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Some Missouri officeholders want to make sure that state funds aren’t used to promote “woke political agendas.” An effort is underway to ban state involvement with banks that prioritize climate action or other socially driven investments.
Conservative legislators have joined peers in other Republican-run states in a movement against environmental, social and governance investing. Known as ESG or impact investing, it takes into account social concerns and personal beliefs when it comes to investing money.
The practice of defined ESG investing is relatively new, but social pressure to make investments that consider climate change is mounting. In 2021, BlackRock, one of the nation’s largest investment companies and where some of Missouri’s money is held, announced it would use its spending power to make climate-friendly investments.
“We know that climate risk is investment risk,” BlackRock’s chairman wrote in a letter to business leaders. “We also believe the climate transition presents a historic investment opportunity.”
In October, Missouri pulled $500 million of the state’s pension funds out of BlackRock accounts under the leadership of then-state Treasurer Scott Fitzpatrick. Several other Republican states have also withdrawn funds from the company.
In a press release explaining the decision, Fitzpatrick, who is now the state auditor, claimed BlackRock betrayed shareholders after those with voting power in the company elected members of a small climate activism hedge fund to Exxon’s board, a tactic called shareholder activism. Fitzpatrick said the move caused Exxon to pull back on a planned expansion of oil and gas production.
“This decision has not only negatively impacted shareholders, but has contributed to skyrocketing prices at the pump for Missourians,” he said.
Efforts against ESG are a trend in red states
The effort against ESG is a part of a framework in a number of Republican-leaning states. Lawmakers and state treasurers have been lobbying against climate-friendly federal policy and business decisions and have been introducing legislation to prevent what they regard as discrimination against fossil fuel companies.
The movement is partly led by a network of state treasurers involved with the State Financial Officers Foundation (SFOF), a conservative group based out of Shawnee, Kansas, according to an investigation by Documented, an investigative journalism outlet. Fitzpatrick is currently serving as the vice chair, and his successor in the Missouri treasurer’s office, Vivek Malik, is also a part of the group.
The American Legislative Exchange Council, known as ALEC, is one of SFOF’s sponsors, along with the Heritage Foundation and other conservative groups, according to the Documented investigation. The CEO of ALEC sits on SFOF’s board of directors, according to its website, and the group has ties to the fossil fuel industry.
ALEC has written model legislation to prevent a state’s retirement or pension funds from being used to perform ESG investing.
At least nine bills have been introduced this year in Missouri to prevent environmental or social concerns from being taken into account when it comes to how the state spends its money. Much of the proposed legislation uses language and context similar to the ALEC model.
Missouri’s next fight against climate action
The Missouri Sierra Club, an environmental advocacy organization, said some of the introduced legislation would relieve the state from feeling any pressure to take action on climate change.
“This is a push to make it harder for the private sector and the state government to take any meaningful action to deal with the problem of climate change,” Michael Berg, the group’s political director, said in an interview.
Berg pointed to similar bans against “woke” political concepts, like Missouri’s 2020 law that would prohibit state agencies from contracting with companies that boycott Israel.
“Let’s say that someone who does boycott the state of Israel has the highest quality service or product for the lowest cost, but they’re not allowed to [take out a contract], because the state has determined that that is their ideological idea that they don’t want this to happen,” Berg said.
Missouri has already passed legislation, like its climate preemption law, that prohibits cities in the state from banning things like natural-gas hookups in new construction.
Sixteen states introduced bills in 2022 that aimed to block bans on fossil fuels or prevent impact investing with state money.
“ESG” does not yet have a technical definition, something the federal government is looking to establish. In 2022, the federal Securities and Exchange Commission drafted rules that would define and regulate what exactly would be taken into account when it comes to establishing an ESG score.
It’s not just pro-environment groups that are worried about efforts to curb ESG investing. Business interests like the Missouri Chamber of Commerce have expressed concerns that legislating expressly against it may present difficulties for businesses.
“There’s not an industry-accepted definition for ESG and the definitions that are in this legislation — it’s not clear what those are,” Phillip Arnzen of the Missouri Chamber of Commerce said in a hearing about a piece of ESG legislation in the House financial institutions committee.
Rep. Terry Thompson, R-Lexington, is sponsoring a bill that would prohibit state agencies from adopting “social credit scores” or other measures of environmental, social or governance metrics that interfere with business. In explaining his bill, Thompson acknowledged that some of his fellow lawmakers may think that his bill does not go far enough.
“To be clear, there is nothing yet official on these proposed rules,” Thompson said of the SEC language. “The question that faces us is what can we do as a state to prevent agriculture, business and banking communities from this type of federal government overreach through regulatory agencies.”
Another bill introduced by Rep. Bill Owen, R-Springfield, would prevent banks that manage the state’s pension funds from considering ESG scores in a way that would override maximum return on the state’s pension fund. He said Tuesday that the pensions bill had the support of state Treasurer Vivek Malik, though the board of trustees of the employees retirement system in St. Louis testified in opposition to it, as did the Service Employees International Union chapter of Missouri.
Rhiannon Duryea of the SEIU said in written testimony that considering environmental, social and governance factors had become “mainstream practice” in investors’ assessments of risk and return.
Rep. Michael O’Donnell, a Republican from St. Louis County who has a background in banking, chairs the House financial institutions committee. He’s introduced a bill that would require investment bankers to disclose to customers when ESG scores are being considered in an investment and would require customers to sign onto the disclosures. In 2022, O’Donnell received campaign contributions from the state’s energy and utilities companies, including numerous donations from Association of Missouri Electric Cooperatives political action committee, Evergy and the Liberty Utilities PAC.
Secretary of State Jay Ashcroft introduced a similar proposed rule change to state statute in January and testified in support of the bill.
ESG bans in Texas lost the state money, according to studies
Critics of ESG bans point to Texas, which passed a bill, the Energy Discrimination Elimination Act, that prohibits local and state governments from doing business with banks that take a stand against fossil fuels. The bill was modeled on legislation written by ALEC.
A study on the Texas bill and proposed legislation in other states, such as Florida, Kentucky, Missouri, Louisiana and Oklahoma, found that legislation limiting investment options on municipal bonds could cost states between $264 million and $708 million in additional interest payments.
Ultimately, the study found that Texas paid higher interest rates because of less competition after major banks were forced out of the state. It estimated that Missouri could see interest payments increase from $32 million to $68 million if a bill similar to the one in Texas was passed.
Berg, with the Sierra Club, said that depending on how legislation gets altered throughout the session, there is a possibility that Missouri pensioners could lose money overall.
“There is a real possibility that there are bills that could come out that could cost taxpayers and pensioners money,” he said. “Just as what happened in the bill that came out of Texas. The risk is there.”