The great anti-ESG backlash

Link: https://thespectator.com/topic/great-anti-esg-backlash/

Excerpt:

The ESG story starts in 2004, when the three-letter acronym appeared in a UN report arguing for environmental, social and governance considerations to be hardwired into financial systems. Since then the term has been on a long but rapidly accelerating journey from NGO-world obscurity into the financial mainstream and subsequently the political limelight, prompting strong reactions from a chorus of prominent figures. Elon Musk calls it “a scam.” Peter Thiel says it’s a “hate factory.” Warren Buffett describes it as “asinine.”

Unsurprisingly for a piece of UN jargon that has become part of the political cut and thrust, “ESG” is often used to mean different things. Properly defined, it refers to an investment strategy that factors in environmental, social and corporate governance considerations. That might mean not investing in oil and gas companies, for example. Or it might mean only investing in companies that have a stated commitment to diversity, equity and inclusion. As it has grown in infamy, the acronym has also come to refer not only to investment products billed as ESG, but to other practices through which investment firms use their customers’ money to push political ends. For example, your pension may not be invested in an ESG fund, but the manager of that money may still be using stocks owned on your behalf to pursue political goals. A third, even broader, meaning is as a synonym for woke capitalism: a broad catch-all for big business’s embrace of bien pensant opinion, particularly on the environment.

….

This win-win rhetoric has been the rallying cry of the ESG crowd on what has looked like an unstoppable march. Make money and do good: who could possibly object? Millions have bought into this seductive logic. Globally, more than $35 trillion of assets are invested according to ESG considerations, an increase of more than 50 percent since 2016. From 2020 to 2022, the size of ESG assets in the United States grew by 40 percent. According to an analysis by the asset manager Pimco, ESG was mentioned on just 1 percent of earnings calls between 2005 and 2018. By 2021, that figure had risen to 20 percent.

….

If the anti-ESG movement has the wind in its sails, that’s in large part thanks to last year’s tumultuous geopolitical events and economic trends, foremost among them the war in Ukraine. The Russian invasion has transformed the ESG debate in two ways.

First, it has underscored the ethical dilemmas ESG champions would rather ignore. For example, many ESG funds rule out investment in weapons manufacturers. Is it really ethical to deny capital to the firms producing the material Ukraine needs to survive? Indeed, the socially responsible position is arguably the exact opposite.

Second, it has transformed the energy conversation in a way that has made many more of us acutely aware of the importance of cheap, abundant and reliable energy — and conscious that it cannot be taken for granted. In other words, each of us is a little more like Riley Moore’s West Virginia constituents, who don’t have much time for net-zero grandstanding given that they will be the ones who pay a heavy price for someone else’s pursuit of feel-good goals. What has always been true is becoming clearer: a financial system that starves domestic energy producers of capital not only hurts those whose savings are being used to pursue political ends, but ends up as a de facto tax on US consumers in the form of higher energy costs. ESG, says Goldman Sachs’s Michele Della Vigna, “creates affordability problems which could generate political backlash. That is the risk — political instability and the consumer effectively suffering from this cost inflation.”

Author(s): Oliver Wiseman

Publication Date: 22 Dec 2022

Publication Site: The Spectator

Arizona divesting funds from BlackRock over ESG push

Link: https://www.foxbusiness.com/markets/arizona-divesting-funds-from-blackrock-over-esg-push

Excerpt:

Arizona is forging ahead with its plan to pull the state’s funds from BlackRock due to concerns over the massive investment firm’s push for environmental, social, and governance (ESG) policies that have led other states to take similar actions.

Arizona Treasurer Kimberly Yee said in a statement released Thursday that the state treasury’s Investment Risk Management Committee (IRMC) began to assess the relationship between the state’s trust fund and BlackRock in late 2021. 

“Part of the review by IRMC involved reading the annual letters by CEO Larry Fink, which in recent years, began dictating to businesses in the United States to follow his personal political beliefs,” Yee wrote. “In short, BlackRock moved from a traditional asset manager to a political action committee. Our internal investment team believed this moved the firm away from its fiduciary duty in general as an asset manager.”

In response to those findings, Yee noted that Arizona began to divest over $543 million from BlackRock money market funds in February 2022 and “reduced our direct exposure to BlackRock by 97%” over the course of the year. Yee added that Arizona “will continue to reduce our remaining exposure in BlackRock over time in a phased in approach that takes into consideration safe and prudent investment strategy that protects the taxpayers.”

….

Florida’s chief financial officer announced recently that the state’s treasury is taking action to remove about $2 billion in assets from BlackRock’s stewardship before the end of this year. In October, Louisiana and Missouri announced they would reallocate state pension funds away from BlackRock, which amounted to roughly $1.3 billion in combined assets. Taken together with Arizona’s divestment, roughly $3.8 billion in state funds have been divested from BlackRock by those four states alone.

Additionally, North Carolina’s state treasurer has called for BlackRock CEO Larry Fink’s resignation and the Texas legislature has subpoenaed BlackRock for financial documents.

The investment firm has also taken heat from activists who argue BlackRock isn’t doing enough to follow through with its ESG commitments. New York City Comptroller Brad Lander wrote to Fink in September citing an “alarming” contradiction between the company’s words and its deeds. Lander wrote, “BlackRock cannot simultaneously declare that climate risk is a systemic financial risk and argue that BlackRock has no role in mitigating the risks that climate change poses to its investments by supporting decarbonization in the real economy.”

Author(s): Eric Revell

Publication Date: 11 Dec 2022

Publication Site: Fox Business

(Updated) New Hong Kong Watch report finds that MSCI investors are at risk of passively funding crimes against humanity in Xinjiang

Link: https://www.hongkongwatch.org/all-posts/2022/12/5/updated-new-hkw-report-finds-that-msci-investors-are-at-risk-of-passively-funding-crimes-against-humanity-in-xinjiang

Report PDF: https://static1.squarespace.com/static/58ecfa82e3df284d3a13dd41/t/638e318e6697c029da8e5c38/1670263209080/EDITED+REPORT+5+DEC.pdf

Graphic:

Excerpt:

A new report by Hong Kong Watch have found that a number of pension funds may be passively invested in at least 13 China based companies where there is credible evidence of involvement in Uyghur forced labour programs and construction of internment camps in Xinjiang.

 As part of the report, Hong Kong Watch found that major asset managers are exposed passively to these companies as a result of their inclusion on Morgan Stanley Capital International’s Emerging Markets Index, China Index and All World Index ex-USA.  

….

Commenting on the release of the report, Johnny Pattersonco-founder and a research fellow at Hong Kong Watch, said:

“13 companies on MSCI’s emerging markets index are either known to have directly used forced labour through China’s forcible transfer of Uyghurs, or been involved in the construction of camps. Given this Index is the most widely tracked Emerging Markets index in the world, it raises serious questions about how seriously international financial institutions take their international human rights obligations or the ‘S’ in ESG.

Our view is that firms known to use modern slavery or known to be complicit in crimes against humanity should be classed alongside tobacco as ‘sin stocks’, or stocks which investors do not touch. Governments have a duty to signal which firms are unacceptable, but international financial institutions must also be doing their full due diligence. It is unacceptable that enormous amounts of the money of ordinary pensioners and retail investors is being passively channelled into firms that are known to use forced labour.” 

Publication Date: 5 Dec 2022

Publication Site: Hong Kong Watch

BlackRock’s Red-State Woes Continue as Florida Divests

Link: https://www.ai-cio.com/news/blackrocks-red-state-woes-continue-as-florida-divests/

Excerpt:

State Chief Financial Officer Jimmy Patronis announced Thursday that the Florida Treasury will begin divesting $2 billion worth of assets currently under management by BlackRock.

BlackRock managed $1.43 billion of Florida’s long duration portfolio, which includes investments such as corporate bonds, asset-backed securities and municipal bonds. Additionally, BlackRock managed $600 million of Florida funds in a short-term treasury fund, which invests in short-term and overnight investments.

Patronis cited efforts by BlackRock and its CEO, Larry Fink, to embrace environmental, social and governance investment principles as the reason Florida will pull the funds from the manager.. In the wake of the announcement, the state will freeze the $1.43 billion in long-term securities at its custodial bank.

….

“It’s my responsibility to get the best returns possible for taxpayers,” Patronis said in the statement. “The more effective we are in investing dollars to generate a return, the more effective we’ll be in funding priorities like schools, hospitals and roads. As major banking institutions and economists predict a recession in the coming year, and as the Fed increases interest rates to combat the inflation crisis, I need partners within the financial services industry who are as committed to the bottom line as we are – and I don’t trust BlackRock’s ability to deliver. As Larry Fink stated to CEOs, ‘Access to capital is not a right. It is a privilege.’ As Florida’s CFO, I agree wholeheartedly, so we’ll be taking Larry up on his offer.”

Author(s): Dusty Hagedorn

Publication Date: 2 December 2022

Publication Site: ai-CIO

Hong Kong Watch gives evidence to the Canada-China Relationship Committee on ESG investment & country risk analysis

Link: https://www.hongkongwatch.org/all-posts/2022/12/1/hong-kong-watch-gives-evidence-to-the-canada-china-relationship-committee-on-esg-investment-amp-country-risk-analysis

Excerpt:

On Tuesday, Hong Kong Watch’s co-founder and trustee, Aileen Calverley, and Director of Policy and Advocacy, Sam Goodman, gave evidence to the Special Committee on the Canada–People’s Republic of China Relationship on the exposure of Canadian pension funds to Chinese stocks and bonds.

Hong Kong Watch has previously written extensively on the question of ESG, business, human rights, and Canadian pension funds exposure to Chinese companies linked to gross human rights violations, including the internment camps in Xinjiang.

In his remarks, Sam Goodman, discussed why China should be considered an ESG investment risk, recommending that:

  • Lawmakers consider sensible regulations to define ESG, label China as an ESG risk, and introduce a blacklist like the USA to restrict investment in Chinese firms with questionable human rights, environmental, and governance credentials.

In her remarks, Aileen Calverley discussed the risk of pension fund investments in China in the event of sanctions, recommending that the Government:

  • Include a China Country Risk Analysis in the Indo-Pacific Strategy.
  • Encourage publicly controlled pension funds to avoid exposure in China.

The full committee hearing can be watched here.

Publication Date: 1 Dec 2022

Publication Site: Hong Kong Watch

Chicago Teachers’ Pension Fund to Reorientate Portfolio to Fully Offset Fossil Fuel Investments

Link: https://www.ai-cio.com/news/chicago-teachers-pension-fund-to-reorientate-portfolio-to-fully-offset-fossil-fuel-investments/

Excerpt:

The Chicago Teachers’ Pension Fund trustees in October voted to engage with fossil fuel companies to encourage them towards clean renewable energy sources and investing in viable clean and renewable energy sources to offset the fund’s fossil fuel investments. The fund plans to achieve this goal by the end of 2027.

In a statement shared to Chief Investment Officer, the fund’s CIO Fernando Vinzons wrote, “the fund will approach divestiture from a multi-pronged approach, engaging with current companies to encourage them toward a path of clean renewable energy sources, while working toward the longer-term goal of divesting from publicly traded fossil fuel holdings and investing. Divestment does not attract consensus among institutional investors. Many public pension funds are engaging with companies that produce fossil fuels, some are divesting those companies, and some, as the case with state funds from the state of such as Louisiana, are allocating away from managers perceived to be harming the domestic energy sector by endorsing programs like the Net Zero campaign.

According to a press release from the Chicago Teachers’ pension fund, Carlton W. Lenoir, Sr., executive director at CTPF, commented on the vote saying, “as fiduciaries, our trustees must invest consistent with our mission to protect and enhance the present and future economic well-being of members, pensioners, and beneficiaries, and we are confident that this action fulfills that responsibility.”

Author(s): Dusty Hagedorn

Publication Date: 7 Nov 2022

Publication Site: ai-CIO

Republicans ride ESG backlash to state financial offices

Link: https://rollcall.com/2022/11/17/republicans-ride-esg-backlash-to-state-financial-offices/

Excerpt:

Republicans picked up state financial officer positions during the midterm elections amid a campaign against environmental, social and governance investing.

Five positions — in Kansas, Iowa, Missouri, Nevada and Wisconsin — flipped from Democratic to Republican in races for state auditor, controller or treasurer. Of the 50 directly elected positions, Republicans won 29 and Democrats won 19, according to an analysis from Ballotpedia. Two races remain uncalled.

A handful of Republicans’ campaigns for state financial officers focused on ESG, echoing sentiments from GOP officials at statehouses across the country and in Congress who say ESG investing is harming capital markets and domestic energy production and reject the case made by Democrats, major investors and other proponents.

At stake is a suite of legislation and rules that would curb ESG as a material consideration, along with other financial factors, for investors. The proposals include policies for states’ pension funds to divest hundreds of millions of dollars from financial institutions that incorporate ESG — and especially climate — in their investment decisions.

Author(s): Ellen Meyers

Publication Date: 17 Nov 2022

Publication Site: Roll Call

A Coalition of Republican Attorneys General Targets Banks for Net-Zero Alliance Membership

Link: https://www.ai-cio.com/news/a-coalition-of-republican-attorneys-general-target-banks-for-net-zero-alliance-membership/

Excerpt:

Republicans have seized upon the issues of net-zero and environmental, social and governance investing to call attention to what they claim are negative effects of so-called ‘woke’ orthodoxy on portfolio performance, and harm the U.S. energy industry.

They have also raised the potential for a lapse in fiduciary duty by arguing that allocating towards long-term ESG goals may create short-term underperformance, harming plan beneficiaries.

The attorneys general of 14 states – Arizona, Arkansas, Indiana, Kansas, Kentucky, Louisiana, Mississippi, Missouri, Montana, Nebraska, Oklahoma, Tennessee, Texas, Virginia, and five more that have joined but can’t be named due to state laws or regulations regarding confidentiality –have sent civil investigative demands to the six U.S. banks the investigation targets

The six banks did not respond to requests for comment.

The coalition argues that the banks’ membership in the Net-Zero Banking Alliance is damaging U.S. energy companies. The CIDs, similar to subpoenas, are legally enforceable requests for information related to state or federal investigations.

Author(s): Dusty Hagedorn

Publication Date: 25 Oct 2022

Publication Site: ai-CIO

CalSTRS’ board sets science-based emissions goal for 2030 and commits to additional net zero actions

Link: https://www.calstrs.com/calstrs-board-sets-science-based-emissions-goal-for-2030-and-commits-to-additional-net-zero-actions

Excerpt:

The board set four initial measures for integrating the net zero strategy across the portfolio, with a specific focus on emissions reductions:

  1. Interim science-based goal. Reduce greenhouse gas emissions across the investment portfolio by 50% by 2030, consistent with the latest findings of the United Nations’ Intergovernmental Panel on Climate Change.
  2. Systematic decision-making process. Adopt processes to incorporate greenhouse gas emissions into investment decisions as part of traditional risk-and-return analyses and their potential impacts on the CalSTRS Funding Plan.
  3. Reduced emissions. Target a 20% allocation of the Public Equity portfolio to a low-carbon index to significantly reduce portfolio emissions while managing active risk.
  4. Integration of climate scenarios. Incorporate future climate-related scenarios into CalSTRS’ asset-liability modeling framework to help guide CalSTRS’ investment allocations.

These actions reflect increasing global momentum toward achieving a net zero economy. CalSTRS will review its net zero goals and strategy annually to adjust for the latest available data, market fluctuations and related scientific advancements.

CalSTRS’ net zero pledge is rooted in its century-long promise to deliver a secure retirement for California’s hard-working educators and their families,” said Board Chair Harry Keiley. “Taking these interim actions to reduce emissions in our portfolio is a profound step forward and underscores our commitment to considering the impacts of climate change fully and systematically as we manage our fund on every level.”

Author(s): Rebecca Forée

Publication Date: 31 August 2022

Publication Site: Calstrs

New York Announces Historic Fossil Fuel Divestment Plan

Link: https://www.nrdc.org/experts/rich-schrader/new-york-announces-historic-fossil-fuel-divestment-plan

Excerpt:

As part of the plan, the Comptroller announced an aggressive schedule of divestment activity over the next four years. This year already, the Common Fund has divested from 22 coal companies. In the next few months, it will divest from companies with tar sands investments. After that, over the next several years, it will divest from these subsectors of the fossil fuel industry:

  • Shale oil and gas firms;
  • Integrated oil/gas majors like Exxon and Chevron as well as smaller integrated companies;
  • All oil/gas exploration and production firms;
  • Fossil fuel service firms, like Schlumberger;
  • And finally, fossil fuel transportation and pipeline companies like Kinder Morgan and Williams.

In addition, the Common Fund is moving forward with two key steps, both supported by the 2018 Decarbonization Panel that was jointly appointed by Governor Cuomo and Comptroller DiNapoli. First, the Fund will hire new staff trained in financial analysis of climate impacts and dangers. And second, the Common Fund will actively vote against board directors of non-fossil fuel companies that do not prioritize climate concerns in alignment with the Fund’s decarbonization goals.

Author(s): Rich Schrader

Publication Date: 9 Dec 2020

Publication Site: NRDC

So Are ESG Investments Lousy, or Not?

Link: https://www.ai-cio.com/in-focus/market-drilldown/so-are-esg-investments-lousy-or-not/?oly_enc_id=2359H8978023B3G

Excerpt:

One criticism of ESG investing is that, when it shows good returns, this might be because of temporary factors that have an outsize impact. Such superior returns are  often driven by climate-news “shocks,” declared Robert Stambaugh, a professor at the University of Pennsylvania’s Wharton School, and two other academics, in a recent paper. The reference is apparently to a spell of severe drought or destructive hurricanes. The professors expressed uncertainty as to whether any future ESG outperformance can be assumed.

Of course, with climate-oriented investing now a partisan issue, a welter of claims and counter-claims has appeared. To pro-ESG folks, science is on their side, hence the opposition is just blowing smoke to confuse people.

Anti-ESG politicians appear to be convincing the public that a “false equivalence” exists between their stance and the sustainability advocates, contended Witold Henisz, director of Wharton’s ESG Initiative, in a recent article in the Knowledge Wharton periodical. He wrote that “ideological opposition [is] cynically seeking a wedge issue for upcoming political campaigns — and, so far, it appears to be working.”

Whatever the outcome of the current debate over ESG-related bans and the like, the climate change question is not going away. Says CalSTRS’s Ailman, “It will be with us for the next 50 years.”

Author(s): Larry Light

Publication Date: 8 Sept 2022

Publication Site: ai-CIO

Insurers Increasingly Withdraw From Fossil Fuel Projects: Climate Activists’ Report

Link: https://www.insurancejournal.com/news/international/2022/10/20/691030.htm?utm_source=dlvr.it&utm_medium=twitter

Excerpt:

Insurance companies that have long said they’ll cover anything, at the right price, are increasingly ruling out fossil fuel projects because of climate change – to cheers from environmental campaigners.

More than a dozen groups that track what policies insurers have on high-emissions activities say the industry is turning its back on oil, gas and coal.

The alliance, Insure Our Future, said Wednesday that 62% of reinsurance companies – which help other insurers spread their risks – have plans to stop covering coal projects, while 38% are now excluding some oil and natural gas projects. (The Insure Our Future report on re/insurers’ fossil fuel activities can be viewed here).

In part, investors are demanding it. But insurers have also begun to make the link between fossil fuel infrastructure, such as mines and pipelines, and the impact that greenhouse gas emissions are having on other parts of their business.

Publication Date: 20 Oct 2022

Publication Site: Insurance Journal