Democratic officials and green finance advocates are rallying around environmental, social, and governance investing in rebuke of Republican officials who are out to punish “woke” firms for their ESG-focused fund management strategies.
Red-state financial officers have resisted ESG over the past year, implementing new laws and policies to cut state ties with fund managers that have made a point to invest more in green assets and less in traditional energy. Their Democratic counterparts are now accusing those states of standing in the way of a free market and maintaining the “status quo” by seeking to punish ESG, which is an investment approach that seeks to serve an economywide “transition” away from fossil fuels.
There will be “two kinds of states moving forward,” 14 Democratic state financial officers wrote in an open letter published Wednesday: “States focused on short term gains and states focused on long term beneficial outcomes for all stakeholders.”
The Democratic officials, who serve states ranging from Maine to Oregon, said West Virginia, Texas, and other red states that are blacklisting financial firms over ESG, in some cases by prohibiting state investment in those firms, obstruct the free market and hurt taxpayers.
“States that focus solely on the short term will fail to compete over the longer time horizon that is necessary for them and their pension funds to succeed,” the officials wrote. “They will miss potential growth because their focus is on preserving the status quo. And they will suffer from possible suits or challenges that longer term players will avoid due to more rigorous oversight.”
In August, Texas Comptroller Glenn Hegar, in accordance with a new law that took effect in September 2021, published a list of 10 financial companies considered to be engaged in a “boycott” of traditional energy companies. The list included European firms such as Credit Suisse and Schroders, as well as U.S.-based BlackRock, the world’s largest fund manager.
Under the law, governmental entities, including the Employees Retirement System of Texas, Teacher Retirement System of Texas, and Texas Municipal Retirement System, are subject to investment prohibitions and divestment requirements related to the blacklisted firms.
Hegar said some of the blacklisted firms “may be using investments essentially owned by Texas to directly push shareholder initiatives that run contrary to the interests of our state.” Texas is far and away the nation’s top oil producer, as well as the No. 1 natural gas producer.
Riley Moore, the Republican state treasurer of West Virginia, who has similarly been implementing a law restricting the natural gas and coal producer’s financial relationship with firms tied to ESG, dismissed the Democratic officials’ criticisms.
“West Virginia and our allies are using our power as market participants to ensure the free market remains free and our people do not suffer to advance anti-American globalist agendas,” he said in response to the open letter.
Financial firms targeted by Hegar, Moore, and others have accused the Republican officials of misrepresentation, and indeed, the investment picture for at least some of these firms, including BlackRock, is not easily branded as anti-fossil fuel. The company was party to a $15.5 billion deal finalized in December to finance natural gas pipelines in Saudi Arabia.
Chairman and CEO Larry Fink said at the time that “responsibly managed natural gas infrastructure has a meaningful role to play in this [energy] transition.”
Mindy Lubber, who heads up sustainability nonprofit group Ceres, said Texas and other states have glossed over instances of continued financing of those kinds of projects by the targeted firms.
They are turning a “straight-forward economic matter” in climate-related risk management into a “political football,” she said.
“We are not playing with Legos. We’re playing with our kids’ lives, and we’re playing with the economy,” Lubber asserted. “If something has a financial impact, it ought to be factored into the way capital market decisions are made.”