April 22 (Reuters) – U.S. political battles over corporate sustainability have heated up this spring as aggressive Republican statehouse efforts face growing pushback from businesses and pension funds. seeks to account for climate change and protect returns.
Dozens of Republican-sponsored bills aim to free fossil fuel companies from the climate restrictions adopted by some Wall Street firms. Others touch on hot-button environmental, social and governance (ESG) topics such as abortion rights and firearms.
These principles have been adopted by some conservative lawmakers who say the laws are necessary to counter ESG-minded shareholder activists, citing cases such as the 2021 investor revolt at Exxon Mobil Corp due to climate concerns.
But as the number of so-called “ESG backlash” bills mount, the proposed laws have sparked their own backlash from business leaders, lawmakers and public officials who worry they could undermine returns by cutting back. of public pension funds from outside investment managers. or interfere with the obligations of executives to shareholders.
A Reuters review of testimony, previously unreported public documents and interviews with elected leaders, lobbyists and lawyers detailed the mounting challenges to several pending anti-ESG bills.
The clashes have financial implications for some of the largest investment firms that manage billions of dollars for state pension plans. Wall Street money managers will lose big business or walk away if and when restrictions are placed on public investments, even if they balance the pressure from officials in Democratic states.
Lauren Doroghazi, senior vice president of government relations consultant MultiState Associates, said the debates show lawmakers agreeing on the practical impact of anti-ESG bills.
“There will certainly be a lot of pushback and education about how this affects the operation of some particular industries,” he said.
He estimates that less than a fifth of the anti-ESG ideas and policies originally sought will be passed into law, a share that may yet prove significant.
“MORE PUBLIC DIALOGUE”
This year state lawmakers, especially Republicans, filed nearly 99 bills aimed at curbing the rise of ESG business practices, up from 39 by 2022, according to law firm Morgan Lewis. As of April 3, seven of the bills have become law, 20 are effectively dead, and 72 are still pending.
A Texas bill requires fund managers working for the state to seek only maximum profits rather than pursuing social or political goals.
Several public pension systems have raised concerns about this, including the largest, the $182 billion Texas Teacher Retirement System (TRS). In a document on March 24, TRS said that external managers who manage about $76 billion of its assets could violate the proposed law.
In response, Senator Bryan Hughes, a Republican, put forward a narrower version of the bill, which led TRS to remove the estimate regarding its external managers in an April 13 document. But two other systems, including the Texas County & District Retirement System (TCDRS), said they remain concerned.
In an April 14 document provided to Reuters under a public records request, a TCDRS official wrote the new language “still creates risks and liabilities that cause concern” and may discourage investment managers from trading in TCDRS.
It also said the “financial impact cannot be determined” but could result in significant lost revenue. TCDRS declined to comment further.
Hughes’ proposal passed the Texas Senate 25-4 on April 20, but must still be heard by the Texas House in the coming weeks.
If passed, it would follow a 2021 Texas law that limits the state’s investment in equity and products of asset managers including BlackRock Inc ( BLK.N ) on their stance on climate change.
In a recent interview, BlackRock’s Chief Financial Officer Martin Small said that the conversation about ESG is changing in many states.
“I think there’s a much better, richer public dialogue happening where people are talking not only about their ESG issues, but people are also talking about the problems and potential costs that public pension plans may take as a result of some of these charges.” Small said.
THE WORK OF SATAN
ESG investing debates have gained national importance as Democratic-aligned shareholder activists clash with Republicans who increasingly adopt anti-ESG rhetoric.
Some of the criticism was harsh. Utah’s Republican State Treasurer Marlo Oaks in March referred to ESG governance and the United Nations-backed sustainable development goals as “Satan’s plan” when speaking at a meeting of Republicans.
The comparison with Satan is strange. But Republicans often disparage ESG efforts with references to the global connections of top funds and describe industry efforts like the Net Zero Asset Managers initiative as radical.
Oaks supported several anti-ESG bills signed into law this spring, a spokeswoman said, including one that prohibits public agencies from doing business with companies seen as ‘boycotting’ industries such as fossil fuels. fuel.
Utah Bankers Association President Howard Headlee said the new law could have unintended consequences. For example, if federally-regulated local banks face new national rules on an issue such as climate change disclosure, the banks will need special approval from local banks. official to keep Utah’s public business going, he said.
“It’s a stupid way to do it,” he said.
“ONE BIT”
Democrats have also filed far-reaching bills such as a pair in California to require companies to disclose greenhouse gas emissions and for state pension funds to divest fossil fuel stocks. fuel.
Ultimately local politics will determine the results. This month in Kansas, lawmakers softened the language of a Republican bill aimed at limiting the use of ESG in investment decisions to address concerns that it would cost $3.6 billion over 10 years to lower the system’s pension.
Another provision omitted from the final legislation would require registered investment advisers to obtain additional consent from clients to place them in ESG-type funds.
The author of the Bill, Sen. Mike Thompson said the changes were necessary to secure the final passage. It was passed by both houses of the Kansas legislature on April 6 and will become law unless vetoed by Gov. Laura Kelly, who has until April 24 to do so.
Kelly’s spokeswoman would not comment on his intentions.
“We think our model can be used in other states that are also struggling to pass this type of bill,” Thompson said via e-mail. He added that “Sometimes you have to take it one bite at a time.”
Reporting by Ross Kerber; additional reporting by Davide Barbuscia. Editing by Simon Jessop and Anna Driver
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