Soon after Riley Moore took office last year as the state treasurer of West Virginia, he started to hear disturbing things from the fossil-fuel industry in his state. Coal and gas operators told him they were struggling to get loans from banks and other lenders, and that they were worried about being shut out of the financial system altogether.
“I had coal operators and gas companies come to me and say, ‘This is a big concern for us,’” Moore told me over the phone. “‘We’re hearing from our lenders that we might lose access to capital and the ability to continue to finance our operations.’”
Moore wanted to strike back at the financial institutions that he believed were choking off his state’s flagship industry, and soon he zeroed in on BlackRock, the world’s largest asset manager. The investment firm operated a $1 billion liquidity fund with the state, but its leader, Larry Fink, had also announced his intention to move away from fossil fuels.
“We want to do business with banks that want to do business with us,” Moore explained. “We didn’t think that it made any sense for us to continue to do business with our tax dollars here with an asset manager like BlackRock, which is against the fossil-fuel industry. We feel like there’s a conflict of interest there.”
Moore yanked West Virginia’s state funds away from BlackRock and reinvested them with a different firm. A few months later, the state legislature passed a bill that enabled him to create a blacklist of banks that boycotted fossil fuels, and to pull state money away from them as well. Since then he has put together a coalition of 15 other states that are making similar moves — states that he says have funds worth more than $700 billion.
Moore is one of the leaders of a new backlash against environmental, social, and governance (ESG) investing. The financial sector has only just begun to make tentative movements away from fossil fuels, but Moore and politicians like him want to stop this green-investing trend before it can get off the ground; they’ve been assisted in this effort by conservative organizations such as the American Legislative Exchange Council (ALEC) as well as a conservative media that views Blackrock as a new deep-state bogeyman. There’s a clear economic rationale for these laws, which serve to protect the interests of oil and gas companies, but their proponents have clothed them in the language of the culture war, speaking out against “woke capital.”
The notion of green investing has been around for decades, including in prior guises like “corporate social responsibility” and “sustainable development,” but it’s only in the past few years that ESG has become a major trend. Between 2014 and 2021, the total amount of assets under management in ESG funds quadrupled from $10 trillion to $40 trillion, so that one in every three managed dollars in the world was in an ESG fund. Sustainable debt issuance doubled from $800 billion to $1.6 trillion in a single year between 2020 and 2021.
At the same time, financial leaders like Fink at BlackRock have talked up capitalism as a force for good: “We focus on sustainability not because we’re environmentalists, but because we are capitalists and fiduciaries to our clients,” Fink said in his annual letter to CEOs earlier this year. Banks, from JPMorgan Chase to Bank of America, meanwhile, have announced their intention to reach net-zero emissions by 2050 or sooner, and several have said they want to divest from coal in particular.
A number of conservative media personalities have picked up on this rhetoric as evidence that Fink and his peers are trying to bring about a “great reset” of capitalism. Foremost among these is Vivek Ramaswamy, author of the book Woke Inc., who has argued that the financial sector is trying to “dissolve the boundaries between government actors and private companies to advance a single progressive globalist agenda.” When Ramaswamy appeared on Tucker Carlson Tonight, Carlson summed up his position by saying that Fink “invests it in ways that are repugnant to you and your core values and your family’s future.” On a later episode, Carlson referred to ESG as “fraud.” There have even emerged so-called “anti-woke ETFs,” or exchange-traded funds, that seek to give conservative investors an alternative place to put their money. One such ETF has boycotted Apple, Disney, Nike, and more in favor of Fox and News Corp.
It’s difficult to gauge the exact scale of this ESG movement, or its authenticity. On the one hand, it’s true that fossil fuels make up a smaller share of the average investment portfolio than they once did, and coal in particular has gotten the cold shoulder from many major financiers. A number of banks and insurers have also refused to support controversial oil-drilling projects such as those in the Arctic National Wildlife Refuge and the Alberta tar sands. On the other hand, the largest banks and funds still have massive exposure to fossil fuels. BlackRock, for instance, still held $85 billion in coal assets as of earlier last year, and banks like JPMorgan and Bank of America remain some of the largest financiers of the oil and gas industry. Just this month, BlackRock said it would vote against shareholder proxy resolutions on climate change, claiming the resolutions had become too “prescriptive,” and financial titans like Warren Buffett have more or less ignored the trend.
Even so, the fossil-fuel industry depends on ample access to capital, and these movements have made producers nervous about the future: The S&P ratings agency projected that fossil-fuel companies that don’t meet environmental goals may see restricted access to financing. That’s the impetus behind a barrage of new bills that seek to either punish banks that divest from fossil fuels or ensure that state funds still flow toward them. The first such bill was drafted last year for the Texas legislature by the Koch-funded Texas Public Policy Foundation, and sought to create a list of “restricted financial institutions”: the state would no longer contract with any bank or corporation found to be “boycotting” oil and gas. The blueprint for this law was a similar bill that targeted state contractors that had withheld their services from Israel as part of the Boycott, Divestment, and Sanctions movement; the fossil-fuel version required all large companies to pledge they wouldn’t divest from fossils or else risk losing Texas’s business.
A bevy of other bills have followed in its wake, appearing in dozens of state legislatures. The chief architect of this legislative assault is the conservative policy group ALEC, which translated Isaac’s Texas bill into a boilerplate legislation that it has since shopped around everywhere it can. There are other variations on the same theme: One type of bill restricts state pension funds from investing in “companies that boycott energy companies or companies that do business with energy companies.” Another, introduced in the Wyoming legislature, holds only that “no financial institution shall discriminate against any person or business entity based on a person’s or business’s … environmental, social, governance score or standard or any other subjective evaluation or metric related to social or environmental justice.”
Bette Grande, a state-government liaison at the conservative Heartland Institute, has played a central role in pitching these bills to state legislatures. Grande, a former North Dakota state legislator herself, has testified before more than a dozen state chambers this year, speaking out against what she calls the “social credit” regime of ESG.
“We want them to go back to doing things the way they should be done — if it’s a financial thing, deal with it on a financial level, not off of the social-credit system you have arbitrarily chosen to take the lead on,” Grande says. She likens the ESG criteria of big banks to the Chinese social-credit system, and says that the current ESG standards for companies could someday lead to controls on individual behavior. Her home state of North Dakota is also home to numerous coal and oil producers, and she says they too have struggled to access capital in recent years.
The only problem is that it’s difficult to decide which firms are “boycotting” fossil fuels, or for that matter whether a bank’s decisions are the result of political principles or ordinary risk assessment. Fink, for instance, might talk a big game about sustainable capitalism, but last year BlackRock responded to the Texas law by touting its commitment to fossil fuels. Fink has also said that “we need to pass through shades of brown to shades of green,” noting that “traditional fossil fuels like natural gas will play an important role” in the economy.
Indeed, Texas has struggled to implement its original blacklist law: Email records obtained by the nonprofit Floodlight News show that the very financial firm the state hired to provide information on which companies to boycott turned out to have a net-zero standard of its own, raising questions about whether it too might be subject to a boycott. West Virginia’s Moore, for his part, says he plans to release his list in the next few months, and says it won’t apply to any banks with net-zero goals, just those that want to boycott coal altogether. (As for the money he pulled from BlackRock, it’s now with a fund called Dreyfus, owned by Bank of New York Mellon. Dreyfus “certainly has ESG,” Moore says, “but it also has non-ESG.”)
Other laws are even more vague, like the one in Idaho that Citigroup, for instance, has committed to, reducing the emissions of the power-sector companies it finances by around two-thirds, which will entail investing in less coal and natural gas. It has not, however, said that it will stop financing oil and gas altogether. Does this qualify as “boycotting energy companies”? What about “discriminating against a business entity based on any metric related to environmental justice”? A generous view of these laws would prohibit state funds from investing in almost any company or contracting with almost any major banks. Tellingly, even the anti-woke ETFs mentioned above have struggled to figure out where they should put their money. “It’s an unfortunate reality in the large-cap space; there are none that have pure conservative values,” said the founder of one.
“If all the money got taken out of these banks, and not just the investments but you did the financial services, you might have an effect on banks like JPMorgan and Stanley,” says Tom Sanzillo, director of financial analysis at the Institute for Energy Economics and Financial Analysis and a former New York State comptroller. “If you got 20 states, you’d have some impact on their various departments, not the consumer-lending side but the public-sector side.”
Sanzillo isn’t sure whether laws restricting pension funds will hold up in court either.
“You’re bringing a social cost — the survival of fossil fuels — into the investment process, because left to their own devices the markets would be choosing other than fossil fuels. You’re asking them to perform financial malpractice.”
It’s unclear whether even Moore’s growing coalition can make a dent in the growing ESG juggernaut. Heartland says that at least 20 states have taken some kind of action against ESG, whether in the legislature or through executive action by their treasurers. Together these states account for hundreds of billions of dollars. Even so, given the size of the banks in question, it may not make all that much of a difference, especially because other pension funds like New York’s are going in the opposite direction and divesting from fossil fuels.
“You’re just standing on your head,” says Sanzillo. “You might slow down market forces somewhat, but these are market forces. The government has some ability to impact these market forces, but these market forces are on the move.”
If the goal of these laws is to establish legislators as warriors against woke capital, then they should do the job. If the goal is to ensure that oil producers in North Dakota and coal-mine owners in West Virginia have perpetual access to all the capital they need, then politicians like Moore are tilting against windmills. The sheer size of the banking sector, and the scale of concentration within that sector, make it almost impossible for states to slow down the movement away from fossil fuels.
Even so, the new wave of anti-ESG legislation shows just how far the Republican Party has shifted in its relation to capital. Eight years ago, when Heartland’s Grande was still a state legislator in North Dakota, she and her colleagues were trying to fight off the Obama administration’s Clean Power Plan, using every tool at their disposal to ensure that coal plants wouldn’t phase out as the plan suggested. Almost a decade later, she’s helping state legislatures fight against the private sector, using the force of government to protect one set of corporations from the whims of the other. As ever in the conservative movement, “the free market” is a flexible concept.