United States: Responsible Investment, Republicans’ New Goal – Science et Avenir

BlackRock was punished in Texas and West Virginia for the so-called “boycott” of oil companies: American Republicans attacked the responsible investments of Wall Street giants.

According to Republican Florida Gov. Ron DeSantis, considering environmental, social or governance (ESG) criteria when making financial decisions is an “ideological” position.

At the end of August, he ordered his state’s pension fund bankers to disregard these criteria in order to “prioritize the financial security of residents (…) over fanciful notions of a utopian future.”

The next day, the Texas comptroller released a list of companies, including BlackRock and European banks, that he said were “boycotting” oil companies and with which local authorities should no longer sign new contracts.

Its counterpart in West Virginia, a state rich in coal mines and natural gas, made a similar decision in late July against BlackRock, as well as against Goldman Sachs, JPMorgan Chase, Morgan Stanley and Wells Fargo.

“Any institution that pursues a policy aimed at weakening our energy sector, our tax revenues and our labor market has a clear conflict of interest with the management of taxpayer money,” he then explained.

But the targeted banks deny any boycott.

– “Disconnected from reality” –

Ron DeSantis, Republican Governor of Florida, November 8, 2022 Hialeah (USA), August 23, 2022 (AFP/Archive – CHANDAN KHANNA)

For example, some of them have indeed decided not to fund oil exploration projects in the Arctic anymore. But they continue to willingly lend to companies in this sector.

JPMorgan considers the West Virginia official’s decision “short-sighted and out of touch with reality” in this regard.

BlackRock, the company with the most money in the world, claims to have invested more than $108 billion in Texas oil companies, starting with ExxonMobil.

“Public officials, elected and appointed, have a duty to act in the interests of the people they serve. The politicization of public pension funds, restricting access to investment, and undermining the return on investment of retirees is not consistent with this obligation, ”Wall Street argues. giant in a press release.

Joshua Lichtenstein, a Ropes & Gray lawyer who oversees state decisions related to investing in ESG, has witnessed Republican attacks on such investments numerous times.

But “political rhetoric describes a world that doesn’t exist,” he said.

Asset managers “do not choose between investing according to the ESG criteria and investing to make money, they use the ESG criteria as an integral part of their risk mitigation strategy,” he told AFP.

They are being pushed in this direction by more and more clients in Europe, Japan or democracies.

Thus, in 2021, the state of Maine passed a law requiring its pension fund to sell all interests in hydrocarbon companies.

– Affected taxpayers –

A wind farm overlooking a coal processing site on August 23, 2022 in Oakland, Maryland, USA. (GETTY IMAGES NORTH AMERICA/AFP/Archives - CHIP SOMODEVILLA)A wind farm overlooking a coal processing site on August 23, 2022 in Oakland, Maryland, USA. (GETTY IMAGES NORTH AMERICA/AFP/Archives – CHIP SOMODEVILLA)

The stance taken by Republican states could even hurt their taxpayers, says Ben Cushing, the finance officer in charge of the Sierra Club.

Texas, for example, passed a law in 2021 to prevent municipalities from signing new contracts with banks that would restrict funding for hydrocarbons and firearms companies. The result: the number of institutions involved in issuing bond loans has declined, while contract rates have risen, according to a study published in June by researchers from the University of Pennsylvania and the US Central Bank.

It’s still too early to tell what the consequences of this Republican offensive will be, says Joshua Lichtenstein.

This should not, a priori, threaten a trend already well established among clients who are becoming increasingly sensitive to the effects of climate change, and among asset managers in particular, whose mission is to consider all risks.

But Republicans “make noise,” and if they do carry out their threats, as they did in Florida, asset managers may be prudent to avoid any conflict, the lawyer suggests.

Recurring attacks could also cause financial institutions to slow down their efforts just as “they were beginning, slowly and belatedly (…), to realize the very real financial implications of climate change,” laments Ben Cushing.

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