Now, the backlash – POLITICO PoliticoNow, the backlash – POLITICO Politico
Impact Investing Forum 2023
London. May 04-05, 2023.
THE BIG IDEA
West Virginia wants to protect its coal mines from discrimination. | (Jeff Gentner, FILE/AP Photo)
THE BACKLASH — Consumers, big investors and much of corporate America have started to align around stakeholder capitalism – the idea that addressing environmental, social and governance issues such as climate change and diversity can drive profits.
But where there’s a movement, there’s a backlash. West Virginia last week said it would pull out of a BlackRock Inc. investment fund, making it the first state to cut ties with a firm over its ESG policy.
West Virginia Treasurer Riley Moore, a Republican, said he can’t do business with a company whose investment strategies harm fossil fuel companies.
“These folks aren’t policymakers,” Moore said in an interview. “What if the shape of society that BlackRock wants is not what we want, what West Virginia wants, what other states want, what probably most Americans want?”
“People aren’t voting for this at the ballot box,” he said. “They’re using their massive amount of corporate power and capital to coercively push their views of the world onto the rest of us.”
Moore is behind a coalition of 15 red states, including Texas, Wyoming and North Dakota, that want to punish banks and asset managers that treat oil and gas companies differently than other businesses. The group, which controls $600 billion in assets, is trying to identify banks “engaged in boycotts” of traditional energy industries.
Texas Gov. Greg Abbott, also a Republican, signed a law in June requiring state pensions, school endowments, and other funds to sell their holdings in companies that refuse to do business with fossil fuel companies. The state is looking at the entire universe of financial institutions, according to the Texas comptroller’s office, which is preparing a list.
Texas Lt. Gov. Dan Patrick asked that BlackRock be added to the list in a letter last week to state Comptroller Glenn Hegar.
“If Wall Street turns their back on Texas and our thriving oil and gas industry, then Texas will not do business with Wall Street,” Patrick wrote.
Chris Bryan, a spokesman for Hegar, said it isn’t appropriate to single out a firm until the list is made public. The process has to be transparent, methodical and defensible, he added, and show what companies did to end up on the list.
Time out. BlackRock isn’t boycotting fossil fuels. Nor is the rest of Wall Street.
“Divesting from entire sectors – or simply passing carbon-intensive assets from public markets to private markets – will not get the world to net zero,” BlackRock CEO Larry Fink wrote in his annual letter to executives earlier this month.
Instead, BlackRock and big banks are pressuring corporate clients to reduce their reliance on fossil fuels, slash greenhouse gas emissions and mitigate climate risk. But there are no promises to cut ties with companies that don’t follow through.
BlackRock spokesperson Aziz Nayani declined to comment.
This fight may be political more than prudential. A growing body of research is showing that adopting ESG policies can be good for business (although the jury is still out on whether it translates into real benefits for people and the planet.) The idea has become more mainstream as executives personally experience the effects of climate change and their employees stage walkouts. Backers of divestment say the backlash from red state regulators and lawmakers is proof the movement is working.
For now, the move by Moore in West Virginia has little impact on BlackRock, which has $10 trillion in assets under management. Moore’s office oversees West Virginia’s $8 billion operating fund, only a fraction of which is invested in BlackRock money market funds. He doesn’t control the state’s pension funds, which also invest with BlackRock.
Meanwhile, blue-state lawmakers are laying the groundwork for more divestment. A bill in Oregon would require the state treasury to make its holdings public every year so they can be evaluated and possibly sold.
State Sen. Jeff Golden, who is co-sponsoring the Oregon legislation, has no sympathy for those opposing divestment efforts. “If we had started this enterprise when we should have 30 years ago, maybe it wouldn’t have come to this conflictual point,” Golden said.
YOU TELL US
More on the political divide over ESG below. What’s happening out there? Email [email protected] and [email protected]. Find us on Twitter @ceboudreau and @Woellert. FOMO? Sign up for the Long Game.
Thanks this week goes to Victoria Guida, America Hernandez and Corbin Hiar.
Sarah Bloom Raskin has some ideas on climate and financial services. | (Heidi Gutman/CNBC/NBCU Photo Bank/NBCUniversal via Getty Images)
BIDEN’S ANTI-POLLUTION POSSE — President Joe Biden has failed to win broad climate legislation in Congress, but he has another trick up his sleeve. If all goes as planned, every major U.S. financial regulator soon will be led by progressives joined in an unprecedented mission: To draft banks, willingly or not, into the war against climate change.
Biden this month tapped Sarah Bloom Raskin, who has called fossil fuels “a terrible investment,” for the Federal Reserve‘s top regulatory job. Martin Gruenberg, who has warned of climate’s riskto financial stability, is leading the FDIC. Acting Comptroller of the Currency Michael Hsu has put climate issues front and center. Securities and Exchange Commission Chair Gary Gensler is working on rules to require banks and other public companies to disclose their contributions to climate change and other environmental risks. And Treasury Secretary Janet Yellen has called climate change a threat to financial stability.
What does it all mean? Behind the hype of Biden’s financial posse is a fearsome gang of regulators who could make money hard to get.
In theory, at least. Draconian measures, such as barring banks from funding oil and gas companies, aren’t politically feasible. But even requiring lenders to look at climate change as a potential risk to their health would have ripple effects.
“I expect it to be a pretty big shift,” said David Arkush, managing director of the climate program at Public Citizen, a progressive advocacy group. “You’re going to have all the major bank regulators moving forward.”
Banks warn that steps such as requiring them to hold more capital against loans to heavy polluters could shift business to hedge funds and other less-regulated financial firms. And Republican lawmakers pointedly oppose what they as regulatory overreach into legitimate businesses.
The next round. Raskin faces a potentially bruising confirmation battle in the Senate, and Republicans in both chambers are throwing up hurdles to Biden’s climate agenda.
“The job of bank regulators is to ensure the safety and soundness of financial institutions and promote financial stability,” said Rep. Andy Barr (R-Ky.), a member of the House Financial Services Committee. “It is not to pick winners and losers in credit markets, politicize the allocation of capital, or solve climate change.”
Are plastic spoons and forks endangered? | Courtesy of Isaac Mead-Long, Ocean Conservancy
RIP, STRAWS — A group of large companies plans to stop using plastic utensils, straws, some food takeout containers and other packaging by 2025 because they can’t be reused, recycled or composted.
The U.S. Plastics Pact, which includes big brands such as Walmart, the Coca-Cola Co. and Unilever, today published a list of “problematic or unnecessary” plastic packaging that should be eliminated. The voluntary pact has more than 100 members that account for a third of the country’s plastic packaging supply – or some 5.6 million metric tons.
“Our hope is that this list – endorsed by some of the biggest plastics packaging producers in the country – will be a starting point from which policymakers can turn voluntary commitments into law,” said Chever Voltmer, director of the plastics initiative at Ocean Conservancy, a member of the pact, in a statement. “We have seen this happen in the U.K., and we hope to see it in the U.S., as well.”
What’s next: The pact will measure progress and disclose toward its goal. The pact is also working toward three other targets for 2025, including ensuring that at least half of all plastic packaging is recycled or composted and it is made with at least 30 percent recycled material then.
SEE YA! — Amazon.com Inc. threatened to quit trade groups and think tanks that don’t see eye to eye with the company on climate change.
In a document posted to the company’s investor relations website, Amazon touted its initiatives in support of the Paris Climate Agreement, a United Nations-brokered accord that aims to avoid the worst impacts of climate change. The retail and web services giant said it has procedures to evaluate “potential misalignment between positions Amazon supports, including the Paris Agreement goals, and the positions that such an organization advocates.”
When the company becomes aware of a misalignment, Amazon will end its relationship with the group or continue funding it and “communicate to the organization that we do not support positions it takes that are not aligned with the Paris Agreement goals.”
Amazon has been under pressure from investors for its lack of climate-related lobbying. A resolution filed last year by the International Brotherhood of Teamsters union and a socially responsible investment fund failed to pass, but did win more than a third of the vote. The union has filed a similar resolution this year.
Louis Malizia, assistant director of the Teamsters Capital Strategies Department, told our friends at E&E that he wasn’t impressed.
“The company still has not directly addressed the Teamsters’ call for real accountability in its lobbying,”Malizia said. “Shareholders cannot get a clear picture on whether Amazon’s politics matches its public statements, on climate or on any other issue.”
Amazon didn’t respond to questions.
AROUND THE WORLD
THE COLOR OF NUKES — If you think regulating pollution is politically difficult in the U.S., take a look at Europe. Financial regulators there have taken a granular approach to green investment that has them buried in mud.
The European Commission has compiled a long list of industries and assigned a green rating to each. The least polluting, for example, would be labeled sustainable and get the best treatment from banks or investors.
The list, or taxonomy, is under fire from special interests across the spectrum. The latest fight is over nuclear and natural gas. When the commission proposed labeling some nuclear or gas projects sustainable, it was bombarded by outraged scientists and a bloc of anti-nuclear and anti-gas countries.
Skeptics say gas and nuclear are fundamentally incompatible with the investment rules. And even supporters of the concept say the definitions are so stringent that few projects will qualify.
On Monday, a commission advisory group released a report saying green labels for nuclear and natural gas plants “could not be considered sustainable.”
Austria is threatening a lawsuit and Spain is angry. Germany called nuclear “risky and expensive” but asked for an even broader definition of gas investments as it shutters its nuclear and coal-fired plants.
Even countries and industries that had lobbied for the commission to broaden its definitions are peeved, saying the proposed nuclear rules currently are impossible to meet.
The commission proposal, once finalized, likely will pass because the threshold to block it is so high. But there’s still a risk that the fight might have been for naught: The nuclear and gas labels might still be ignored by investors.
WHAT WE’RE CLICKING
— The price of Chinese lithium carbonate has hit “ludicrous mode.”Despite the new record, underpinned by surging EV demand, there are concerns inflation could raise the price of batteries and the vehicles themselves.