Environmental, Social and Governance Ratings Hit States and Stifle Fossil Fuel Industry Capital
State treasurers spoke out against imposing environmental, social and governance (ESG) ratings on public money at a June 8 press conference, with one official comparing it to the push for social justice in favor of universal home ownership that helped trigger the Great Recession.
“I would be very concerned about investing in green energy right now,” Utah State Treasurer Marlo Oaks said in response to a question from The Epoch Times.
He did not rule out the possibility of an ESG bubble similar to the housing bubble that burst in the late 2000s, an event that led to the country’s worst economic downturn since the Great Depression.
This bubble was inflated in part by two government-sponsored companies, Fannie Mae and Freddie Mac.
Beginning in earnest with the Clinton administration’s 1995 National Homeownership Strategy, which pledged to “expand creative financing” for homebuyers, companies have continually reduced loan requirements.
According to a study by the National Association of Realtors, in 2006, 43% of first-time buyers had made no down payment.
Unlike the “invisible hand” – Adam Smith’s metaphor for how the free market works – Oaks sees ESG as an “invisible fist”.
Oaks was one of the signatories to an April 21 letter from the governor, senators, congressional representatives and other Utah public officials in response to S&P Global’s release of ESG ratings for states and territories. Americans.
“Given recent global events, the current economic situation in the United States, the unreliability and the inherently political nature of ESG factors in investment decisions, we believe that this new focus on ESG politicizes the rating process.
“It is deeply counterproductive, misleading, potentially damaging to rated entities, and possibly illegal,” Oaks and colleagues explained in that letter.
Idaho officials sent a similar letter to S&P Global on May 18. They echoed concerns in the Utah letter about the company’s rating of US energy companies relative to some of their foreign counterparts.
China’s state-owned Sinopec, for example, earned a 41 from S&P Global. ExxonMobil Corporation, on the other hand, received a 36, while Chevron Corporation received a 39.
Sinopec’s sub-scores for the “social” and “governance and economy” factors were well above the industry average.
The results raise questions about the reliability of the ranking in light of the use of forced labor in China as well as the Chinese Communist Party’s strong influence on corporate governance in the country.
For example, in an analysis of leadership shake-ups in China’s oil industry in 2011, experts from the Brookings Institution and Ian Bremmer’s Eurasia Group found that moving leaders from one company to another is “a blatant reminder of CCP control.” on China’s leading enterprises.
Another speaker at the June 8 press conference, West Virginia Treasurer Riley Moore, made headlines in January when the state opted out of Blackrock over its ESG practices.
“In West Virginia, we are an energy state. We produce coal, gas and oil – and this ESG movement in its current form is truly an existential threat to our jobs, our economy and our tax revenues,” Moore told reporters.
A law passed by the West Virginia Senate on March 12 will bar financial institutions from bidding with the state if they boycott fossil fuel companies.
Financial institutions that are to be blacklisted from West Virginia contracts will receive letters allowing them to appeal the decision. Thirty days later, the complete list will be published.
Moore told reporters those initial letters will likely be sent out later this week.
He also suggested that ESG scoring could soon be incorporated into individuals’ credit ratings, for example, through advantageous mortgage rates for people who install solar panels on their homes.
In a follow-up interview with The Epoch Times on June 8, Riley cited a presentation by J. Michael Evans, chairman of China’s Alibaba Group, at the World Economic Forum.
Evans said his company was developing a “one-to-one carbon footprint tracker,” which he said would allow consumers to measure their travel, food consumption, and more.
“You will come to a very logical conclusion if we continue down this path,” Moore told The Epoch Times.
He agreed that the economy could face an ESG bubble. Moore argued that coal prices could be an indicator – the international benchmark for a tonne of coal has risen from less than $50 in September 2020 to around $400 today.
“Coal producers are booked until 2023. They cannot produce more than they currently do,” he added.
Kentucky State Treasurer Allison Ball also spoke to reporters at the June 8 press conference, saying enforcing ESG could violate her state’s laws.
Kentucky Attorney General Daniel Cameron agrees.
In a May 26 notice prompted by an investigation by Ball, officials in Cameron’s office agreed that ESG asset management practices violated Kentucky law.
“It’s not really a question of profitability. It’s not about retirement security. It’s not about your investments. It’s about political activism. And they’re doing it in a way that they couldn’t through the democratic process,” Ball told reporters.
“ESG today misallocates capital, in that it’s not providing capital where it’s desperately needed, in the traditional energy space, and that’s driving up gas prices,” Oaks said. .
Left-wing activists and financiers have celebrated the movement of hydrocarbon investments, arguing that pushing in this direction is both ethically and financially sound.
“Getting lenders to choke off fossil fuel companies’ money is the next necessary step for the industry to address the significant risks facing the coal, oil and gas industry,” said Leslie Samuelrich of Green Century Capital Management, quoted in a CNBC February 2021 article.
“Mining, exploring and extracting fossil fuels are all capital-intensive activities that require constant access to capital. If investment costs rise or the supply of capital is reduced, projects may become unprofitable and fossil fuel companies may see their valuations plummet,” wrote David Carlin in a February 2021 article for Forbes, “ The Case for Fossil Fuel Divestment”.
He argued that coal, oil and natural gas companies could face “a bleak financial future” if their reserves go untapped due to political or financial pressures, suggesting divestment advocates “make a financial decision advised”.
As ESG has moved left, at least one fund appears to offer a more conservative alternative.
Traded index fund (ETF) Inspire Investing, which claims to offer “biblically responsible investing” in the vein of ESG, has bucked ESG trends by investing in gun companies Sturm Ruger & Company and Vista Outdoor, as reported by Bloomberg Law and confirmed by Inspire’s filing with the Securities and Exchange Commission.
Yet speakers at the June 8 press conference told The Epoch Times that they reject the idea of pushing ESG to the right through state power over public pensions.
“We just want politics to get back to a neutral base,” said Derek Kreifels of the State Financial Officers Foundation, adding that using public pension funds to advance a political agenda was “the big offense with ESG. “.
“If you want to invest in a second modification ETF, feel free to do so. We don’t want to be forced into investing in that,” Moore said.
Robert Netzly, president and CEO of Inspire, told The Epoch Times, “We believe the solution to gun violence is not taking guns away from law-abiding citizens, but strict enforcement of the law that takes criminals off our streets.
“We believe that public pension schemes should not be forced to invest according to particular ESG guidelines, but should have the freedom to do so if they decide it is in the best interests of their constituents.”
The Epoch Times contacted S&P Global and Alibaba Group.