After failing to advance their agenda by passing legislation in Congress, progressives have found they can just as effectively impose their will on Americans through our financial system. And although some state officials have recently begun to fight back, they are badly outnumbered.
The world’s largest asset managers, BlackRock, State Street and Vanguard, have joined the global Net Zero Asset Management initiative, pooling the $20 trillion in money they manage from others to benefit companies in which they own urge environmental and social causes -justice causes. Progressive state pension fund managers in California, New York, Maryland and even Texas are doing the same with the trillions in pension funds they manage.
The various elements of this ideology have come together under the umbrella of “Environmental, Social and Governance” finance (ESG), and its proponents now include the world’s largest banks, asset managers, pension funds, rating agencies, proxy agents and so on numerous international business clubs , including Climate Action 100+, the Global Investors Statement to Governments on Climate Change, the Net Zero Asset Managers Initiative and the Glasgow Financial Alliance for Net Zero.
ESG also has the support of the Biden Administration’s Securities and Exchange Commission, which has announced it will require all publicly traded companies to provide comprehensive reports on their greenhouse gas emissions. It has the support of the Justice Department, which has just said it will focus on “environmental justice,” and the Labor Department, which has announced it will no longer enforce a Trump-era regulation that prevented private pension administrators from incorporate political concerns such as ESG into their investment decisions.
The collective goal of these groups is to use their financial power to enforce the behavior they want to see, specifically targeting fossil fuel producers and the arms industry. “Behaviour will have to change,” BlackRock CEO Larry Fink said in a panel discussion last March. “You have to enforce behavior, and at BlackRock we enforce behavior.”
BlackRock is the world’s largest wealth manager with $10 trillion in assets under management. In his 2022 letter to CEOs, Fink wrote that “every company and every industry will be transformed by the transition to a net-zero world.” Bloomberg News reported that ESG financial assets are growing exponentially and will reach $50 trillion by 2025, accounting for more than a third of the $140 trillion in assets under management worldwide.
However, some state officials see the ESG movement as a misuse of funds entrusted to wealth managers by retirees. A study by the Boston College Center for Retirement Research reports that ESG investing reduces retiree returns by 0.70 to 0.90 percent per year, primarily because ESG mutual funds that are actively managed charge higher fees than unmanaged index funds . That means higher profits for money managers, less money for retirees.
And for all the added costs, many question whether ESG investing is doing much for the purposes it claims to support. A research report from Columbia University and the London School of Economics states that companies in ESG funds “compared to portfolio companies held by non-ESG funds” “have an inferior track record of complying with labor and environmental laws exhibit”.
Tesla CEO Elon Musk recently called ESG “an outrageous scam,” adding that “it was armed by fake social justice warriors.”
“If BlackRock has money of its own and wants to be activist investors, I think people have the right to use their own capital in any way they see fit,” said Missouri State Treasurer Scott Fitzpatrick. “The problem here is they’re using other people’s money, and people don’t want their pension money to be used for political purposes.”
State officials are increasingly discovering how state pension funds are being used to support “the religion of global climate change,” said Derek Kreifels, CEO of the State Financial Officers Foundation. “Now we see the veil fall over how they arm it. Now they’re starting to include all these others [social] problems too.”
Activist money managers choose the stocks they manage to influence corporate leaders, and this goes a long way to explaining why Disney, a producer of family entertainment, is now championing sex education in elementary schools; why Delta, Coca-Cola and Major League Baseball fought Georgia’s Voter ID Act; and why Citibank has campaigned against abortion-restricting laws in conservative states and restricted lending to gunmakers and retailers — all for political reasons unrelated to the conduct of its business. The Wall Street Journal reports that activist money managers are now pressuring Walmart, Lowe’s and TJ Maxx to take a stand against abortion restrictions.
But for all the headline-grabbing pronouncements by CEOs on political and social issues, progressive wealth managers have been content to operate quietly behind the scenes in boardrooms, shareholder meetings and global conferences.
“If they ever admitted what they’re really doing, they would place themselves under immeasurable liability,” Fitzpatrick said. “It invites lawsuits galore for people who can say, ‘You have failed in your financial duty to us.'”
“As a wealth manager, you only have faith,” said Utah State Treasurer Marlo Oaks. “If you breach that trust, your business is gone. The investment managers pushing this agenda are ultimately risking the very franchise they’re pushing it with.”
By colluding against fossil fuel companies, Oaks said, banks and asset managers are “actively implementing economic sanctions. We need more capital for oil and gas exploration and there are great opportunities to make money there. Why isn’t the money going there? Why don’t capital markets work the way they did in the past? That’s because of ESG.”
One by one, conservative states are beginning to roll back laws and legal action. Krifels said 23 states have now taken action to prevent state money from being used to support political causes. This, the New York Times wrote, has had a “chilling effect” on progressive initiatives, although it remains to be seen how much of an impact it will have.
In May, Oklahoma passed the Energy Discrimination Elimination Act, modeled on laws passed in Texas last year that prevent the state from doing business with banks or asset managers that discriminate against fossil fuel companies. A similar bill in Oklahoma does the same for those who discriminate against gun manufacturers.
Last week, Kentucky Attorney General Daniel Cameron issued a legal opinion noting that the use of state pension funds for “environmental, social and governance” purposes constitutes a conflict of interest and “is inconsistent with Kentucky laws governing fiduciary duties.” regulate”. Cameron criticized the “growing trend by some investment management firms to use public and state pension plan money – other people’s money – to advance their own political agendas and force societal change.”
In December, Florida revoked power of attorney for money managers, meaning they can no longer vote at their discretion on the stocks they manage for Florida retirees. Gov. Ron DeSantis stated that this “will clarify the state’s expectations that all fund managers should act solely in the financial interests of sovereign wealth funds.”
In November, Arizona Attorney General Mark Brnovich launched a formal investigation into “anticompetitive behavior” by progressive financial institutions, accusing them of “threatening and intimidating corporations if they don’t adhere to their left-wing agenda.”
Also in November, Louisiana banned JPMorgan from underwriting its municipal bonds because of its policy on arms manufacturers. West Virginia and Texas recently passed laws barring financial firms that discriminate against fossil fuel producers from municipal contracts.
“Next week we will be sending letters to financial institutions that will be placed on a list barring them from contracts in the state of West Virginia,” said West Virginia State Treasurer Riley Moore. “We are an energy state and this is an existential threat to our economy.”
“We need energy independence in this country,” Moore said. Countries in Europe are now realizing that their green energy policies have caused prohibitive fuel price spikes, created a risk of blackouts when the wind isn’t blowing, created a dangerous dependency on countries like Russia, and in many cases even increased their carbon footprint . “It’s because they got into this ESG nonsense,” he said. “You can call it sustainable, but it cannot sustain a grid.”
In addition to what many see as a misallocation of government pension funds, there are the larger legal and societal issues associated with using the financial system to “enforce” behaviors.
“This seems to me like I’m using Wall Street to achieve what the left could not achieve through Democratic means,” said John Murante, Nebraska’s Treasurer. If progressive policies had public support, they could be legislated democratically through Congress, he said. Instead, “they bypass the democratic process and try to do indirectly what they were unable to do through persuasion, logic and reason.”
ESG investing would lose in the court of public opinion “because it’s incredibly unpopular. ESG is the 2023 version of CRT,” Murante said, referring to critical race theory in schools. “It’s been institutionalized without people knowing about it, but when they do find out about it, there’s real national outrage.”
Going up against the world’s largest financial institutions and the Biden administration, however, is a daunting task for state finance officials, and they have a long and difficult road ahead of them. But Murante says he’s optimistic.
“We have three key advantages on our side,” he said. “Firstly, we are right about the issues; second, we are legally correct; and third, we have the people with us.”
“It’s a David and Goliath situation,” said Krefels. “But David won.”