SALT LAKE CITY — Republicans oppose Wall Street’s growing efforts to factor factors such as long-term environmental risk into investment decisions, the latest indication the GOP is ready to damage its relationship with large corporations to score Culture War points.
Many are targeting a concept known as ESG – which stands for environmental, social and governance – a sustainable investing trend that is sweeping the financial world. Red state officials ridicule it as politically correct and have woken up and are trying to stop investors contracting with states from embracing it at any level.
For right-wing activists who have previously pushed critiques of Critical Race Theory (CRT), Diversity, Equity and Inclusion (DEI), and Social-Emotional Learning (SEL ), it’s the latest source of acronym-based outrage to find a home at rallies, in conservative media and in legislatures.
ESG has yet to establish itself as the dominant political message, but the backlash against it is gaining ground. Last week, former Vice President Mike Pence attacked the concept during a speech in Houston. And on Wednesday, the same day he said on Twitter he planned to vote Republican, Elon Musk attacked him after Tesla lost its spot on the S&P 500 ESG Index. He called it a scam “armed by fake social justice warriors”.
The concept calls on investors to consider criteria such as environmental risk, pay equity or corporate transparency in their accounting practices. Aided by recently proposed disclosure requirements and ratings agency analysis, they have embraced the Principles to such an extent that those who use them control $16.6 trillion in investments held in the United States.
In response, Republicans — historically known for supporting less regulation — are trying in many places to impose new rules on investors. Their efforts reflect party members’ desire to distance themselves from big business to fend off those they see as ideological enemies.
“I don’t think we’re the big business party anymore. We are the people’s party — more precisely, we are the workers’ party. And the problem we have is that big banks and big business right now are trying to dictate how we’re going to live our lives,” West Virginia Treasurer Riley Moore said.
Opponents criticize ESG as a politicized and potentially costly diversion from purely financial investment principles, while proponents argue that consideration of the criteria more accurately accounts for risk and promises more stable returns.
“We focus on sustainability not because we’re environmentalists, but because we’re capitalists and trustees for our clients,” said Larry Fink, CEO of investment firm BlackRock and one of the leading proponents. , in a letter this year.
But Moore and others, including Republican Utah State Treasurer Marlo Oaks, argue that favoring green investments over fossil fuels deprives key industries of access to the financial system and capital. They targeted S&P Global Ratings to add ESG ratings to their traditional credit ratings. They fear that without change their scores will make borrowing for projects like schools or roads more expensive.
In an April letter, Oaks demanded a retracted analysis from S&P that rated Utah as “moderately negative” on environmental risk due to “long-term water supply challenges, which could remain a strain on its economy…given the widespread drought conditions in the western United States”
The letter was co-signed by the state’s governor, legislative leaders and congressional delegation, including Sen. Mitt Romney, whose former firm Bain Capital calls ESG factors “strategic, fact-based and focused.” on diligence”. He said the rating system “attempts to legitimize a dubious and unproven exercise” and attacks the “unreliability and inherently political nature of ESG factors in investment decisions”.
Although he likened ESG to critical race theory, Oaks said he was primarily concerned with capital markets and what he called attempts by fossil fuel opponents to manipulate them by making pressure on investors to choose companies with high ESG scores.
“DEI, CRT, SEL. Acronyms can be hard to follow,” he wrote on an economics blog last month, “but there’s a relatively new one you need to know: ESG.
Investors making carbon neutral or net zero criteria common were, in effect, Oaks said, limiting access to capital for oil and gas companies, hurting their returns and potentially contributing to skyrocketing gas prices.
In more than a dozen red states, officials dispute the idea that the current energy transition could make investments linked to fossil fuels more risky in the long term. They argue that employing asset managers with a preference for green investments uses public funds to pursue agendas that are out of step with voters.
In the states, anti-green investment efforts are supported by conservative groups such as the American Legislative Exchange Council and the Heartland Institute, a think tank skeptical of the scientific consensus on man-made climate change that has backed bills that divest public funds from institutions that use ESG or prohibit them from using it to rate companies or individuals.
In Texas, West Virginia and Kentucky, lawmakers have passed bills requiring public funds to limit transactions with companies that avoid fossil fuels. Wyoming has considered banning “social credit scores” that rate companies using criteria different from accounting and other financial metrics, like ESG
After conservative talk show host Glenn Beck visited the Idaho Statehouse and called ESG critical race theory ‘on steroids,’ the legislature passed legislation in March banning the investment of public funds in companies that prioritize ESG commitments over returns.
The American Legislative Exchange Council recently released a model policy that would subject banks managing state pensions to new regulations limiting investments motivated by what it calls “social, political and ideological” objectives.
Although the policy does not explicitly mention it, Jonathan Williams, the group’s chief economist, said the integration of ESG into broader political correctness trends was a driving force. He said his research shows that incorporating factors beyond traditional financial measures can reduce the rate of return on already underfunded state pensions.
Sustainable investing advocates deny this accusation and argue that considering the risks and realities of climate change equates to responsible investing.
West Virginia and Arkansas recently divested their pension funds to BlackRock in response to the asset manager’s addition of low-carbon businesses to its portfolios. Moore, the West Virginia treasurer, hopes others will follow.
While exciting, the green investment discourse differs from the recurring debates about gender and sexuality or how history is taught. Supporters and critics alike admitted they were surprised that pensions, credit ratings and investment decisions had become campaign fodder.
At the Utah state party convention last month, thousands of Republicans howled when Sen. Mike Lee described green investing in terms similar to critical race theory — another foil based on an acronym: “Between CRT, ESG and MSNBC, we get way too many BS,” Lee said.
Bryan McGannon, lobbyist at US SIF: The Forum for Sustainable and Responsible Investment, said naysayers were wrong to label sustainable investing trends as politics. If states refuse to consider how the future is likely to be less dependent on fossil fuels and limit how environmental risk can be considered, he said, they are making decisions with incomplete information.
“If a state ignores these risks, it can be a signal to an investor that it may not be a wise government to put our money with,” McGannon said. “Investors use a huge amount of information, and ESG is one piece of that mosaic.
Associated Press writers Stan Choe in New York and Lindsay Whitehurst in Salt Lake City contributed to this report.