Republican-led states are pushing back against firms that try to curb use of fossil fuels.
Pressure has been building on companies to follow environmental, social, and governance standards from both the private sector and the government. Because much of that pressure involves businesses' handling of carbon emissions and the fossil fuel industry, policymakers in some oil- and coal-heavy states are actively working against major investors and businesses, a trend worth noting ahead of Earth Day this Friday.
Last year, in response to pressure from the Biden administration for big banks to cut down on their emissions, more than a dozen state treasurers, led by West Virginia state Treasurer Riley Moore, wrote to presidential climate envoy John Kerry suggesting that they would pull state assets from firms that are trying to decarbonize their investments.
In the letter, the treasurers urged banks and financial institutions “not to give in to pressure from the Biden Administration to refuse to lend to or invest in coal, oil, and natural gas companies.”
BlackRock, a massive $10 trillion investment firm, has led the corporate world in the prioritization of ESG. Part of the push has been the encouragement of “net zero” investment strategies, which Moore contends would hurt the fossil fuel industry and, ultimately, residents of the Mountain State who make a living in that industry.
Moore took action against BlackRock this year when he announced that the state would end the use of one of the firm’s investment funds. He said the inflows and outflows of that fund were about $1.5 billion.
“We saw a very clear conflict of interest for us to continue to do business with BlackRock, particularly as it relates to their stance on the fossil fuel industry,” he told the Washington Examiner, noting that West Virginia is the fifth-largest producer of energy in the United States.
BlackRock CEO Larry Fink proclaimed two years ago that climate change would be a “defining factor” in his company’s investment assessments. Fink further reiterated his firm’s commitment to ESG principles, particularly as they relate to environmental stewardship, during his highly anticipated annual letter to CEOs released this year.
“As stewards of our clients’ capital, we ask businesses to demonstrate how they’re going to deliver on their responsibility to shareholders, including through sound environmental, social, and governance practices and policies,” he said.
Moore also said he and others in West Virginia are troubled by BlackRock’s dealings in China. He said their investments there work against U.S. workers and noted that China is building dozens of new coal-fired power plants.
“They’re starting up investments in China, but then they’re trying to crush our industries here in America,” Moore said.
Last year, BlackRock began tapping into the Chinese market by offering mutual funds and investment products to Chinese investors, becoming the first foreign-owned firm to be allowed to do so. The research arm of the firm also encouraged investors to triple their exposure to Chinese assets.
Another state that has pushed back is Texas. Last year, Texas Republican Gov. Greg Abbott signed a bill that outlawed state investments in businesses that sever ties with the oil and gas industry. Abbott additionally signed legislation banning state and local governments from working with corporations whose policies restrict the firearms industry.
Texas Comptroller Glenn Hegar’s office has been working to compile a list of companies that “boycott” the fossil fuels industry and recently sent letters out to 19 firms asking them about their policies on environmental standards, according to the Texas Tribune.
He also asked the companies for a list of any mutual funds or exchange-traded funds in their portfolios that prohibit or limit investment in fossil fuels.
“Our research thus far shows that some companies are telling us and other energy-producing states one thing, and then turning around and telling their liberal clients in other states another thing,” Hegar said in a statement.
“On one hand, they push net-zero and other environmental, social, and governance policies and use their influence and the dollars under their management to limit access to capital for Texas oil and gas firms. Then these same firms tell Texas and other energy states that they’re committed to the fossil fuel sector,” he added.
West Virginia’s legislature also recently passed a bill authorizing the state’s treasurer to produce a list of firms that refuse to do business with fossil fuel companies and to deny those firms from consideration for state financial contracts. The bill has since become law and will go into effect in June.
“It’s real simple,” West Virginia state Sen. Rupert Phillips, the bill’s chief sponsor, told the Washington Examiner earlier this year. “Why should we take our tax dollars that our coal miners and our gas industry have produced and invest it into a bank that is trying to shut them down?”
Moore said he thinks his state’s efforts to push back on ESG, along with efforts in other states, are causing some firms to rethink their policies. He added that he has talked to some banks who are starting to reconsider some of their ESG frameworks given the pushback.
ESG has risen in prominence alongside the rise of so-called stakeholder capitalism versus the traditional shareholder capitalism model. The idea of stakeholder capitalism has been embraced by many large corporations and is the notion that, in general, companies shouldn’t care just about their bottom lines but also about a wider responsibility to society.
The push for ESG isn’t just coming from companies but also now from the federal government.
The Securities and Exchange Commission proposed a rule to compel companies to disclose climate-related risks. The proposed rule would lead to indirect pressure on the private sector to move away from fossil fuels and cut carbon emissions.