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Anti-ESG movement dials up the drama in the US

The “anti-ESG” brigade are in force. However, indications are the US may not be, to paraphrase Florida Governor Ron DeSantis, “where ‘woke’ goes to die”.

By Paul Hodgson

anti-ESG, Ron deSantis, US, woke
It’s gotten this big! Florida Governor Ron DeSantis believes the “anti-ESG” brigade will defeat the “woke ESG financial scam” in the US. He’s far from alone. (Photo by Mario Tama/Getty Images)
  • J.P. Morgan Chase, Mastercard and Wells Fargo are attempting to block shareholder resolutions that target what two right-wing think tanks allege is anti-conservative bias in their businesses.
  • Two oil service firms and an industry association have signed on to a lawsuit by 25 Republican state attorneys general to block a US government rule which allows managers to consider ESG risks in their investment decisions.
  • But in February, red state North Dakota voted overwhelmingly against a bill to bar state investment with alleged energy firm boycotters, similar to the bills passed in Texas and other Republican states last year.

A lawsuit by 25 Republican state attorneys general, which was recently joined by two oil service firms and an industry association, is seeking to block the US Labor Department’s (DoL) rule to allow money managers to consider ESG risks in their investment decisions, which came into effect this year.

It’s just one more in a host of legal actions that aim to stifle the formal recognition of ESG within investment and banking activities. But, crucially, it is one that reveals a distinct lack of legal sophistication at best, and understanding at worst.

“If you read [its] instructions and then you read the lawsuit, it doesn’t make any sense,” says Steven M Rothstein, managing director at Ceres Accelerator for Sustainable Capital Markets. “The DoL said ‘if you want, you can consider ESG’. It does not mandate money managers to do so.”

This lawsuit is accompanied by a Republican Party bill that also seeks to block the DoL rule – although President Biden is likely to veto this, even if it passes the Democrat-controlled senate, because of support from fossil-fuel-funded senators.

Another 21 GOP state attorneys general also accuse proxy advisors ISS and Glass Lewis of promoting climate goals and are threatening legal action. Florida Governor Ron DeSantis also announced this month that he would introduce legislation to prevent all state and local government entities from using ESG in investment decisions. “The people who will lose are the public employees, teachers, firefighters,” argues Rothstein.

Losing out on opportunities

It was announced last month that the Indiana Public Retirement System could lose $6.7bn over ten years in reduced investment returns if it implements a bill barring the fund from investing with managers that use ESG. “And now we’re seeing a reaction to the reaction in states like Indiana and many other ‘reddish’ states where bills have died,” says Rothstein.

In Kentucky, a state law from 2022 required divestment from money managers that ‘boycott’ energy firms. The law is similar to one introduced in Texas last year, which also banned investments with the likes of BlackRock, Citigroup and J.P. Morgan Chase.

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But some conservatives say this is too extreme. In response to the law passed in Kentucky, the Kentucky County Employees’ Retirement described it as “inconsistent with its fiduciary responsibilities”. “In addition,” adds Rothstein, “many State banking associations in conservative states are saying they need to consider market and financial risks, including climate issues.”

Even the conservative legal group, the American Legislative Exchange Council (ALEC), voted against adopting the latest model legislation that would give red states a template to boycott firms which are deemed to be boycotting fossil fuel companies.

Luckily, it seems, since a research paper found that the two anti-ESG model policies made by the right-wing lobby group, ALEC, can create “massive legal risk” for any pension fiduciary or service provider. The study, titled The Liability Trap, was written by David Berger, a partner at Wilson Sonsini Goodrich & Rosati, Beth Young, managing partner at consultancy Corporate Governance and Sustainable Strategies and David Webber from Boston University.

Finally, the Wyoming House of Representatives Appropriation Committee voted down both the Stop ESG-Eliminate Economic Boycott Act (SF0159) and the Stop ESG-State Funds Fiduciary Act (SF 172).

Anti-ESG shareholder resolutions

And it is not just legislation that threatens to slow growth in ESG investments and other, so-called ‘woke’ policies. The conservative think tank National Center for Public Policy Research (NCPPR) filed a shareholder proposal for consideration at J.P. Morgan Chase’s AGM this year asking it to report on its “business practices that prioritise non-pecuniary factors”.

The resolution, which the bank is challenging at the Securities and Exchange Commission (SEC), alleges that the bank has a “history of cancelling the accounts of those who hold opinions and political views that deviate from hard-left political orthodoxy”.

The resolution is part of a wider campaign to “Stop Chase’s Assault on Free Speech!”. Explaining why the NCPPR has a special animus towards J.P. Morgan Chase, its Free Enterprise Project director, Scott Shepard, tells Capital Monitor: “[J.P. Morgan Chase] has a history of de-banking on political or partisan grounds and it’s always against the right, it’s never against the left.”

The resolution filed by NCPPR refers to a number of alleged de-banking events, including the bank account of the National Committee for Religious Freedom (NCRF), a nonpartisan, multi-faith nonprofit.

A J.P. Morgan Chase spokesperson tells Capital Monitor, “We communicated with the former client many months ago, in writing, and they are aware of [the reason] why we closed the account.” But, according to NCPPR, the bank refused to communicate with them about the closure, even if the conversation involved NCRF representatives. J.P. Morgan Chase vehemently denies closing accounts because of political or religious affiliations.

Concerted efforts

It doesn’t end there for the US-based bank. J.P. Morgan Chase was also hit with another proposal, also challenged at the SEC, by another conservative think tank, the National Legal and Policy Center (NLPC), which is seeking a report on whether J.P. Morgan Chase “requests to close customer accounts by any agency or entity operating under the authority of the executive branch of the United States Government.”

The NCPPR also filed a resolution at Bank of America, which was successfully challenged at the SEC when the group was unable to show continued shareholding in the bank – a requirement of filing a proposal.

This resolution asked for an explanation on “why it does not list the World Economic Forum (WEF), Council on Foreign Relations (CFR) or Business Roundtable (BR) among its partners or recipients of contributions,” even though these organisations list the bank and its CEO, Brian Moynihan, among its members. The resolution continues, “the agendas of WEF, CFR and BR are antithetical with the Company’s fiduciary duty”, believed to be because they espouse stakeholder capitalism rather than the interests of shareholders.

NLPC has also filed resolutions at Wells Fargo and Mastercard. The challenges at the SEC have not been filed yet, though NLPC shared the resolutions with Capital Monitor. Both resolutions closely mirror the NLPC resolution at J.P. Morgan Chase. At Wells Fargo, the think tank pointed to the closure of accounts owned by aspiring Republican Party candidates Pete D’Abrosca and Lauren Witzke, allegedly for partisan reasons.

Better to sweep anti-ESG under the carpet?

Wells Fargo and Mastercard declined to comment, with one executive requesting Capital Monitor not to write about the groups as their “claims of so-called ‘de-banking’ for religious/political views are just false and you risk spreading misinformation”.

However, the sustainable investment side is adamant the actions of these think tanks should not be ignored. “It is having a short-term chilling effect in the marketplace,” says Rothstein. “There are two kinds of potential impact, there’s a legal impact and a market impact.

“One of the market impacts is for banks and investors to say, ‘well, I think I’m just going to slow down.’ [However,] there are institutions who are still doing everything that they were doing but are just not talking about it.”

BlackRock’s CEO Larry Fink, in a recent interview with Bloomberg TV, responded to a question about the impact of anti-ESG outflows: “We lost about $4bn of flows from various states, but in long-term flows last year we [gained] $400bn. Just last year in the United States our clients entrusted us with an additional $230 billion. So, you tell me.”

Whatever the decisions at the SEC regarding the fate of these resolutions, both groups intend to continue their campaigns. Said NCPPR’s Shepard: “We expect to file more in the future with particular focus on the ‘too big to fail’ banks, because every American taxpayer… [is] required to bail them out if they fail.”

“This is having an impact in the short term,” sums up Rothstein, “but in the long run, the arc of the market is moving. There’s more money in ESG funds [and] more people are concerned about climate, as it is a growing risk.”

[Read more: The ESG culture war tantrums]

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