After the midterm elections, the nation’s top financial institutions are preparing for a new round of attacks on their sustainable investment initiatives, particularly if Republicans take control of one or both houses of Congress.
GOP state officials who have been severing ties with companies they claim are discriminating against fossil fuel companies in support of a “woke” agenda will continue to be the biggest push to discourage banks and asset managers from taking environmental, social, and governance factors into consideration when making financial decisions. This will also continue to be the biggest headache for Wall Street.
In states like Texas, Louisiana, and West Virginia, where authorities have withdrawn millions of dollars out of BlackRock Inc. and other financial firms, Republicans intend to capitalise on the momentum they have established. Candidates for financial officer in Arizona, Florida, Illinois, Minnesota, and Kansas have adopted positions on ESG that have inflamed contests that don’t frequently feature political commotion.
The Republican West Virginia Treasurer Riley Moore, who is leading a coalition of 15 state treasurers attempting to punish financial institutions they claim are boycotting fossil fuels, declared that “this is going to intensify.” “Once 2023 rolls around, we’ll be operating at full capacity. At the state level, there will be a lot more progress on this. As for managing assets and cash that can be used to leverage the ESG movement, you’re really going to start to approach critical mass.
BlackRock and other large financial institutions have long been targeted by environmentalists for refusing to divest from oil and gas companies, but the flood of antagonism from a political party that has long been seen as a partner has taken them by surprise. Furthermore, the fact that they continue to be strong supporters of the fossil fuel sector while under attack implies that the conflict is more about politics than it is about money.
Rep. Andy Barr of Kentucky, a member of the House Financial Services Committee and the Republican Study Committee, predicted that if his party gains a majority in Congress, the focus of House Republicans will be on ESG. As a result, the SEC’s proposed climate disclosure regulation would be subject to more vigorous scrutiny, and the Federal Reserve and other bank authorities would place a greater emphasis on climate risk.
In an interview, Barr noted, “BlackRock, State Street, Vanguard, Invesco, and Fidelity are terrific corporations. “All we want is for them to stop this nonsense of politicising capital allocation through ESG and live up to their history of being great American companies and achieving retirement security for Americans.”
The asset management companies claim they are reacting to investor demand for information on potential risks from climate change and other business hazards. Asset management firms have a fiduciary duty to seek the highest returns for their clients.
There may not be a more well-known illustration of the adoption of ESG than when Larry Fink, CEO of BlackRock, stated in 2020 that “climate risk equals investment risk.” However, Republican finance officials are getting ready to use public funds in a wider range to deter what they view as political meddling.
After Unilever, the parent company of Ben & Jerry’s, ceased doing business in Israel last year, Arizona Treasurer Kimberly Yee (R) withdrew state financing from the company. In her discussion with her opponent Martn Quezada, a Democratic state senator, she stated that if reelected, she intends to implement her office’s new investment policy against ESG.
In an interview, Yee stated, “I’ll keep fighting against a political goal that undermines the basis of a free market. “We are not allowed to fool about with taxpayer money. Politics is prioritised over a financial scorecard in ESG policies, which is risky.
Major financial firms are not facing an existential threat as a result of the anti-ESG campaign. BlackRock, the largest asset manager in the world, with $8.5 trillion under management as of June 30. Louisiana withdrew $794 million from BlackRock, by far the largest amount of any state, although it barely registered on the company’s financial statements. Additionally, a significant portion of the divestments exclude public pension funds, the largest source of capital under state regulation.
However, that isn’t stopped the businesses from responding back. BlackRock, which continues to invest more than $100 billion in Texas energy companies and $310 billion in energy companies worldwide, has launched a national advertising campaign and developed a website demonstrating its approach to energy investments and the environment.
In response to state attorneys general who questioned BlackRock’s commitment to achieving the best return for clients, BlackRock wrote, “We are disturbed by the emerging trend of political initiatives that sacrifice pension plans’ access to high-quality investments — and thereby jeopardise pensioners’ financial returns.”
A study by University of Pennsylvania finance professor Daniel Garrett, which found that Texas entities will pay an additional $303 million to $532 million in interest on the $32 billion in borrowing done in the first eight months after the implementation of two laws that prohibit municipalities from working with banks that restrict funding to oil, gas, or firearm companies, supports the claim that taxpayer and employee money is at risk.
According to Andrew Behar, CEO of the nonprofit shareholder advocacy organisation As You Sow, “the sad thing is that the citizens of red states will pay the price for the political spectacle in inflated interest rates for their bonds and high risk for their pension nest eggs.” “Any state treasurer running on the platform of opposing risk assessment is stating that they do not intend to carry out their duties.”
Meanwhile, proponents of the anti-ESG movement are urging state legislatures to give treasurers and comptrollers more power. Will Hild serves as the organization’s executive director. Consumers Research supports a coalition of Republican state treasurers who are opposed to ESG finance. In an interview, he predicted that in the next six to nine months, 12 to 20 states will adopt legislation aimed at financial firms’ ESG practises.
Similar to what Florida Governor Ron DeSantis (R) accomplished, such legislation may force pension fund administrators to limit the factors they take into account when making decisions to just financial returns. The statutes in Texas, Kentucky, Oklahoma, and West Virginia, which require state agencies to divest from firms accused of boycotting fossil resources, could be adopted by other states as “energy boycott” legislation.
South Dakota, Mississippi, and Nebraska are states that are likely to see new anti-ESG legislation, according to the nonprofit Heartland Institute, which rejects mainstream climate science. The American Legislative Exchange Council’s draught model policy on the energy boycott has already been submitted in recent legislative sessions in states like Indiana and Idaho.
According to West Virginia’s Moore, state and federal authorities may wonder whether businesses that collaborate on “net-zero” and ESG practises are breaking the law. Moore used Climate Action 100+, an investor-led programme to reduce greenhouse gas emissions, as an example. They have already targeted banks that are members of the Net-Zero Banking Alliance, a business-led, United Nations-backed organisation that is dedicated to having net-zero lending and investment portfolios by the year 2050.
The banking sector will withstand the storm, but it is unclear how it will affect taxpayers.
Dave Wallack, executive director of the nonprofit For The Long Term, which promotes treasurers to support their beneficiaries, said that it is “a disaster for our markets when politicians demand that financial institutions ignore whole classes of risk and opportunity because they don’t align with their ideology.” “When they implement blacklists and sow fear in the marketplace, it is even worse. Simply because the market doesn’t support their ideology, these states are eliminating the free market, which is America’s prized economic engine.