“Simply put, we cannot be party to the crippling of our own economy.”
Those were the words of Louisiana’s Treasurer, John Schroder, informing BlackRock that the Pelican State had already divested $560 million and would be liquidating all BlackRock investments within three months. This divestment will leave BlackRock with nearly $800 million less dollars in its investment portfolio.
In a letter to BlackRock CEO Larry Fink, the Treasurer wrote, “Your blatantly anti-fossil fuel policies would destroy Louisiana’s economy.” He continued, “Environmental, Social and Governance (ESG) investing is contrary to Louisiana law on fiduciary duties, which requires a sole focus on financial returns for the beneficiaries of state funds.”
BlackRock, the largest money manager in the world, has recently taken a hit from many Republican state governments. The firm, which handles more than $10 trillion in assets, has the power to drive market momentum based on the sheer mass of its market portfolio.
The concern is that BlackRock and other major financial institutions are making investment decisions based on a subjective ESG criteria by choosing not to invest in clean nuclear energy and fossil fuel companies. They are limiting the flow of capital to these companies regardless of the demand for the energy they could produce.
This past July, West Virginia led the charge, becoming the first state to ban state business with private banks that are making loan decisions based on ESG criteria. Treasurer Riley Moore announced The Mountain State, which is the second-largest coal producer and ranked fifth in total energy production in the U.S., would no longer invest state funds in banks that seek to reduce investments in fossil fuels. Treasurer Moore cut ties with Goldman Sachs and JPMorgan, Morgan Stanley, Wells Fargo, U.S. Bancorp, as well as asset manager, BlackRock.
Other states have followed suit, protecting the management of state assets. South Carolina recently announced the Palmetto State will divest $200 million from BlackRock over its “leftist worldview,” Utah State Treasurer Marlo Oaks announced he has pulled out approximately $100 million in state funds from BlackRock, and Arkansas has divested almost $125 million out of money market accounts managed by BlackRock.
One Red state not following the lead of West Virginia is Alabama. Alabama has taken minimal action on the issue except for joining nineteen other attorney generals in signing a letter to BlackRock’s CEO, challenging BlackRock’s use of ESG as investment criteria when managing state pension funds. Still, Alabama seems quiet compared to other states with Republican controlled state governments who have not only vocally opposed the use of tax-payer dollars invested in a subjective and ideological manner but have taken strides to prevent this from occurring.
While Alabama’s situation is not as clear cut as West Virginia, it is still important, and taxpayers should care. Alabama should be concerned about BlackRock and private banks making investment and loan decisions based on ESG criteria.
Here is why.
While Alabama only takes in around $62 million yearly in state income from oil and gas company fees and taxes, the state relies heavily on fossil fuels. Some of the state’s largest companies are industries that in theory would receive low ESG scores due to the “E” criteria. The “E” in ESG involves a climate change ideology that prioritizes the reduction in carbon emissions over just about any other metric. Practically implemented, this looks like it puts the cheapest and most effective forms of energy at a disadvantage.
If Alabama Power wanted our state to have the cleanest and cheapest long term energy supply, they would invest in nuclear power plants. The problem is that the ESG profile for nuclear energy would deny access to capital despite the clean nature of the energy source. If the Alabama Department of Corrections wanted to have the most modern, humane, and cost effective prisons in the nation, they would not be able to access the capital to execute their plan simply because any mass incarceration facility scores low in the world of ESG.
In addition to ESG’s effect on the state’s economic engines, there are real concerns about how taxpayer dollars are invested by Alabama’s government.
The Alabama State Treasury currently manages over $10 billion in assets. Do we really want this money to fund and promote an ideology that the citizens do not support? Wouldn’t it be helpful if more money were invested into domestic oil and gas production in our country? Wouldn’t it help the nation to achieve and retain a position of energy independence? Wouldn’t these dollars from Alabama be better invested this way than to subsidize inefficient and undependable energy sources that require raw materials from China to produce? Aren’t our coal and natural gas electric plants cleaner than those in China or India? The money invested by our state government should benefit our state interests, not work against them.
It is unclear to me if Alabama’s state pension funds are being invested by the state using ESG criteria. 1819 News reached out to the RSA without receiving a direct response. The RSA’s deputy director, Jo Moore, said, “RSA does not have an ESG plan or use ESG scoring. RSA will not use its investments to promote social or political agendas.” However, Moore then stated, “To the extent that environmental, social, or governance issues impact the profitability of the company and its investment return, RSA has and will consider these factors. Consideration of these factors has nothing to do with an ESG policy but is the foundation of prudent investing and has been a consideration in investing long before ESG policies existed.”
Alabama’s neighboring state, Florida, recently passed legislation that prevents state fund managers from considering ESG factors when investing government money. In addition, Governor Ron DeSantis (R) proposed legislation that would bar banks from discriminating against customers for their political and social beliefs.
Similarly, Texas banned 10 financial firms from doing business with the state in an attempt to thwart the ESG agenda and support firms that “make decisions in the best interest of their shareholders or their clients” instead of “us[ing] their financial clout to push a social and political agenda shrouded in secrecy.”
In Louisiana’s letter to BlackRock, Treasurer Schroder wrote, “Focusing on ESG’s political and social goals or placing those goals above the duty to enhance investors’ returns is unacceptable under Louisiana law.”
Does Alabama feel the same way? Alabama has not led in this area, but at the minimum the Yellowhammer State can follow other state’s examples. Transparency and public accountability would be a great place to start.