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Economy And Society, January 23, 2024: State Attorneys General Continue Pushback Against Federal ESG Labor Rule

ESG Developments this week Economy and Society is Ballotpedia’s weekly review of the developments in corporate activism
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Economy and Society is Ballotpedia’s weekly review of the developments in corporate activism; corporate political engagement; and the environmental, social, and corporate governance (ESG) trends and events that characterize the growing intersection between business and politics.

In the states

New Hampshire bills could prohibit ESG investing in public funds

Republican legislators in New Hampshire have introduced two bills—one in the state House, one in the Senate—that would prohibit ESG considerations in the management of public funds:

New Hampshire state legislators are seeking to expand their attack on ESG investing with two new proposals, including a bill that would make it a felony to “knowingly” invest state or taxpayer funds using ESG criteria that violates what legislators define as fiduciary duty. …

The proposals, each with GOP authors and co-authors, follow three other actions since the beginning of 2023 by politicians seeking to limit and discourage investments linked to environmental, social and governance criteria.

]The proposals, each with GOP authors and co-authors, follow three other actions since the beginning of 2023 by politicians seeking to limit and discourage investments linked to environmental, social and governance criteria. PHOTO BY MATHIEU STERN/UNSPLASH

The newest entry from the House of Representatives, by three GOP members, said “knowingly” violating the proposed law’s description of fiduciary duties is a felony punishable by up to 20 years’ imprisonment.

State attorneys general continue pushback against federal ESG labor rule

Attorneys general from 26 states are opposing the implementation of the U.S. Department of Labor’s rule permitting ESG considerations in Employee Retirement Income Security Act (ERISA)-governed pension plans in court. The states filed an appeal late last week seeking to reverse the dismissal of their case:

Plaintiffs led by 26 Republican attorneys general filed an appeal to request the U.S. 5th Circuit Court of Appeals reverse a district court ruling on the 2022 Department of Labor rule that permits environmental, social and governance factors to be considered when selecting retirement plan investments. The appeal, filed on January 18, challenges the September 2023 dismissal of their initial complaint that had challenged the legality of the ESG rule put in place by the DOL under the administration of President Joe Biden.

The brief requests oral arguments before the 5th Circuit, which hears appeals for decisions made in Louisiana, Mississippi and Texas, including the U.S. District Court for the Northern District of Texas, where the attorneys general filed their initial case. Joining state officials in the appeal were a fossil-fuel company, a fossil-fuel advocacy group and a Manhattan Institute scholar, all plaintiffs in the initial case. …

The AGs’ brief also argues that U.S. District Judge Matthew Kacsmaryk, the only judge in the Amarillo Division of the Northern District of Texas, a jurisdiction chosen by the appellants when filing the initial complaint, was mistaken in not finding the 2022 rule arbitrary and capricious.

]The proposals, each with GOP authors and co-authors, follow three other actions since the beginning of 2023 by politicians seeking to limit and discourage investments linked to environmental, social and governance criteria. PHOTO BY MATHIEU STERN/UNSPLASH

On Wall Street and in the private sector

ESG proponents adopt new language for investment considerations

BlackRock—the world’s largest asset manager, with roughly $10 trillion in assets under management—announced last week that it will focus on supporting what the firm calls financial resilience as it relates to mitigating risks related to environmental, social, and governance factors. The announcement signaled a further move away from terms like ESG and sustainability in the company’s public communications. BlackRock CEO Larry Fink previously said last year the firm would stop using the term ESG to refer to environmental, social, and governance considerations.

BlackRock will stress “financial resilience” in its talks with companies this year as the $10tn asset manager puts less emphasis on climate concerns amid a political backlash to environmental, social and governance investing.

With artificial intelligence and high interest rates rattling companies globally, BlackRock wants to know how they are managing these risks to ensure they deliver long-term financial returns, the asset manager said on Thursday as it detailed its engagement priorities for 2024. …

While BlackRock’s overall priorities rarely change, the 2024 report dropped references to “global warming” that had been included in previous years, including a reference to companies adapting to a world “in which global warming is limited to well below 2C”.

Meanwhile, at the annual gathering of the World Economic Forum in Davos, Switzerland, participants also discussed ways to change how ESG factors are discussed:

Their discussions this week might involve companies trading tricks for how to “evolve” their language on ESG practices. Just as DEI departments are suddenly “disappearing” from Corporate America by losing the D, E, and I, ESG is also suffering serious rechristenings. Business watchdogs monitoring the changes have noted the substitution of forgettably average-sounding terms like “responsible business” and “climate risk integration,” that convey their point without raising eyebrows. Coca-Cola recently stripped “ESG” from corporate reports and committee names, the Wall Street Journal reported last week. The goal is now “to be more precise and to set goals that can be achieved,” the story noted. “Saying as little as possible is recommended.”

This tracks with the strategy Wall Street has quietly turned to, too. A survey published last August by Bloomberg found that financial analysts “loathe” the acronym ESG, but say they’ll “continue to incorporate environmental, social, and governance metrics in their business” nonetheless.

Investors sell $13 billion of ESG funds in 2023

Year-end reviews of investments and investing trends are showing that investors pulled about $13 billion from ESG funds last year:

The money flowing out of funds that invest in companies with environmental, social and governance principles has gone from a trickle to a torrent as investors sour on a sector hit by green-washing concerns, red-state boycotts and boardroom debates.

The investing strategy has become increasingly politicized after being used by companies to address E.S.G. issues among their employees, customers and other stakeholders. In a sign of the times, the phrase has been scrubbed from the World Economic Forum’s official program in Davos, Switzerland, after being on the agenda in previous years.

Investors pulled $5 billion out of E.S.G.-focused “sustainable” investment funds last quarter, according to a new report by Morningstar. The withdrawals came amid a wider market rally at the end of 2023.

Barron’s suggests poor investment performances caused the ESG selloff:

Poor performance was the biggest drag. Sustainable equity funds generally lagged behind their conventional peers in 2023, though not by as large a margin as in 2022. …

The median sustainable large-blend equity fund gained 20.8% in 2023, versus 23.9% for the overall category, which includes sustainable and conventional funds, and compared with 26.9% for the Morningstar U.S. Large-Mid Cap Index.

ESG loses popularity with younger investors

Stanford University, the Hoover Institution, and the Rock Center for Corporate Governance recently conducted a survey that found Gen Z and Millennial investors—who have generally favored ESG in their investment decisions—may be changing their attitudes:

Millennials and Gen Zers have traditionally been more supportive of socially responsible investing, but many are now echoing the cautious approach traditionally associated with baby boomers. With inflation still high and ESG investing becoming a political target, fewer young investors are expressing strong concern about things like the environment and social issues, and they are also less willing to sacrifice investment gains in support of these initiatives. …

In the survey, preference for ESG investing among millennials and Gen Z — aged between 18 and 41 — plummeted significantly compared to the year before. People who responded that they were “very concerned about environmental issues” dropped from 70% in 2022 to 49% in 2023. …

Millennial and Gen Z investors’ preferences in 2023 were much closer to those of baby boomers compared to 2022. While a gap still exists between the younger and older investing groups, many more millennial and Gen Z investors now align with the more common responses among boomers of being “somewhat concerned” or “not concerned” about these issues.

Produced in association with Ballotpedia

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