progressive policies on everyday Americans and could harm Louisiana’s oil and gas industry.
“It’s a subjective political score, really, what it is,” Hodges said. “We need to decide how far this is going to go.”
The ESG Study Group’s primary goal is to make the public aware of the issue and determine whether legislation is needed to prevent it, she said.
Hodges said he heard from the owner of a components business whose supplier has an ESG agenda and is essentially trying to coerce the owner into buying an electric truck that costs nearly three times the price of internal combustion trucks. Is.
a built up response
Many corporations have adopted certain ESG principles, particularly those relating to the energy transition, not because they have succumbed to pressure from banks with liberal agendas, but because they see it as beneficial.
Most of the world’s major auto manufacturers have already implemented plans to completely phase out fuel-burning vehicles in the coming years. For example, General Motors is converting its entire lineup to be electric by 2035.
“We think this will be a successful business model of the future,” a GM executive told NBC News in January 2021.
Hersh Shefrin, an economist and finance professor at Santa Clara University, said auto makers are transitioning to electric to make money. He said he realized the true size of the market for electric vehicles when Tesla grew from a small startup to the world’s most valuable automaker.
Other companies may seek to capitalize on the ESG trend by implementing carbon-reduction technologies and reducing their exposure to other ESG risks, such as conflicts of interest and poor labor relations.
Should this prove profitable is a point of concern for both Republicans and Democrats, as well as financial watchdogs such as the US Securities and Exchange Commission (SEC).
However, while some in the Republican Party simply want to get rid of ESG, the SEC wants publicly traded companies to disclose more information about their exposure to ESG risks. In early 2021, the agency announced it was implementing ESG disclosures into its regulatory framework — a way to protect investors from things like conflicts of interest, proxy voting and “greenwashing,” a marketing ploy that some businesses use. and overhypes technologies to make them more durable or more visible. How socially responsible they are.
Conservative groups began organizing ESG backlash that year.
It reached Louisiana in October when state Treasurer John Schroder pulled nearly $800 million in Louisiana investments from asset management firm BlackRock, claiming the focus on the environment clashed with the state’s oil and gas interests. BlackRock CEO Larry Fink has urged companies and shareholders to factor climate change risks into their investment decisions.
according to a new York Times After the investigation, the idea that inspired Schroder to leave Blackrock came from the fossil fuel industry. The report said that along with about two dozen Republican state treasurers around the country, state financial officials are following instructions from the foundation, an obscure nonprofit group with deep ties to the oil industry.
Times has uncovered a trove of emails and internal documents that show a complex web of groups with money from oil billionaires Charles and David Koch pulling the strings to treasurers who have been on the front lines of the ESG backlash.
The groups have pushed treasurers to divest the state’s money from BlackRock, Citibank, Bank of America and JPMorgan. The emails show the groups provided the treasurers with talking points and strategies on how to respond to media questions. Times The report pointed out that the memo to the treasurers misrepresented how businesses were forced to sell electric vehicles to banks to get loans or homeowners to get mortgages to put solar panels on their roofs. would need to be switched on.
No banks have proposed such measures, but some Republican politicians believe it is possible if the ESG is not stopped. Hodges said he worries that Americans will be “heavily punished” if they don’t follow through with the ESG agenda and worries that a rapid rollout of the energy transition will hurt the economy.
“They want to implement this agenda so quickly that it’s really not sustainable,” Hodges said. “I’m in favor of being honest with the climate, but these things need to start slowly.”
Conservatives aren’t the only source of the ESG backlash. Fidler said some liberals oppose ESG, criticizing the lack of defined criteria as an invitation to corporate greenwashing.
Can states ban liberal investments?
Hodges did not provide any details on what legislation to ban ESG might look like.
When Schroder divested the state’s treasury funds from BlackRock, he wrote in a press release that “ESG investing violates Louisiana law on fiduciary duties, which require financial returns for beneficiaries of state funds.” All it takes is attention.” However, he did not say whether any Treasury money was actually in the ESG portfolio or whether BlackRock was forcing the state to make ESG investments.
ESG investing is a choice investors make, and there are already antitrust laws that would prevent fund managers from violating fiduciary duties, Fidler said, adding that it would be a valid concern if state pension plans were used for impact investing. Used to be.
Sheffrin, the economist, said there is no evidence that ESG investing reduces returns in any meaningful way.
The prospect of further actions by Republican lawmakers and state treasurers has prompted concerns that the partisan divide could infect the financial sector, creating a world of “red banks” and “blue banks”.
“Can any state government force investors to invest in tobacco companies if they do not want to? Or motivate them to invest less in the shares of companies improving social conditions like Tesla? Shefrin said.
Louisiana advisors criticize Treasurer’s investment moves
Shefrin said that opting for ESG or choosing non-ESG investments is philosophically like ESG investing because they both choose investments that express the investor’s values.
Fiedler said that it is unlikely that banks will become more partisan institutions than companies that currently use political agendas. But it is theoretically possible, according to Shefrin, depending on the implications for bank portfolios and profitability.
“Investors want competitive returns, even when they express their values for ESG,” Shefrin said. “There’s a limit to what people are willing to pay for that expression.”