The headquarters of BlackRock in Manhattan. (Spencer Platt/Getty Images)
LINCOLN — Nebraska’s attorney general, in a unique, unsigned report this week, warned against allowing the consideration of environmental, social and governance performance, or ESG, in the investment of institutional funds.
The 37-page report, which reads like a policy analysis ,with multiple academic citations, was done at the initiative of Attorney General Doug Peterson. The Republican lawyer said that those involved in investing need to be aware of the dangerous “endgame” of so-called ESG investing. He maintains it is “a threat to our democratic form of government.”
ESG, the report contends, uses the sustainable development goals of the United Nations to “impose its hand-picked, politically preferred metrics on American businesses.”
“In the end, the unavoidable conclusion is that the ESG movement has the potential to do substantial harm to both the financial system and society as a whole,” stated the report, written, according to a spokeswoman, by Peterson and a small group of lawyers in the AG’s office.
More political, less legal
Two university law professors, asked by the Examiner to review the report, said it appeared to be “political theater” and represented an “innovative” use of time by a state office whose main responsibility is to represent the state in legal matters.
One of the professors, James Tierney, who teaches investment law at the University of Nebraska College of Law, said there’s a robust debate about how society should encourage certain investments, but there’s something anti-democratic about saying that only financial return should be considered.
“It’s very light on the law and it’s very heavy on, ‘whoa — international conspiracy,’ ” Tierney said.
“There’s nothing in this report to give me any reason to think that ESG is anything different than CRT (critical race theory), a boogie man,” he said, or an imaginary threat.
Another NU professor, Anthony Schutz, said the report seemed to be an “innovative” use of the Attorney General’s Office, though it possibly could be related to its consumer protection role.
Overall, Schutz said it was “far from a comprehensive and deep analysis of the issues associated with investor activism.”
Information lacking on ESG
Peterson, in an email response to questions, said he decided to compile the report because he felt there was “inadequate information” about “the origins of ESG, its long-term objective, (and) who is setting the criteria of ESG.”
“The best way to inform state policymakers and enforcers was to issue a report,” said Peterson, who will leave office in January after declining to seek a third term in office.
He noted that in July, the world’s largest money manager, BlackRock, gave a briefing about ESG to the Nebraska Investment Council, which oversees state pension investments. It was described as an educational presentation at the time.
BlackRock targeted by GOP officeholders
BlackRock has been the prime target of a Republican campaign to pull investments from a growing number of firms that consider things such as climate change and a company’s dedication to diversity in making investment decisions.
States such as West Virginia, Louisiana and Arkansas have pulled millions of dollars of investments from BlackRock, Goldman Sachs and JPMorgan, in part because they are reducing their investments in coal and oil.
Florida, at the direction of Republican Gov. Ron DeSantis, has blocked consideration of ESG in that state. Recently, Florida pledged to pull as much as $2 billion in long-term securities and short-term funds from BlackRock, according to the Financial Times.
‘Climate risk is investment risk’
BlackRock has defended its work, saying that “climate risk is investment risk” and that it is prudent to consider the dangers, and opportunities, presented by rising global temperatures and emerging technologies.
But a group of Red State attorneys general, including Peterson, and an organization of GOP state treasurers, headed by Nebraska Treasurer John Murante, have condemned ESG for advancing a “woke left” and “left-wing agenda” instead of primarily investor returns.
Peterson, in a press release in August, said it appeared that anyone purchasing a BlackRock fund “is forced to support ESG whether they like it or not.”
This week’s report from the Attorney General’s Office stated that while individual investors can invest their money “as they please,” those who decide how to invest other people’s money, as in a state pension fund, cannot pursue “a non-financial goal.”
Risks ‘elites’ running things
The report warned that ESG investing violates a duty by investment and trust officers to seek financial returns above other objectives. Investing via ESG, it stated, also risked an antitrust violation and placed investment power in “a small group of elites running global financial firms.”
Overall, Peterson’s report argued that investment firms were not well suited to decide climate and social issues, and contended that should be left to the public or its elected officials.
But interest and support in ESG investing is spreading.
More firms consider ESG
According to Deloitte, by 2024 half of all professionally managed assets globally will have investments in companies that take ESG issues into account, according to a September report in the Examiner.
That same story cited a 2021 survey on responsible investing by Nuveen, an asset manager. It found that 75% of employees strongly agreed or somewhat agreed that employers that have ESG and responsible investing options care about their retirement outcomes.
Tierney, the NU law professor, said the AG’s report ignored another duty of investment and trust managers: the “prudent investment” rule. That duty, according to a Nebraska Supreme Court ruling, doesn’t require investing only for the highest return possible.
Tierney said his cynical view is that the report was inspired by interest groups and corporate heads who are seeing investments flowing away from their firms to companies that embrace ESG.
“They get mad when they see their stock price go down because some fund manager thinks the investment is dirty,” Tierney said.
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