- A group of vocal conservative lawmakers are criticizing aspects of ESG investing.
- Insider has pinpointed key players, like Kentucky Rep. Andy Barr and Louisiana’s treasurer.
- The attacks come as investors and regulators scrutinize Wall Street’s vast sustainability efforts.
Republican officials are growing increasingly vocal in their attacks on investing with environmental, social, and governance considerations in mind. That’s compounding scrutiny that ESG-labeled funds and Wall Street’s vast sustainability operations are already facing from investors and regulators.
The pushback from politicians like Sen. Tom Cotton of Arkansas and John Schroder, the treasurer of Louisiana, are growing more pointed.
The lasting impact of anti-ESG legislation and political rhetoric, coming as politicians seek to raise their profiles ahead of the US midterm elections, remains to be seen.
But they add to a challenging moment for ESG investors and big US banks and asset managers, all of which have heavily invested in ESG products and teams, and could challenge the perception and embrace of ESG in the long run. As broader markets have plunged, investors pulled $2 billion from US equity exchange-traded funds in May, according to Bloomberg Intelligence data, the first month of outflows in three years.
“We believe many of these proposals and policies that ‘push back’ on ESG may impact sentiment more than long-term AUM growth,” Morgan Stanley equity analysts wrote in a June report, adding that states with such proposals and policies represent some 30% of overall US public pension fund assets.
These treasurers, governors, and state legislators hold sway over aspects of the sprawling ESG ecosystem, like writing policy or selecting funds for state investments. They’re also using their online platforms to fire up followers. Sen. Cotton in a tweet on June 21 called on the Department of Justice and Congress to “crack down” on ESG investing, then tweeted the next day: “The next Congress will take action to end this scam.”
ESG standard-bearers like S&P Global and BlackRock, the world’s largest money manager and an influential proponent of ESG investing, are often the subject of their critiques. These are corporations that sell ESG-linked products to make money and appeal to investors who want to see their values reflected in their portfolios. These officials often paint large financial firms’ ESG strategies as functions of left-leaning agendas instead.
This push, parts of which are coordinated actions between states, also reflects a wider shift of Republicans challenging corporate America — a departure from years past, when the party was often aligned with interests of big business.
In the lead-up to the midterms, Republicans will wield anti-ESG issues in the scope of wider culture wars as a way to suggest government overreach and drum up support for Republicans over Democrats, said Kodiak Hill-Davis, vice president of government affairs for the Niskanen Center and cofounder of non-profit Republican Women for Progress.
A BlackRock spokesperson told Insider in an earlier statement: “We are a fiduciary to our clients, helping them navigate investment risks and opportunities so they can reach their long-term financial goals, not engineering specific decarbonization outcomes in the real economy.”
Here are key GOP players who are taking aim at ESG investing.
Louisiana Treasurer John Schroder
Schroder, who is set to take over as chair of the State Financial Officers Foundation, a group of conservative state finance officials, announced on Oct. 5 that he would liquidate the state’s $794 million of investments with BlackRock.
The treasurer said in a letter to BlackRock Chief Executive Officer Larry Fink that he has divested $560 million to date and would complete its divestment by year-end. He takes issue with the firm’s commitment to supporting a goal of net-zero greenhouse gas emissions by 2050 or sooner.
“Your blatantly anti-fossil fuel policies would destroy Louisiana’s economy,” he wrote to Fink. The asset manager remains among the largest institutional shareholders of Chevron, Exxon, Marathon Petroleum, and BP.
“I fully realize, as your representatives noted during our recent meeting, that BlackRock currently invests in oil and gas companies,” Schroder wrote. “Nonetheless, your consistent public messaging has made very clear what BlackRock is demanding from fossil fuel company CEOs and every other company they invest in.”
Kentucky Treasurer Allison Ball
On June 29, Ball sent a letter with other Kentucky officials to S&P Global’s ratings business to object to the company incorporating ESG factors when determining states’ credit ratings. It also objected to its assessment of her state.
The company’s website says ESG considerations have played a large role in assessing credit ratings since before before ESG became a well-known term. But Ball, who is now serving in her second term as state treasurer, objects to ESG usage in credit indicators at all.
“It creates a dangerous framework for state borrowing mechanisms, whereby state creditworthiness will fluctuate wildly based on ever-changing political tides,” the letter said. Ball added that she agreed with her “friends in Utah” who share similar concerns, referring to a letter officials including Gov. Spencer Cox sent to S&P in April.
A spokesperson for S&P Global Ratings referred Insider to the firm’s most recent credit report of Kentucky, from February, which affirms its A credit rating with a positive outlook and its ESG assessment of E-2, S-3, and G-2. S&P uses a scale of 1 to 5, with 1 denoting the most positive rating in that category.
West Virginia Treasurer Riley Moore
Moore has emerged as one of the loudest voices against ESG investing, declaring that banks and asset managers could lose the state’s business if they do not work with the energy industry. On July 28, Moore’s office published a list of firms restricted from contracts with the state over certain fossil fuel policies, including Goldman Sachs, Morgan Stanley, and JPMorgan Chase.
He has focused efforts on criticizing BlackRock over the firm’s commitments to encourage companies to transition to an economy with net zero greenhouse gas emissions, a move that Moore says punishes states like his. Funds BlackRock manages on behalf of clients remain significant shareholders of fossil fuel companies.
West Virginia is the fifth-largest energy producer in the US and provides about 5% of the country’s total energy, almost half of which is from coal production, according to the US Energy Information Administration.
In January, the state’s Board of Treasury Investments stopped using a BlackRock fund over Moore’s concerns. At the time, West Virginia’s investment with BlackRock was just $21.8 million. The state has since used a fund offered by Dreyfus, a unit of BNY Mellon, a spokesperson for Moore said. A BlackRock spokesperson declined to comment.
Rep. Dan Crenshaw of Texas
Rep. Crenshaw, a Texas native whose father worked in the state’s oil and gas industry, was elected in 2018. He sits on committees directly involved with environmental policy, including the House Energy and Commerce Committee and the House Select Committee on the Climate Crisis.
In an episode of his podcast in April, Sen. Crenshaw said ESG factors are “threatening to destroy the American energy industry, including the natural gas industry, which is the latest target of ESG and radical activist investors.”
Sen. Tom Cotton of Arkansas
Sen. Cotton, who sits on committees including the US Senate Committee on the Judiciary, has recently spoken out on Twitter to express his concern with corporate ESG.
“Let’s call the ESG movement what it is: illegal corporate collusion to implement leftist policies,” he said on June 21 to his 325,000 followers, adding in another tweet the next day: “The next Congress will take action to end this scam.”
It is unclear what about ESG investing is illegal or what plans Sen. Cotton has. Spokespeople for Sen. Cotton did not return a request for comment.
South Carolina Treasurer Curtis Loftis
Last September, he emailed JPMorgan management and warned banks “to stay out of political culture wars and particularly abstain from the petty, ‘woke’ cancel culture,” according to a New York Times report in May.
Loftis, who is serving his third term, signed a letter to the SEC in late June to oppose the commission’s climate disclosure rule. He views the SEC’s disclosure as overreach.
“This is another flagrant attempt by the Biden administration to take power away from the states by circumventing the democratic process and legislating through SEC regulations,” Loftis said in a statement at the time.
Rep. John Rose of Tennessee
Rep. Rose, who is serving his second term in Congress and is a member of the US House Committee on Financial Services, led a letter to the SEC in May expressing concern over the commission’s climate disclosure rule.
“To do business with public companies, small farms would be required to disclose a significant amount of climate-related information,” the letter said. “But unlike large corporations, small farms do not have full-scale compliance departments.”
Rep. Rose said last month that he expects Republican lawmakers to try and overturn the SEC’s rules if the party takes control of the House of Representatives in the midterm elections this fall, according to a report from the Hill.
Rep. Andy Barr of Kentucky
Rep. Barr introduced a bill in March, called the Ensuring Sound Guidance (ESG) Act aimed at requiring fund managers to prioritize financial returns above all other factors when acting as fiduciaries for their clients.
Barr, who sits on the US House Committee on Financial Services, introduced the bill with Republican Rep. Rick Allen of Georgia. Rep. Allen sits on the Health, Employment, Labor and Pensions Subcommittee.
“The ESG Act is intended to protect investors from their returns being diminished because of politically motivated asset managers who prioritize environmental or social goals instead of returns,” the lawmakers said in an announcement at the time.
Rep. Barr said the ESG movement is a “threat” to America that is “undermining American competitiveness, according to an Axios report last month.
Sen. Dan Sullivan of Alaska
Sen. Sullivan, who sits on the US Senate Committee on Environment and Public Works, introduced a bill in May aimed at curbing the power of large asset managers like BlackRock. The firms’ commitments to ESG is tied to his proposed legislation, Sen. Sullivan said in an appearance on CNBC in May.
Sen. Sullivan and his cosponsors, including Republican Sens. Marco Rubio and Rick Scott of Florida, want to see power shifted away from big money managers on proxy votes and toward investors in funds run by those firms.
“This would democratize corporate governance and largely eliminate the influence that these firms wield at shareholder meetings, often to push political agendas,” he said in a statement at the time.
Since last October, BlackRock established and has expanded a program meant to open up proxy voting choice to more large investors like pension funds and endowments.
Gov. Greg Abbott of Texas
Last year, Gov. Abbott signed into law a bill that prevents Texas from investing in or doing business with firms that cut ties with the energy industry.
“This bill sent a strong message to both Washington and Wall Street that if you boycott Texas energy, then Texas will boycott you,” Rep. Phil King of Texas said last year, according to an NPR report from April.
Abbott, who is seeking reelection in November, was early to denouncing ESG investing. At the time, it was one of the first such state laws. But a spokesperson for the state’s comptroller’s office told NPR in April that enforcing the law “has proven challenging.”
“The simple truth is that the creation of this list would present no challenge whatsoever if these companies were open, transparent and honest about their position on the fossil fuel sector,” the spokesperson told NPR.
Sen. Mike Crapo of Idaho
Sen. Crapo, a member of the US Senate Committee on Banking, Housing, and Urban Affairs, has spoken out about his concerns with ESG frameworks.
Last month, Sen. Crapo hosted a discussion with Idaho Treasurer Julie Ellsworth about ESG investing and included Vivek Ramaswamy, an anti-ESG pundit who is widely followed on Twitter. Sen. Crapo said he opposes ratings agencies using ESG scores when evaluating states’ credit ratings.
“The use of these criteria may seem innocuous on its surface. But unfortunately, many standards are subjective and grant regulators and corporations undue influence on public policy,” Sen. Crapo said.
This story was first published on July 7, 2022 and was updated on October 6, 2022 to reflect the Louisiana treasurer’s announcement that he would liquidate the state’s investments with BlackRock by year-end.