United States: responsible investments, a new target for the Republicans

New York (AFP) – BlackRock penalized in Texas and West Virginia for its so-called “boycott” of oil companies: American Republicans have gone on the attack on responsible investments by Wall Street giants.

Taking environmental, social or governance (ESG) criteria into account in financial decisions is an “ideological” posture, according to the Republican Governor of Florida and possible candidate for the next presidential elections, Ron DeSantis.

At the end of August, he ordered the bankers managing his state’s pension fund not to consider these criteria in order to “prioritize the financial security of the inhabitants (…) rather than fanciful notions of a utopian future”.

The Texas comptroller published the next day a list of companies, including BlackRock and European banks, which he said “boycotted” 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, took a similar decision at the end of July against BlackRock but also Goldman Sachs, JPMorgan Chase, Morgan Stanley and Wells Fargo.

“Any institution with policies aimed at weakening our energy sector, our tax revenues and our labor market has a clear conflict of interest with the management of taxpayers’ money”, he then justified.

But the targeted banks deny any boycott.

“Disconnected from reality”

Some of them have indeed decided to no longer finance oil exploration projects in the Arctic, for example. But they continue to lend cheerfully to companies in the sector.

JPMorgan believes in this regard that the decision of the West Virginia official is “short-sighted and out of touch with reality”.

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

“Public officials, elected and appointed, have a duty to act in the best interests of the people they serve. Politicizing public pension funds, restricting access to investments and harming the returns of pensioners’ investments, is not in line with this obligation, ”advances the Wall Street giant in a press release.

Joshua Lichtenstein, a Ropes & Gray lawyer who monitors state decisions related to ESG investing, has seen Republican attacks on such investments multiply.

But “political rhetoric describes a world that does not exist,” he said.

Asset managers “don’t choose between investing on ESG criteria and investing to make money, they use ESG criteria as an integral part of their strategy to mitigate risk,” he told AFP.

They are pushed in this direction by more and more customers, in Europe, Japan, or in democratic states.

Maine thus adopted in 2021 a law obliging its pension fund to sell all stakes in hydrocarbon companies.

Affected taxpayers

The positions taken by Republican states could even ultimately harm their taxpayers, says Ben Cushing, finance specialist responsible for the Sierra Club association.

Texas, for example, passed a law in 2021 prohibiting municipalities from signing new contracts with banks limiting financing to hydrocarbon and firearms companies. Result: the number of institutions participating in their bond loans has decreased and negotiated rates are higher, concluded a study by researchers from the University of Pennsylvania and the US central bank published in June.

It is still too early to know what effects this Republican offensive will have, believes Joshua Lichtenstein.

It should not a priori threaten a trend already well rooted among clients who are increasingly sensitive to the effects of climate change, in particular, and among asset managers whose mission is to take all risks into account.

But the Republicans “know how to make noise” and if they really carry out their threats, as in Florida, asset managers may, out of prudence, seek to avoid any conflict, suggests the lawyer.

The repeated attacks can also cause financial institutions to slow down their efforts just when “they were slowly and belatedly beginning (…) to recognize the very real financial implications of climate change”, deplores Ben Cushing.

© AFP

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