Republican State Officials vs. Wall Street Managers on ESG Investing

The showdown continues: on one side we now see attorney generals in 19 states putting pressure on asset management firms that embrace “sustainable investment” or “ESG” policies that influence the various states’ public employee pension systems. The AGs claim that “an emerging trend of political initiatives [that address climate change] sacrifice their states’ pension plans from accessing “high quality” investments. (Read: the equities and fixed income securities of fossil fuel companies.)

On the other side: powerful thought leaders in the capital markets, including Larry Fink, CEO of BlackRock, the nation’s leading asset management firm, and Michael Bloomberg, head of Bloomberg LP and advocate for climate change (he is chair of the Task Force on Climate-Related Financial Disclosures/TCFD.)

BlackRock responded to a letter sent to CEO Larry Fink by 19 attorney generals that claimed BlackRock was pursuing a “climate agenda” in its investment policies. The group signing the letter included AGs from the fossil fuel states of Texas and Oklahoma (oil and natural gas) and West Virginia (coal and natural gas). The Texas state pension plan (Texas Municipal Retirement System) has AUM of $160 billion, placing it among the top 20 such plans in the U.S.

BlackRock’s response: “Investors and companies that take a forward-looking position with respect to climate risk and its implications for the energy transition will generate better long-term financial outcomes. These opportunities cut across the political spectrum.” BlackRock pointed out that its portfolio includes $100 billion in assets of Texas-based companies such as ExxonMobil (holding more than 5% of total outstanding shares). In an interview, CEO Larry Fink said, “We have always believed that any ESG or any energy transition, gas is going to play a central role for the next fifty years,” Fink said. “We have to have an effective long-term transition.”

Republican state and national leaders are leading the assault on ESG. Former VP Mike Pence recently told a political gathering in Texas that asset management firms are pursuing a “radical ESG agenda.” Texas officials placed BlackRock on a growing list of firms’ “hostile” to the fossil fuel industry. In Florida, Governor Ron DeSantis promised to “protect his state citizens from ESG harm” and issued a resolution that barred the state benefit pension plan ($200 billion AUM) from doing business with some Wall Street firms. The West Virginia Republican leadership is barring asset management firms from doing business with the state if they adopt ESG policies.

Michael Bloomberg, in his response to sustainable investment criticism, was more blunt: in an op-ed titled, “On Climate Change, Republicans Need a Crash Course in Capitalism,” he said, “Republican elected leaders seem to think they’ve found three new evil letters…ESG.” Any responsible money manager, he continues, “especially one with a fiduciary duty to taxpayers, seeks to build a diversified portfolio, including energy, identifies and mitigates risk, including the risks associated with climate change, and considers macro trends that are shaping industries and markets, such as the steady declining price of clean power.”

Bloomberg went on: “The fact is: Climate risk is financial risk. Costs from climate-related weather events now exceed $100 billion annually — and that is only counting insured losses. Accounting for these and other losses isn’t social policy. It’s smart investing. And refusing to allow firms to do it comes with a big cost to taxpayers.”

The conflict between Republican state officials and Wall Street is intensifying as climate change strategies are adopted by the financial sector. In our Top Stories and other content silos that follow, we share news and perspectives that demonstrate the continued dramatic growth of sustainable investing in the U.S. and globally.

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