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Economy and Society, October 11, 2022: Louisiana treasurer announces plan to divest state funds from BlackRock

Economy and Society is Ballotpedia’s weekly review of the developments in corporate activism; corporate political engagement; and the Environmental, Social, and Corporate Governance (ESG) trends and events that characterize the growing intersection between business and politics.

ESG Developments This Week

In Washington, D.C., and around the world

British regulators aim to avoid EU ESG blunders

As the United Kingdom prepares the development of its own ESG regulatory framework, the European Union, Bloomberg reports, might have some important lessons to teach the British, mostly from what some analysts deem to be the mistakes it made in creating its own framework. Among other things, ESG consultants urge British regulators not to succumb to the pleas made by traditional energy interests and not to categorize gas and nuclear energy as green:

“UK regulators have been advised to avoid a number of key planks in the EU’s green taxonomy including the bloc’s handling of real estate, as Britain tries to build an ESG investing framework of its own.

The EU’s treatment of sectors including real estate, shipping, bio-energy and hydrogen in its taxonomy is potentially “very problematic,” according to the UK’s Green Technical Advisory Group. Applying the same standards as those laid out in the EU rulebook would be inconsistent with the UK’s net-zero ambitions, GTAG said on Friday.

The EU has blazed a trail in sustainable investing, building an ambitious regulatory framework that’s widely seen as a global benchmark. But the speed with which the EU project has been pushed through has left it riddled with holes and inconsistencies, and even regulators inside the bloc have demanded urgent improvements.

With the EU model as a starting point, Britain should pick and choose the elements that look appropriate for the UK market, and those that aren’t, according to Ingrid Holmes, chair of GTAG.

“We’re going further and faster in a number of areas in the UK,” she said in an interview. Britain can make “the detail shorter, easier to follow and easier to demonstrate compliance” than is currently the case in EU rules, she said. 

More broadly, however, the UK acknowledges that the EU’s taxonomy, which sets the rules for what can be treated as a sustainable activity, should serve as a template for its own ESG framework….

Divergence from the EU’s taxonomy would potentially leave the investment industry facing more post-Brexit paperwork, with investors, banks and companies subject to both jurisdictions’ regulations….

The taxonomy must “remain science-based and avoid lobbying by vested interests which may be intended to soften the technical screening criteria,” it said. 

The EU’s controversial decision to include gas and nuclear power in its “green” taxonomy has drawn particular criticism. And members of GTAG have spoken out against such an interpretation of “sustainable.””

In the States

Louisiana joins the anti-ESG crowd

On October 5, Louisiana Treasurer John Schroder (R) announced that he had joined a growing number of state public officials who have either pulled their state’s investments from BlackRock and other ESG-fund providers or have threatened to do so. In his letter to BlackRock CEO Larry Fink, also dated October 5, Schroder stated that, in his words, the firm’s “blatantly anti-fossil fuel policies would destroy Louisiana’s economy.”

“Louisiana Treasurer John Schroder penned a letter to BlackRock CEO Larry Fink, explaining the state would liquidate all BlackRock investments within three months and, over a period of time, divest nearly $800 million from the bank’s money market funds, mutual funds or exchange-traded funds. The state treasurer blasted Fink’s pursuit of so-called environmental, social and governance (ESG) standards that promote green energy over traditional fossil fuels….

Schroder added that he refused to spend a penny of state funds with a firm that will “take food off tables, money out of pockets and jobs away from hardworking Louisianans.”

Including offshore production, Louisiana drills the second-most oil and third-most natural gas in the nation, according to the Energy Information Administration. The energy industry is the state’s largest sector, accounting for 8.1% of Louisiana’s total gross domestic product…

The treasurer noted in the letter that the state has already removed $560 million from BlackRock investments, a figure that will swell to $794 million by year’s end under his agency’s plan….

BlackRock declined to comment on Schroder’s letter, but pointed FOX Business back to a letter it sent to 19 Republican attorneys general in September.

“We are disturbed by the emerging trend of political initiatives that sacrifice pension plans’ access to high-quality investments – and thereby jeopardize pensioners’ financial returns,” the firm wrote to the state officials on Sept. 7.”

Meanwhile, the CEO of the State Financial Officers Foundation pushes back against the pushback

On October 8, Derek Kreifels, the Chief Executive Officer of the State Financial Officers Foundation (SFOF) appeared in RealClearPolitics to defend state treasurers who oppose ESG and to defend his organization against charges that it is spreading misinformation on those treasurers’ behalf. Many of SFOF’s members–who are state treasurers and auditors–have rejected the use of ESG in the management of state funds, arguing that ESG is a politicized and politicizing investment strategy. In response, ESG defenders, managers, and clients have tried to flip the narrative on its head, insisting that ESG’s opponents are the ones who are politicizing investments. Additionally, some elected officials have accused the treasurers and SFOF of leading investors astray for political purposes.

In his essay, Kreifels aimed to push back against this narrative flip and defend his organization:

“Over the past few years, a growing threat called ESG (Environmental, Social, Governance) has been negatively impacting state pension systems, ultimately putting retirees at risk. Sadly, our nation’s state financial officers and the retirees they have a fiduciary responsibility to protect are increasingly under siege by ESG ideologues who are motivated by politics rather than economics. 

For instance, U.S. Rep. Sean Casten, a Democrat from a competitive district in Illinois who has come under fire for allegedly lining his own pockets with taxpayer-funded energy dollars, devoted more than half of his time in a recent congressional hearing to defaming our organization. Casten accused the State Financial Officers’ Foundation (SFOF) of “spreading disinformation” – a claim he made without evidence – while ignoring his own conflicts of interest and the catastrophic failures of his own energy strategy.

Casten is trying to strongarm bank CEOs into blacklisting us. He asserts that we are trying to “[block] the capital sector from freely allocating capital.” But our goal is precisely the opposite. We trust free people and free markets to allocate scarce resources more effectively than politicians in Washington.

History and economics are on our side. What Casten and other far-left politicians refuse to acknowledge is that economic freedom is by far the best policy for the planet and its people. As Nick Loris, vice president of Public Policy at C3 Solutions argues, free economies are twice as clean as less free economies. What Casten and others are attempting to do is to centralize the economy by using ESG principles as their manifesto. By embracing ESG cancel culture, Casten is blocking the development of affordable energy.

The one thing Casten gets mostly right is when he says SFOF is advancing “policies that are encouraging [financial institutions] to invest in areas that are struggling to attract capital.” Those areas have names – West Virginia, Texas, Utah, etc. – and the reason they are struggling to attract capital isn’t because the businesses aren’t financially sound. Indeed, 2022 has been a banner year for conventional energy sources that abound in these states. The reason they are challenged is because investment firms and financial institutions in recent years have implemented de facto boycotts of American energy producers. Firms like BlackRock have used their market power to “force behaviors,” sometimes by penetrating corporate boards, sometimes by starving unfavored businesses of capital, all in obeisance to an agenda based on subjective and ephemeral criteria, divorced from historical markers of a company’s financial strength. 

It’s not surprising that many state financial officers are fighting back…

Casten apparently believes that castigating state financial officers will be politically beneficial. We support his First Amendment right to be wrong….

By embracing economic freedom, returning to sound financial principles, and embracing the innovation of the free market, we can create prosperity for our communities, protect the planet, and build a future of which we can all be proud.”

On Wall Street and in the private sector

GFANZ insists all is well

After reports that it is falling apart under pressure being placed on large Wall Street banks, the Glasgow Financial Alliance for Net Zero (GFANZ) told Bloomberg News on October 8, that all is well and on track for a successful COP27 next month. According to Bloomberg:

“In a statement to Bloomberg News on Saturday, a spokesperson for the Glasgow Financial Alliance for Net Zero said the group has “received no indication from any of our members that they intend to leave.”

GFANZ, which brings together over 500 finance firms managing more than $135 trillion of assets, has faced possible defections from firms including JPMorgan Chase & Co., Morgan Stanley and Bank of America Corp., according to people familiar with the process. The heavyweights were unhappy with the potential addition of binding restrictions on fossil finance, the people said.

Tensions soared after a United Nations-backed group, Race to Zero, earlier this year proposed such terms as a necessary condition for net-zero claims to be credible. That language was subsequently softened, and in its statement on Saturday, GFANZ said each sub-alliance of the group is “subject only to their own governance structures,” essentially giving them the freedom to ignore such proposals.

Mark Carney, GFANZ co-chair, has already publicly admonished Race to Zero for going “too far.” Jakob Thomae, an advisory board member of GFANZ, says he expects parts of GFANZ will eventually sever ties with Race to Zero and seek a more tailored decarbonization methodology to appease members. 

But there are already concerns being raised in some corners that the ostensible sidelining of science represents a worrying development. Al Gore, the former US vice president turned climate activist, last month warned that investors are growing increasingly impatient with evidence of potential “greenwashing” amid signs that net-zero pledges made by some members of the financial industry aren’t credible….

Saturday’s statement merely reflects what had been the existing governance structure, GFANZ said, adding that many of its sub-alliances are UN-convened. But the need to reassure members of their independence was made clear in recent weeks by brewing tensions, with banks behind the scenes seeking urgent clarification, according to people familiar with the process.

Allowing the sub-alliances, whose boards are heavily represented by the finance industry, to set their own terms is a dangerous move, according to climate nonprofits.

One banker close to the situation said putting out a such a statement should be viewed as a necessary concession to Wall Street to keep the banks onside.

Lucie Pinson, executive director at environmental nonprofit Reclaim Finance in Paris, said efforts to soften the terms of GFANZ membership have the potential to “kill” the net-zero alliance.

“Even before the revelations that some banks may leave GFANZ in opposition to real climate action, there were plenty of doubts that the alliance could really deliver on net zero,” she said before Saturday’s statement was released. “The outcome of this issue will tell us decisively whether we should expect banks to lead the climate fight or act simply as agents of greenwashing.””

BlackRock steps up its defense

On October 7, BlackRock–variously characterized by analysts, supporters, and opponents, as the world’s largest asset manager, one of the world’s most outspoken major ESG supporters, and the firm most often criticized by ESG opponents–continued its defense of its positions, launching a website specifically dedicated to explaining and justifying its ESG work:

“BlackRock launched another effort to push back against those that contend the firm is “boycotting” the energy industry after some red states have penalized the firm for its ESG push.

The firm, which is the world’s largest money manager, launched a webpage on Friday committed to “setting the record straight” about how it handles investment decisions and disclosure and its pursuit of environmental, social, and governance standards, also known as ESG. The launch comes just days after Louisiana announced it is divesting all its Treasury funds from BlackRock.

“The energy industry plays a crucial role in the economy, and, on behalf of our clients, BlackRock has invested $170 billion in U.S. public energy companies,” the webpage reads. “We are also partnering with energy companies and start-ups to fund new technology and innovations that will power the global economy, now and in the future.”

While BlackRock and its CEO Larry Fink have been accused of trying to harm the energy industry, BlackRock contends that it merely asks companies to provide disclosures on material issues that affect their businesses so that investors can appraise risks, such as climate change, and make informed financial decisions.

“We believe that companies that better manage their exposure to climate risk and capitalize on opportunities will generate better long-term financial outcomes,” the company said.

BlackRock claims its views on climate risk aren’t unique, and its new webpage notes that an overwhelming majority of companies in the S&P 500 publish sustainability reports.”

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