US legislators step up pushback against ESG

More Republican senators and congressman, as well as state legislator associations, have pushed back against the inclusion of sustainability considerations.

The patchwork of pro- and anti-sustainable finance rules continued to grow across the US this week, with Republican senators and congressman, as well as state legislator associations, attempting to push back against ESG. 

On Wednesday, the American Legislative Exchange Council (ALEC), which claims nearly one-quarter of the country’s state legislators and stakeholders as members, put forward a model policy to stop public pensions from designing “politically motivated” investment strategies. 

The State Government Employee Retirement Protection Act would mean a fiduciary’s evaluation of an investment must be focused only on “pecuniary factors” that have a material effect on financial risk and return.

Section 4 of the draft Act states: “Plan fiduciaries are not permitted to sacrifice investment return or take on additional investment risk to promote non-pecuniary benefits or any other non-pecuniary goals. Environmental, social, corporate governance, or other similarly oriented considerations are pecuniary factors only if they present economic risks or opportunities that qualified investment professionals would treat as material economic considerations under generally accepted investment theories.” 

Lee Schalk, ALEC vice-president of policy, said: “Every state employee should have full faith and confidence that their retirement funds are being invested for maximum growth and not being used to promote a political agenda.” 

The announcement pointed to a report by USA Today that found between 2010 and 2018, ALEC model bills were introduced 2,900 times across the states and in Congress, with more than 600 becoming law. 

Meanwhile in Minnesota, Republican senator Andrew Mathews introduced the Stop Environmental Social Governance (ESG) and Social Credit Score Discrimination Act into the legislature. 

If successful, the Bill would prohibit the State Board of Investment from investing in companies that boycott mining, energy production, production agriculture or commercial lumber production. The Board would also have to divest from any such companies, and the state and any agencies would not be able to enter into contracts with them. 

In addition, banks, credit unions, financial institutions, payment processors, savings and loan associations, and trust companies would be prohibited from discriminating – by refusing to provide or continue to provide a financial service – against people based on “certain subjective criteria”. 

The criteria listed are: the person’s political affiliation; or any value-based or impact-based criteria, including but not limited to social credit scores or environmental, social and governance credit factors. 

The draft Act states: “The legislature declares that the practice of discriminating against a person or entity in this state based upon the person’s or entity’s social credit score or any other valuation based on environmental, social and governmental credit factors is a matter of state-wide concern and that discrimination based on such scores and metrics is not only a threat to the rights and proper privileges of this state’s inhabitants but menaces the institutions and foundation of a free democratic state and threatens the peace, order, health, safety and general welfare of this state and its inhabitants.” 

The Act has been referred to the Committee on State Government Finance and Policy and Elections.  

In the climate sphere, Republican congressman David P Joyce submitted a resolution to the House of Representatives on Monday opposing the US Securities and Exchange Commission’s proposed climate disclosure requirements. 

Co-sponsored by six fellow Republican representatives, the submission claims that “additional SEC climate disclosure regulations threaten to impose expensive compliance costs and lessen investor enthusiasm for American energy companies”. 

The resolution has been referred to the House Committee on Financial Services.

Finally, a Pennsylvania court on Tuesday blocked Democratic governor Tom Wolf’s plan to require fossil fuel-fired power plants to pay a penalty for every ton of carbon dioxide they emit. 

The Commonwealth Court, in a one-line unsigned order, said it would not allow the official publication of the regulation “pending further order of the court”. 

AP News reported that Wolf’s administration said it was reviewing the order and is “committed to ensuring that this regulatory process continues to move forward”. 

This week’s news is the latest in a growing wave of anti-ESG initiatives in the US. 

Last month Responsible Investor reported on the introduction by Republican legislators and attorneys general in four states of legislation to ban ESG or launched inquiries into ESG activities. 

In September, Senator Marco Rubio introduced the Mind Your Own Business Act, which would require corporate directors to prove that any “woke” corporate actions were in the best interests of their shareholders, in order to avoid liability for breaching fiduciary duties. 

However, not all the legislative efforts have been to stifle climate finance or ESG. A number of Democrat states have passed legislation calling on their state pension funds to divest from fossil fuels, and California’s two pension giants, CalPERS and CalSTRS, are facing a Bill that would force them to ditch their fossil fuel holdings. Introduced in February, the Bill is set for a hearing on 19 April.