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Another word for "woke" is "vigilance"
As Republicans railed against an "unelected cabal of global elites," Democrats explained some basic concepts of risk management in a reality-based economy
Yesterday, House Oversight Chair James Comer (R-Ky)1 took a break from his persistent inquiries into the Biden family to probe the use of Environmental, Social, and Governance (ESG) practices by businesses and financial institutions. ESG, a risk-analysis methodology and investment tool, has been the subject of sustained attacks and conspiracies from Republican politicians in recent years. The crux of the Republican argument against what is also known as “responsible investing” is that ESG metrics prioritize social values over sober financial analysis. However, a strong body of evidence shows that ESG analysis has often proven useful in enhancing financial performance and minimizing investors’ exposure to financial risks.
Ranking Member Jamie Raskin (D-Md.) began the hearing by recognizing the campaign against “woke capitalism” is powered by fossil-fuel interests. “Amazingly, the fossil fuel industry wants Big Brother now to march in and stop the free market from responding to the climate crisis that the carbon kings created,” Raskin exclaimed. Digging into the etymology of the term “woke,” Raskin found:
“Vigilance is probably the best definition of ‘woke’ as [Republicans] are using it… The opposite of a vigilant, woke investment strategy is a negligent and inattentive investment strategy.”
Raskin concluded: “When it comes to climate change, if it’s not ‘woke capitalism,’ it’s ‘broke capitalism.’”
Utah Attorney General Sean Reyes and Alabama Attorney General Steve Marshall served as the hearing’s Republican witnesses. Evoking uncomfortable parallels to the Protocols defamation, Marshall condemned an “unelected cabal of global elites” that allegedly uses ESG to manipulate economic outcomes.
Reyes’ testimony argued that efforts to achieve the Paris Agreement’s objective of limiting global warming to 1.5 C “contemplates changes to our way of life that are far reaching and fundamental.” Although the catastrophic consequences of not achieving the Paris Agreement’s goals would also seem to contemplate fundamental changes to our way of life, Reyes stated his preference for consumers rather than regulators to institute those changes.2
The Democratic witness was Illinois Treasurer Michael Frerichs, who stressed in his opening statement that he has a fiduciary duty to look at the long-term value of investments he makes on behalf of Illinois citizens and retirees, and pointed out that ESG is merely “data.” As Frerichs put it, the “coordinated campaign” against ESG forces fiduciaries to ignore data and risk factors that they need to make long-term investment decisions.
Frerichs told Raskin that ESG factors can be useful in looking beyond a firm’s quarterly figures to determine whether certain firms are a smart long-term investment.3 To illustrate his point, Frerichs discussed Illinois’ assessment of Purdue Pharmaceutical, which extended beyond the company’s short-term profits to consider the likelihood that the company might ultimately be found responsible for fueling the opioid crisis.
“Those litigation risks took a company that was very profitable for a long time, and bankrupted it,” Frerichs explained.
In an exchange with Rep. Paul Gosar (R-Ariz.), Reyes pushed back against Frerichs’ assertion that it’s ideal for fiduciaries to use more and better data by suggesting that some ESG data is “bad data.” Utah has historically had a AAA credit rating, Reyes noted, and that should be the only thing financial analysts should take into account when evaluating Utah’s credit rating.
Reyes complained that Standard and Poors—merely by mentioning Utah’s accelerating megadrought as an area of potential concern in a credit indicator report card—“all of a sudden makes it look like the most important factor” is “one particular factor of drought.”
The AG doth protest too much, methinks.
In contrast, Rep. Alexandria Ocasio-Cortez (D-N.Y.) noted that DuPont’s long-term concealment of the toxic risks of PFAS and Norfolk Southern’s decision to increase the risk of derailments to raise profits has not only led to the suffering and death of Americans but also represent major financial risks for investors in these companies.
Much of the hearing discussion centered around the orchestrated campaign to pass laws restricting socially responsible investing at the state level. These laws have been dubbed “forced fossil financing laws” by financial stability experts.
“When [Republicans] pass legislation that prohibits disclosure of information, that hinders our ability to make good decisions,” Frerichs told Rep. Robert Garcia (D-Calif). “When they pass legislation that punishes certain companies for making business decisions, that hurts taxpayers in their states.” Frerichs went on to note that these were not insignificant costs, but likely in the billions of dollars across 25 new laws in 14 states. Indeed, in addition to the higher debt servicing costs that forced fossil financing laws are inflicting on the public, proposed laws in several states have been projected to cost billions in lower returns to retirees.
Rep. Lauren Boebert (R-CO) used her time to label BlackRock a “left wing activist fund,” a characterization that Rep. Katie Porter (D-Calif.) later said “strains credulity,” given that BlackRock, the world’s largest asset manager, behaves just like most financial institutions by using ESG to assess its bottom line, and like most financial institutions, still invests billions in the fossil-fuel industry.4 (Boebert joined several other Republicans in making reference to recent distress in the banking system, which has been blamed falsely and absurdly on ESG rather than on financial deregulation.5 During her remarks, Boebert conflated First Republic and Silicon Valley Bank.)
Toward the end of the hearing, Rep. Seth Magaziner (D-R.I.), who was formerly Rhode Island’s treasurer, summed up the attacks on socially responsible investing nicely. Citing major stock market losses for BP following the Deepwater Horizon spill and Volkswagen for its diesel pollution scandal among other examples, Magaziner said:
“Companies that do not manage their environmental risks, their labor risks, their consumer protection risks appropriately open up investors…pensioners, retirees to financial losses. So, investors would not be doing their jobs if they did not think about these issues.”
Magaziner went on to compare the five-year performance of ExxonMobil unfavorably to the five-year performance of a solar energy company, concluding:
“The industries of the future are winning, and the industries of the past are now trying to rig the game by employing government interference to prevent investors from doing their job.”
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For decades, politicians in Comer’s home state of Kentucky have worked to entrench the political and economic power of the state’s coal industry. Senate Minority Leader Mitch McConnell has been the most successful, throwing himself behind the effort to extend coal’s life and to eradicate campaign finance laws so that coal barons can spend freely on elections by extracting resources from companies headed toward bankruptcy. Despite these efforts, coal has generally continued to decline as an energy source. As the physical, transition, and liability risks from burning coal have grown, its importance to the economy of Kentucky has shrunk. This has not stopped Kentucky state legislators from enacting a costly “forced fossil finance” law. The Kentucky Bankers Association has sued Attorney General Daniel Cameron over his enforcement of that law, stressing how bankers rely on ESG factors while lending in the wake of climate disasters. Nonetheless, House Financial Services Subcommittee on Financial Institutions and Monetary Policy Chair Andy Barr (R-Ky.) has introduced a federal version of the forced fossil finance law.
Reyes and Marshall both reiterated the Republican AG claim that voluntary consortiums of financial institutions aimed at achieving net zero targets are a violation of antitrust laws. Rep. Porter refuted this claim during her remarks, while Treasurer Frerichs pointed out that forced fossil financing laws are undermining competition.
One theme overhanging the entire hearing debate was an argument about long-term decision making vs. short-term profit seeking. Throughout the hearing, Republican witnesses parroted arguments from presidential candidate and “Woke, Inc.” author Vivek Ramaswamy, who recently told the New York Times that his plan to address the climate crisis is to “drill, frack, burn coal.”
As one financial stability expert pointed out, delays in the appointment and confirmation of the nation’s top banking regulators may have played a role in the recent collapse of several banks. The attacks on socially responsible investing at the heart of the hearing escalated after Republicans deployed those attacks to block the confirmations of Saule Omarova and Sarah Bloom Raskin to be Comptroller of the Currency and Federal Reserve Vice Chair of Supervision, respectively.