GOP targets powerhouse Wall Street firms over investments meant to fight climate change

BY TOBIAS BURNS 

- 08/26/22 

Republicans are fighting against a social movement in the financial sector meant to address systemic issues like climate change.  

Governmental initiatives in Florida, West Virginia and Texas are targeting powerhouse Wall Street firms that they say are engaging in environmental, social and governance (ESG) investing, which they view to be harmful to their states’ economies. 

Letters dated Aug. 10 were sent out this month by the Texas Senate Committee on State Affairs to Wall Street firms Blackrock, Vanguard, Institutional Shareholder Services and State Street, asking for details about the companies’ ESG practices and how they could affect the state’s public pensions, including retirement funds for teachers and state employees. 

The letter to Blackrock requested “all documents and communications relating to the actual or potential effects of ESG integration practices on the financial outlook, risk/return profile, performance, or profitability of any of your funds, portfolio companies, or institutional accounts of ESG integration practices.” 

Texas State Affairs Committee Chairman Bryan Hughes (R) said in an interview with The Hill that numerous public pension funds, endowments and retirement accounts could all be affected by ESG investing practices. 

“The Teacher Retirement System of Texas and the Employees Retirement System of Texas, all of our university endowment funds and various other pension funds, as well as the millions of investors who are trusting these firms with their 401(k)s, and then of course all the Texas companies that are being bullied and being manipulated by these firms – for all those reasons, this is important for the Texas legislature to do something about,” he said. 

“The people of Texas are finding out that a handful of Wall Street firms are using other people’s money to push a narrow agenda and we’re pushing back,” he said. 

While ESG doesn’t have a hard and fast definition, it generally aligns with the United Nations’s sustainable development goals (SDGs), a massive international program of environmental and social equality objectives agreed to by all of the U.N.’s 193 member states, including the U.S. 

“As of December 2020, over two thirds of the world’s GDP was being generated in places with actual or intended ‘net zero by 2050’ targets, covering over half of the world’s population and emissions,” a write-up on the latest SDG status report from the U.N.’s statistics agency says, referring to the goal of reaching net-zero carbon emissions, which are produced in abundance by the fossil fuel industry.  

The U.S. Environmental Protection Agency says that “the main human activity that emits CO₂ [carbon dioxide] is the combustion of fossil fuels (coal, natural gas, and oil) for energy and transportation.” 

Fossil fuels are a major industry in Texas, where oil and gas make up more than a third of the state’s economy, according to Texas Railroad Commissioner Christi Craddick.  

A representative for Blackrock indicated that the company had received the letter requesting documents and “[plans] to respond” but did not provide further details. 

“Blackrock does not boycott fossil fuels – investing over $100 billion in Texas energy companies on behalf of our clients proves that,” the company said in a statement, adding that “elected and appointed public officials have a duty to act in the best interests of the people they serve. Politicizing state pension funds, restricting access to investments, and impacting the financial returns of retirees, is not consistent with that duty.” 

Fossil fuels are also a big industry in West Virginia, where coal mining has long played a leading role in the state’s economy. Similar moves by state officials there have also gone after ESG investing. 

“There is a campaign that’s being waged through ESG on multiple fronts – rating agencies, asset managers, the big banks. They’re all pushing their agenda through our capital markets,” West Virginia state Treasurer Riley Moore (R) said in an interview with The Hill.  

“It’s coercive capitalism and a distortion in the marketplace. They are pushing policies they can’t achieve in the ballot box, and they’re using the power of their capital to achieve their goals by other means.” 

“All of this is tied to the fossil fuel industry,” he added. 

In July, West Virginia blacklisted Goldman Sachs, JP Morgan Chase, Blackrock, Morgan Stanley and Wells Fargo by adding them to the state’s list of restricted financial institutions. They wouldn’t be removed until they had “ceased all activity that boycotts energy companies,” according to a proclamation signed by the treasurer. 

“I’m the tip of the spear on this, but there’s an army behind me. Texas, Kentucky, Oklahoma, Tennessee. Their own lists will likely come out this year or next. There are fifteen states with upcoming legislative sessions. We are proud to be leading, but we are not the only ones. We are looking also at proxy voting on our pension boards,” Riley said. 

On Tuesday, Florida Gov. Ron DeSantis (R) banned ESG investing from the state’s pension funds, voting for a resolution mandating that investment decisions “must be based only on pecuniary factors [which] do not include the consideration of the furtherance of social, political, or ideological interests.” 

“We are reasserting the authority of republican governance over corporate dominance and we are prioritizing the financial security of the people of Florida over whimsical notions of a utopian tomorrow,” the governor said in a Tuesday statement. 

While ESG may be in the crosshairs of Republicans, it’s not clear that the financial initiative from multinational corporations is making any difference when it comes to fighting the causes of climate change. 

The U.N.’s latest SDG report found that fossil fuel emissions rebounded to a record high in 2021 as the global economy bounced back from the coronavirus pandemic, wiping out pandemic-related declines. 

The report found that “With the phasing out of COVID-related restrictions, demand for coal, oil and gas increased. Consequently, energy-related emissions for 2021 rose by 6 percent, reaching their highest level ever and completely wiping out the pandemic-related reduction seen in 2020.” 

Economists aren’t certain that market dynamics and targeted investment practices are even capable of dealing with climate change. Former World Bank chief economist Nicholas Stern wrote in 2007 that “greenhouse gas emissions are externalities and represent the biggest market failure the world has seen.” 

“Emissions are not ordinary, localized externalities. Risk on a global scale is at the core of the issue,” he wrote in an academic paper. “These basic features of the problem must shape the economic analysis we bring to bear; failure to do this will, and has, produced approaches to policy that are profoundly misleading and indeed dangerous.” 

Still, the trend of ESG in the private sector appears set to continue. 

A March report from the Harvard Law School Forum on Corporate Governance said recent proxy voting seasons, which are the times when activist investor shareholders can make their moves to influence how companies are run, were “unpredictable” and  “unprecedented, with record support for shareholder proposals on environmental and social issues, growing opposition to director elections, and significant support for governance proposals.” 

“Major institutional investors, especially those with large passive index funds, have embraced these shifts toward a focus on ESG and a multistakeholder model, and that is coming through in their support for E&S [environmental and social] shareholder proposals,” the school’s report said. 

Updated 12:00 p.m.