by Hank Boerner – Chair & Chief Strategist, G&A Institute

Question:  How long ago was it [that] when you mentioned “ESG”, people would say ‘huh” or ask, “what’s that”? 

We sure have moved pretty a far distance from those times.  Now ESG is seen in some quarters as “a threat” to the citizens and especially the well-being of public finance (at least in the Republican-led states),

Alas, also in the halls of Congress where we see frequent and heated “pro and con” debates about ESG, climate change, sustainable investing, corporate sustainability…and more.  ESG = the hot topic for some politicians!  Really?  Believe it!

“The Whole of Government” approach is scaring rightward-leaning politicos.

To remind us of an important development that helped to set the scene of the climate crisis debate:  in the first days of the Biden Administration (one week in, January 27, 2021), President Joseph Biden signed a sweeping Executive Order – “On Tackling the Climate Crisis at Home and Aboard” – that set out the rigorous contours of current and planned policies, actions and financing that were described as “the whole of government” — with federal, state and local governments to be focused on various climate change matters.

The EO offered the nation this perspective:  ”The U.S. and the world face a profound climate crisis.  We have a narrow moment to pursue action at home and abroad to avoid the most catastrophic impact…and to seize the opportunity that tackling climate change presents…”

The White House put the climate crisis in perspective and explained what the Federal government could and would do, also involving states and cities in a range of planned actions intended to mitigate climate-related damage to humanity, protect the national and global economies, and to protect and fortify public and private infrastructure, natural resources, oceans, and a range of physical assets.

Many people cheered (at last!) while others jeered.

The political opposition to the Biden plan was instant, and criticisms were thereafter steadily voiced at federal, state and local levels.

As the various arms of government began to develop policies, legislation, rules and regulations, there was consistent pushback by political opponents. The cabinet offices and Biden appointees to independent agencies put new or amended rules in place, or embarked on rule making.  Those specific actions enabled opponents to pounce.

Case in point:  the yes, no, yes, no again positions on ERISA oversight of pension funds. (ERISA – Employee Retirement Income Safety Act of 1974.)  This Federal law established minimum standards for most voluntarily-established employee  retirement and health plans in private industry to provide protection for individuals in the plans – supervision is by the U.S. Department of Labor.

You see, as ESG factors became more material to asset owners (i.e., the various public employee pension systems), and their appointed asset management firms (like BlackRock and State Street), the Department of Labor (a cabinet office now headed by Democrats) approved a Final Rule (December 29, 2022) to “address the chilling effect and other potential negative consequences caused by the Prior Rule with respect to consideration of climate change and other ESG factors”.

The prior rule (downgrading the importance of material ESG factors) was put in the place by the Trump Administration.

This ”yes, no” about ESG for pension funds goes back and forth goes back several decades, depending on who is sitting in power in the White House (and therefore appointing cabinet and agency leadership).

And so, the latest “chilling effect” put in place by DOL leaders was the Final Rule adopted in November 2020 during the Trump years that set out to discourage plan fiduciaries’ interest in considering ESG in managing investments.

This is but one skirmish in the public sector ESG arena, where we see “woke” [outside] asset management firms being punished or threatened to be punished by state and city elected and appointed public officials for embracing ESG issues and topics properly regarded as material factors in institutional investment management.

Another example we’re sharing with you of contours of the struggle in the ESG arena:  Governor Ron Desantis is busily organizing an “anti-ESG” alliance with 18 other state governors.

This to “protect individuals from the ESG movement that threatens the vitality of the American economy and  American’s economic freedom”. (This could be from one of the great Florida humorous fictions works of author Carl Hiassen!)

With this and other actions, we probably are seeing an important campaign platform shaping up for the 2024 state and national elections.  No ESG! No CRT! No woke here!

Of course, intelligent folks recognize all of this is a means of distracting, and directing attention away for the antics of certain state and federal elected officials.  Who have no real answers to today’s pressing ESG issues – like global warming!

The G&A Institute team continues to monitor and assess the actions of the public sector ESG opposition and we’ll share important developments with you in this newsletter.  Here’s a sampling of related actions in the U.S. and abroad.

Top Story/Stories

• Who am I going to bank with?’ Coconino County treasurer expresses concern over Arizona Anti-ESG bills (Arizona Daily Sun)
• DeSantis launches anti-ESG alliance with 18 states (Pensions and Investments)
• Challenge to Biden ESG investing rule will stay in Texas court (Reuters)

Also:  The Covington Law Firm has published an excellent review of the DOL’s new rule and the “ping-ponging” of rule making regarding climate and related matters:  https://www.cov.com/en/news-and-insights/insights/2022/12/dols-new-rule-on-erisa-investment-duties-and-its-relationship-to-esg