- The treasurers of Oregon and 12 other US Democratic states are making public comment in opposition to anti-ESG laws proliferating in Republican states.
- In an interview with Capital Monitor Oregon state treasurer Tobias Read says ESG information is necessary for robust investment management.
- Read says these anti-ESG sentiments could affect US asset managers’ transparency on the area.
A repeated accusation from anti-ESG proponents in the US is that the investment process is being “politicised”. This seems hard to deny, although the source of the politicisation is a matter of huge debate.
Glen Hegar, the state comptroller of Texas, who ordered state retirement and school funds to divest from financial firms he says are boycotting oil and gas companies, calls ESG a movement where financial companies are using “their financial clout to push a social and political agenda shrouded in secrecy”.
In the other corner sit public officials who argue that’s precisely what the Republicans are doing.
Tobias Read, Oregon state treasurer, who oversees $139.1bn in pension assets, tells Capital Monitor the actions of Hegar and others in West Virginia and Florida, are examples of “letting politics sneak into something where it doesn’t have a place”.
Academics take a more nuanced view.
A paper published this month by two who sit on opposite sides of the US political divide concludes people are conflating material risk disclosures wanted by investors, and resisted by companies, with related political issues.
Robert Eccles, visiting professor of management practice at Oxford University Saïd Business School, and Daniel Crowley, a partner at US-based law firm K&L Gates, say there is some truth to views that many Democrats see ESG as a way to pursue social change through collective action. Most Republicans believe it is akin to “thinly veiled Marxism”.
But both note that ESG is largely about risk management and that investors as fiduciaries need to be adequately informed on this.
“As the world becomes increasingly complicated, fiduciaries are compelled to adopt new analytic techniques,” they say. “These developments have nothing to do with public policy debates. Instead, they pertain to investor need for material information about their investments.”
Read is also keen to stress this point. So much so that he, and 12 other Democrat state treasurers, last month published an open letter opposing the wave of anti-ESG legislation and to depoliticise the investment process. Combined, the 12 state treasurers have about $2.5trn in AUM.
“[It’s about] what kind of fund do you want to be,” Read adds. “A fund who is in my view distracted by this short-term political noise? Or do you want to position your fund and more centrally the beneficiaries that you’re supposed to be serving with the long-run resilience and success to which they are entitled and that they should expect?”
For those keen to see the political divide, Capital Monitor mapped out all the US states where ESG-linked bills have been introduced, their status and whether they fit into a broad pro or anti-ESG camp.
Washington state treasurer Mike Pellicciotti tells Capital Monitor: “When politicians manipulate laws to obstruct the free market transition to a green economy, it leaves hard-working first responders and teachers paying the cost in lost pension returns for short-term political wins that benefit corporate interests in the old economy.”
Read highlights funds’ responsibility to their beneficiaries throughout his interview. “We [state treasurers] have to remember we are public servants and that we are acting on behalf of firefighters and teachers and public health nurses. People who devote their career to serving us,” he says, adding he is facing pressure from beneficiaries to divest exposure to fossil fuel.
Read says state treasurers aren’t doing their job if they are not going to consider information that could help them make better decisions – this for him must include ESG information. Doing otherwise is “just so silly”.
“I wish I could come up with something more eloquent and profound,” he says. “As a way to say why would you say I’m driving a car and I’m going to limit myself to looking in the rearview mirror to decide how I’m going to make decisions about the direction here.”
Cara Williams, global ESG and sustainability leader at US-based investment consultancy Mercer, agrees: “ESG factors are simply additional information or data points.”
Getting it from both sides
Ironically, figures such as the Texas state comptroller, who released a boycott list of financial companies that boycott energy, used ESG data to compile its list including pledges to Climate Action 100+ and ESG ratings from MSCI.
US asset management firm BlackRock, which has $10trn in AUM, is notably under acute pressure from both sides of the political divide. It is on the Texas blacklist and on 22 September New York City comptroller Brad Lander sent a letter to CEO Larry Fink demanding more action on net-zero emissions.
Read says he has spoken with asset managers in states affected by anti-ESG laws. Some expressed concern at having to justify why they have (or don't have) weapons or fossil fuel exposure in their funds.
“How silly it is… [that] our first question is ‘What are your politics?’” says Read. “We should be asking ‘What's your investment thesis? What do you think is right here? What's your track record?’”
Anti- ESG bingo
Individual politics has to be separated from the management of people’s money as fiduciaries, Read adds, referring to a response from Riley Moore, West Virginia treasurer, managing $9bn in AUM to the letter he signed with other state treasurers.
In a two-sentence response, says Read, “he managed to use the words totalitarian, anti-American, globalist agenda and liberal elites.
“All that was really missing was the word 'woke' and a reference to the Chinese Communist Party.”
Also, Read believes some of the anti-ESG drive is an attempt to change the rules about the relationship between a fiduciary and a beneficiary. “The language is heightened and elevated and charged off trying to rile people up. That’s, I think, the objective this year.”
Ultimately, Read thinks the actions of some Republican states on ESG contradict the principles of a free market – the basis for the US economy. “To say we are not going to let competition be on results or on merit is absolutely contrary to the principles that many of these people, in particular, espouse with respect to the free market.
“Everyone’s for competition until they have to compete.”
Dan Mikulskis, partner at UK investment consultancy Lane Clark Peacock, tells Capital Monitor that the trend in the US is concerning. “It would be worrying if ESG became completely politicised and I believe responsible investment practitioners should try hard to avoid contributing to this happening,” he says.
For now, it doesn’t appear if Mikulskis’s hopes will become realised any time soon.