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While the Biden administration preserves federal ESG laws, many states are fighting back

Riley said that in the first round of warnings, West Virginia was able to get U.S. Bank to reverse their anti-fossil fuel policies. With $657 billion in assets under management, it’s the fifth largest in the nation.

Published: March 8, 2024 11:00pm

While efforts to push back against environment, social and governance (ESG) policies, on the federal level have run into barriers, many state legislatures are chipping away at it.

ESG rates companies on various markers of progressive-friendly policies related to protecting the environment, diversity in the workplace and community relations. This package of goals is held secondary to shareholder value. Any association with fossil fuel industries quickly gets a fund rated down, but timber industries and gun manufacturing have also faced pressure from the movement.

For state governments — especially those whose revenues and economies are heavily weighted toward fossil fuels — doing business with investment institutions holding anti-fossil fuel ESG policies is shooting themselves in the foot.

For “them to manage our tax dollars while at the same time, through ESG activity, they're trying to diminish those dollars because they don't want those companies to exist — that's a conflict of interest,” West Virginia Treasurer Riley Moore told Just The News. According to the U.S. Energy Information Administration, in 2022, West Virginia was the second-largest coal producer in the nation, after Wyoming, and accounted for 14% of U.S. total coal production.

State legislatures

This week, the Securities and Exchange Commission (SEC) adopted rules regarding climate disclosures, which require publicly traded companies to disclose certain climate-related risk factors. While the final rule scaled back some of its more stringent reporting requirement, critics are skeptical.

“While AXPC [American Exploration & Production Council] is still reviewing the SEC’s rule and sees some improvements, we remain skeptical as to the benefit of its mandated disclosures, including concerns about its feasibility, reasonable comparability, appropriate timelines, as well as considerations regarding cost and impacts to the energy industry,” AXPC CEO Anne Bradbury said in a statement emailed to Just The News.

Last year, Congress passed a bill overturning Department of Labor rules allowing for the use of ESG in investment decisions, and President Joe Biden vetoed the measure, which was the first veto of his presidency.

States, meanwhile, are passing legislation to restrict the ability of ESG to hurt state energy industries.

As of July 2023, 16 states had passed various forms of anti-ESG legislation.

Texas passed two laws in 2021 — considered some of the earliest and most successful state-level anti-ESG legislation — banned government entities from dealing with banks that incorporate anti-fossil fuel or anti-firearms stances in their policy decisions.

The state barred some of its government entities from investing in the approximately 350 funds run by asset managers, such as BlackRock, Inc., which has $10 trillion in assets under management. BlackRock invests in as many as 1,032 "sustainable" funds.

In 2022, West Virginia’s Moore proposed a bill that authorizes the state treasurer to publish a list of financial institutions that have publicly stated they refuse, terminate or limit doing business with coal, oil or natural gas companies without a reasonable business reason.

After the bill’s passage, Moore added five financial institutions to the list of companies that are no longer eligible to enter into state banking contracts with his office.

Late last month, Moore sent letters to six more institutions, warning them of their potential inclusion on the ban list. The institutions have 45 days to demonstrate they are not engaged in a boycott of fossil fuel companies.

Moore said that in the first round of warnings, West Virginia was able to get U.S. Bank to reverse their anti-fossil fuel policies. With $657 billion in assets under management, it’s the fifth largest in the nation.

“I am hopeful that that is going to happen here as well. I don't want to put any banks on the list. It'd be great if they just all got letters and decided to act like a bank, which is really what we're trying to do here at the end of the day, is that banks act like banks and liberate the free market. Keep it free,” Riley said.

Other anti-ESG paths

Wyoming, like West Virginia, derives a large portion of its revenues from oil, gas, and coal.

Efforts to pass two pieces of anti-ESG legislation in 2023 ran into opposition over concerns about how to define what actions would run afoul of state and federal law, and if the law would restrict the state to too small a pool of institutions it could do business with that it would ultimately hurt itself financially.

Moore said concerns that anti-ESG legislation can hurt state finances are baseless.

“There’s a lot of banks out there that you can do business with,” Moore said, pointing to U.S. Bank. “They’re not on the list. They’re not on anybody’s list.”

Wyoming’s ESG opponents have had more luck with passing administrative rules.

In August, after a lengthy debate over definitions and policy language, state officials updated their investment policies to require companies doing business with the state to act in the best financial interest for the state of Wyoming, without political considerations.

More recently, Wyoming Secretary of State Chuck Gray was able to pass an administrative rule that requires investment brokers, broker dealers, and securities agents doing business with the state to disclose to their clients that they’re using ESG principles.

Wyoming Gov. Mark Gordon had vetoed sections of Gray’s rule. According to Cowboy State Daily, Gordon was concerned that some sections were outside the scope of regulatory authority guaranteed under Wyoming law and likely to go against federal laws.

“While I agree that ESG investment guidance is improper and misleading, the answer to too much government interference in our lives is not more government,” Gordon said in a statement explaining his decisions.

Gray told Just The News that he was “disappointed” in the governor’s decision.

“Our rules were simply a common sense measure to protect consumers from the radical left ESG agenda. Wyomingites deserve to know how their money is being invested. Talk is cheap. But in this unprecedented era of woke ESG investing, which targets both our state and our key industries, it is essential that our elected officials actually stand up and protect investors and the natural resource industries our state has been blessed with,” Gray said.

Gray said, despite the governor’s line-item vetoes, the rules were still a good “starting point” and he would continue to fight against the “radical left-wing clown-show that is ESG investing.”

Other state-level efforts have been pursued outside legislation. On Wednesday, a coalition of 16 state attorney generals led by Montana Attorney General Austin Knudsen, sent a letter to Wells Fargo, which has $603 billion in assets under management, threatening to investigate the bank for allegedly “debanking,” meaning it chooses not to do business with companies — namely gun manufacturers and fossil fuel industries — out of political considerations.

“Wells Fargo is pushing the Biden administration's anti-gun and anti-traditional energy policies and discriminating against customers who don't fall in line with their political beliefs. As attorney general, it's my job to protect Montanans from discriminatory business practices,” Knudsen said in a statement emailed to Just The News.

Pro-ESG efforts

While many states are fighting against ESG, several blue states have passed legislation to facilitate it. Illinois requires state retirement fund regulators to publish annual reports explaining how they’re meeting sustainability goals and how they factor into their decision making.

In May 2023, Minnesota passed legislation that requires banking institutions and credit unions with more than $1 billion in assets to complete climate risk disclosure surveys. Also in May 2023, Colorado passed a similar law for the state’s large insurers.

California passed two climate disclosure laws last year, but E&E News reported that Gov. Gavin Newsom didn’t allocate money for their enforcement, suggesting that implementation of the laws will be delayed.

These states, however, are exceptions. The bulk of state-level ESG legislation that has passed or been considered seeks to rein in the use of the measures in state business. It’s expected that coming legislative sessions will see more state laws pushing back against ESG measures.

“It’s really a team effort, a coalition effort,” Moore said.

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