ESG investing and disclosure of corporate fear of climate risks – News Block

the house of representatives released the first report of its ESG Task Force in late June, outlining priorities for the rest of the 118th Congress and making it clear that Republicans will not stop “investigating” environmental, social and governance investments as long as the possibility of saving polluting companies. from having to report their actual emissions.

At its core, ESG is about information: When companies report their environmental, social and governance risks, which can range from high greenhouse gas emissions to particular hiring practices, investors use that information to determine whether they believe a company is a good investment. .

The Republican-led House isn’t the only entity that has become obsessed with ESG investing in the past two years. From political advocacy organizations like the Texas Public Policy Foundation to state treasurers, the American Legislative Exchange Council, and the Association of Republican Attorneys General, the right has been on fire on this issue ever since the Securities and Exchange Commission did what it did. that seemed like a pretty boring ad. in 2021: The SEC was going to help provide some stability in the ESG space by setting parameters for how companies could disclose climate risk to investors who care about such things.

Without those proposed guidelines, which are due to be finalized this year, it is doubtful that an anti-ESG movement will exist. It only came about after the SEC made its intentions known, even though ESG investing has been around for more than 20 years.

In fact, the same polluting industries and pro-industry politicians who scream about ESG as “woke capital” today embraced the idea before. It was a handy greenwashing tool that also helped unlock easy capital for corporations that could claim, even falsely, that they were reducing emissions or improving the diversity of their workforce. The SEC’s suggestion that companies should disclose their Scope 3 emissions, the emissions associated with the entire supply chain of their product, including its end use, sparked the current frenzy.

To date, fossil fuel companies have preferred to report only Scope 2 emissions, those associated with their own operations, which account for less than 10 percent of their total emissions. Scope 3 reporting would require full accounting, from start to finish, with no way to distract from a company’s actual climate impact.

Backlash from ESG has included the introduction of 165 anti-ESG bills in 37 states in 2023 alone, according to a report by Pleiades Strategy; a coordinated push by Republican state treasurers to drive ESG-sensitive investment firms out of state finances; and a legal ploy in which Republican attorneys general allege that ESG investors are “conspiring” against the fossil fuel industry. Now Congress has sprung into action, with the House Oversight Committee hosting two hearings on ESG in May and June, Finance Committee hearings expected in July, and proposed legislation in the pipeline.

Just as remarkable as the speed with which this coordinated movement came together is the lack of support among Republican voters. According to a survey by Penn State’s Center for the Business of Sustainability and communications firm ROKK Solutions, Republican voters are even more opposed to limiting ESG investing than Democrats. The Pleiades report found that of the 165 anti-ESG bills proposed this year, only 22 were approved by state governments.

That hasn’t stopped Republican allies from stepping up the fight as the SEC moves ever closer to finalizing its weather risk disclosure guidelines. At last month’s Oversight Committee hearing, Jason Isaac, who focuses on energy for the Texas Public Policy Foundation, an industry-funded conservative think tank, opened his testimony with the claim that he has become the focus of the anti-ESG agenda: ESG investing violates antitrust laws.

It’s a legal ploy to derail ESG investing that Isaac helped create and has successfully imparted to some heavyweights in the conservative political space: the American Legislative Exchange Council, or ALEC, which brings together state legislators with executives. corporations to craft legislation limiting regulation; the Association of Republican Attorneys General; the Heritage Foundation; and Consumers’ Research, a political group funded by former Federalist Society president Leonard Leo. The argument is that financial firms that consider ESG factors are “conspiring” to boycott polluting companies, which amounts to an antitrust violation.

Watchdog group Documented shared audio with The Intercept of two ESG-focused ALEC planning sessions. “These companies are coordinating their activities,” said Will Hild, CEO of Consumers’ Research, during a panel discussion with Isaac at an ALEC meeting in July 2022. “They talk about how they’re going to set policy across the market . . Now, it’s been a while since I was in law school, but when I was there, that was antitrust 101.”

At another ALEC meeting, in June 2021, Isaac pointed to an investigation by the Texas Legislature’s state affairs committee as a key step in the legal strategy to combat ESG investing. “We anticipate that truckloads of documents will be delivered,” he said. “We believe there is corporate collusion, risk of liability for the ESG agenda to charge higher fees and manipulate the market. We believe there are antitrust violations. So I hope our committee recovers a ton of paper from these big financial institutions and they get hammered in court. And our attorneys general across the country are reporting antitrust violations.”

At the Oversight Committee hearing in May, it became clear that the Republican attorneys general planned to do just that. Alabama Attorney General Steve Marshall and Utah Attorney General Sean Reyes picked up on Isaac’s antitrust argument and focused on groups like the Glasgow Financial Alliance for Net Zero, a global coalition of financial institutions that met at the conference. Glasgow climate change in 2022 and pledged to decarbonise the economy.

“These alliances also harm consumers through anti-competitive conduct,” Marshall testified. “Alliance members appear to be conspiring to restrict trade by colluding with other members to reduce competition among themselves and coordinating restricted investment in action towards specific companies unless ESG policy objectives are implemented. And let’s be clear, ESG activity is subject to antitrust laws.”

Marshall also noted that the Association of Republican Attorneys General was aggressively pursuing the antitrust legal strategy. “Republican attorneys general have been active on the investigative side using both our consumer protection laws and antitrust laws,” he said. “Multiple investigations are now pending.”

At the June Oversight Committee hearing, Isaac himself testified. “Today, I want to discuss with you the detrimental effects that the collusive ESG agenda is having on American energy producers and why Congress must do everything in its power to stop this overreach in what is supposed to be a free market,” he said. “ESG investing is not only harmful to our economy and the energy industry, but could violate antitrust laws.”

Isaac first presented the antitrust legal strategy at the ALEC meeting in 2021. Shortly thereafter, several state attorneys general began acting on the advice of the Texas Public Policy Foundation. In March 2022, then-Arizona Attorney General Mark Brnovich launched an investigation into “this potentially illegal market manipulation,” warning that climate disclosure could be “the largest antitrust violation in history.” The following month, Utah’s Sean Reyes, along with the state treasurer and congressional delegation, sent a letter to S&P objecting to its use of weather-related disclosures and warning that “state antitrust” statutes could be relevant. Missouri AG Eric Schmitt and Louisiana AG Jeff Landry also sent letters warning that ESG ran afoul of “securities law.” In August 2022, a month after the second ALEC panel, 19 Republican state attorneys general signed a letter to investment firm BlackRock alleging possible “antitrust violations” related to weather disclosures.

Far from “ensuring a free market,” as Isaac claims, regulations that prohibit ESG considerations will limit investor access to information. The Democrats’ witness at the May Oversight Committee hearing, Illinois State Treasurer Michael Frerichs, pointed to opioid investigations as a good example. “ESG is about looking at a broader range of value risks and opportunities that can have a material financial impact on investment performance,” he said. “If you’re investing in a pharmaceutical company, you’re thinking about whether that company is exposed to mass lawsuits because of its role in the opioid epidemic.”

“Make recommendations about which sectors to invest in, including expressing negative views about the risks of investing in a moribund industry like coal, for example, or giving opinions about the benefits of investments, for example, investing early in the transition to cleaner energy, not not violate the terms of the Sherman Act, the Clayton Act or the FTC Act,” said Lisa Graves, CEO of True North Research, who previously served as legal counsel to all three branches of government. . Such recommendations, she added, are “what investment groups have been hired to do on a daily basis for decades.”

According to Graves, sweeping anti-ESG legislation like the bill Florida Governor Ron DeSantis recently signed into law is a violation of the First Amendment. “It is actually dangerous for our society when officials use their public office to try to freeze free speech and the sharing of vital knowledge and experiences,” he said.

The politicization of ESG investing and the threat of antitrust lawsuits has already had a chilling effect. Earlier this year, BlackRock Chairman Larry Fink estimated that ESG’s backlash had cost BlackRock $4 billion. In April, Munich Re, the world’s largest reinsurer, left the Glasgow Financial Alliance for Net Zero subgroup of insurers, citing the “significant legal risks” of continuing as a member. BlackRock’s main competitor, Vanguard, has left another group in the crosshairs of the anti-ESG movement, Net Zero Asset Managers, and sent its chief executive, Tim Buckley, on an apology tour. “It would be arrogant to assume that we know the right strategy for the thousands of companies Vanguard invests in,” Buckley told the Financial Times, adding that Vanguard was “not in the game of politics”.

Meanwhile, the SEC has delayed finalizing its weather risk disclosure guidelines. Although the agency hasn’t confirmed that the delay has anything to do with the threat of legal action, it’s hard to ignore the parallel moment.

“We really won’t know how successful that lobbying has been until these rules are published,” said Jesse Coleman, a Documented researcher who has been tracking the backlash from ESG since it began. “But what we can predict is that they are going to be sued. And there will be a lot of legal disputes surrounding these rules once they are released.”