Investing in environmentally sustainable companies is fine by me, so long as it's a voluntary choice. Should that f-ckhead Larry Fink (CEO Blackrock) decide what's best for me? Sorry, don't need a Big Brother looking over my shoulder.
Red States Have Slowed the ESG Juggernaut
Laws against politicized investing may eventually force the hand of fund managers and blue states.
By Andy Puzder, WSJ
June 14, 2023 5:54 pm ET
States have seized the initiative in resisting environmental, social and governance investing. These legislative efforts have been so successful that the Harvard Law School Forum on Corporate Governance recently published an article titled “It’s Time to Call a Truce in the Red State/Blue State ESG Culture War.” ESG advocates are understandably concerned that what looked like a juggernaut is suddenly facing stiff opposition. But that’s no reason to slow the effort. ESG either protects the retirement assets of hard working Americans or, as states are increasingly concluding, it doesn’t.
Last year the American Legislative Exchange Council and the Heritage Foundation jointly proposed model legislation to stem the rise in ESG investing. Their proposal has served as the basis for states to require that asset managers focus exclusively on maximizing returns. These 10 states combined—Arkansas, Florida, Kansas, Kentucky, Indiana, Montana, North Dakota, Tennessee, Utah and West Virginia—hold more than $500 billion in pension fund assets.
The bills have varied in language. Eight states have explicitly named ESG when outlining their new investing restrictions. Florida, Indiana and Kansas also prohibit investing to advance “social, political, or ideological interests.” Montana and West Virginia add the phrase “or other similarly oriented considerations” to their ESG restrictions.
All are clear and consistent in their intention: Those responsible for investing and shareholder voting must act solely in the financial interests of the pension fund’s beneficiaries. ESG and other forms of politically motivated investing are inconsistent with that duty.
States have attempted ESG limitations in the past, but this time is different. Historically such bills lacked a legal formulation that specifically defined ESG, making them vulnerable to claims that such investing was indeed maximizing returns.
In an August 2022 letter, 19 state attorneys general argued that BlackRock’s pressuring companies to advance net-zero carbon emissions lowered corporate profits and violated its fiduciary obligations. BlackRock responded that “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.”
But BlackRock conceded that “as a fiduciary, we are bound to adhere to our clients’ investment guidelines and objectives.” That promise reverberates in the new laws, which explicitly define the state pension objectives and exclude ESG.
These laws have broader implications. They thrust into the spotlight the inconsistency that states differ in a basic understanding of fiduciary duties. Even in California and New York, the law requires that fiduciaries exercise their duties “solely in the interest” of the beneficiaries of their funds and for the “exclusive purpose” of providing benefits. Yet their employees may be unwittingly sacrificing financial gain to advance progressive causes favored by state officials and asset managers.
ESG supporters lobbied hard against the anti-ESG bills, claiming they would end up lowering returns. Both sides can’t be right. Either advancing an ESG agenda complies with the duty to act solely in beneficiaries’ best interests, or it doesn’t. When challenged in court, will fact finders determine that fiduciaries best satisfy their duties by maximizing returns or by pursuing a leftist agenda? Likely the former.
With the momentum now seized by conservative lawmakers, there may be an opportunity to bring some common sense back to blue states. One unfavorable court decision could subject ESG-advocating trustees and investment managers to very substantial class-action lawsuits. Pension funds are underwater anyway; suing Wall Street could be seen as a good way to try to get healthy. For now, the ESG jig is up in 10 states and counting.
Mr. Puzder, a former CEO of CKE Restaurants, is chairman of 2ndVote Value Investments and a senior fellow at the Heritage Foundation.