One might not expect to find so-called Environmental, Social Responsibility and Governance (ESG) policy in Alabama, but elements of it are around.
Among those is one of the most influential entities in the state – the Retirement Systems of Alabama (RSA).
A spokeswoman told 1819 News that although it does not have an ESG policy, ESG criteria are still "important and a factor" in selecting investments.
ESG investing has become controversial as its critics have dubbed it a "wokeness report card" and compared it to China's social credit score system.
But what is ESG?
ESG is an approach to evaluating how a corporation aligns itself to social goals beyond earning a profit for its shareholders. These goals often pertain to environmental sustainability but also to advocacy for certain social movements and commitment to "diversity, equity and inclusion" (DE&I).
Organizations, such as MSCI, award ESG scores to corporations supposedly based on their adherence to ESG values. Large asset management groups, such as BlackRock Inc., Vanguard and State Street, and banks such as JPMorgan and Bank of America, use ESG ratings to choose where to direct capital.
"Those companies are quite large," Dr. Daniel Sutter said. "They have an estimated, I think, $20 trillion in assets … On the S&P 500, those companies between them own 20 to 25% of the stock … Those companies are managing investors' money. Those big investment companies have gone on to say they are not going to invest in [companies who don't meet their ESG criterion]."
Sutter is a professor of economics for the Johnson Center at Troy University.
Sutter added that asset management companies like BlackRock often help companies become publicly traded and will refuse to help if a company doesn't have a good enough ESG score. Large banks are refusing to do business with companies that don't meet their standard for ESG scoring.
To help improve their rating, corporations might issue ESG reports, which can also be referred to as "sustainability reports." These outline the organization's compliance with ESG criteria.
Since ESG criteria are not mostly concerned with economic factors, ESG scores are not measures of expected financial return on investment. Instead, they are measures of compliance to a set of values established by the organizations that perform the ratings.
"Public pension funds are also [refusing to invest in companies without good enough ESG scores]," Sutter stated. "In states like California and New York, those pension funds have [billions and billions of dollars] in assets."
Sutter said West Virginia passed a law to say that its state public pension fund couldn't take ESG into account when making investments.
In Alabama, public employee pensions are handled by the RSA.
"The [RSA] does not, like states such as California, have an [ESG] policy," explained Jo Moore, the RSA's deputy director for administration. "However, ESG criteria [are] important and a factor to be considered in selecting an investment because of its impact on the Wall Street trading of companies. RSA relies upon many factors such as historical and projected growth, cash flow, and wide diversification among numerous asset classes in pursuit of the best risk-adjusted rate of return for its members' retirement."
1819 News requested an interview with a representative from the RSA to ask further questions and gain clarification about the comment.
Moore stated that the RSA "does not utilize an ESG scoring system" but would not specify whether ESG scores are used in determining which investments the RSA decides to make when asked for a yes or no answer.
Moore also declined to comment on why ESG scores are important or respond to the criticisms of ESG investing.
Diving deeper into the controversy
"One of the groups that has been instrumental in pushing [ESGs] has been an international group called Principles for Responsible Investment," Sutter advised.
According to the Principles for Responsible Investment (PRI) website, the PRI was developed by a group of investors who were convened by the United Nations secretary general.
"The UN got people together to draft this," Sutter said. "It's not part of the United Nations. Folks in the United Nations got business and finance leaders together to draft this, and that goes back, I think, to 2005."
Micheal Rectenwald was a professor at NYU from 2008 to 2019. He is the author of several books, including "Springtime for Snowflakes: Social Justice and Its Postmodern Parentage," "Beyond Woke," and "Google Archipelago: The Digital Gulag and the Simulation of Freedom."
Rectenwald is currently in the process of writing a deep history of ESG investing for his book on the "Great Reset."
Rectenwald said the Business Roundtable held a meeting in 2019 and redefined the purpose of a corporation in terms of "stakeholder capitalism." He advised that all the largest corporations in the United States attended.
According to Rectenwald, other "nefarious" groups like the Club of Rome were involved in ESG's origins.
Sutter said ESG's scale remained small for a long time. Individual investors chose to invest some or all of their money using ESG scores.
"From there, it grew where the big investment firms would start ESG or socially responsible investing funds where if you're investing your funds through one of the companies like BlackRock or Vanguard Financial or Fidelity, they have a variety of different funds with some then that they started explicitly with this idea [of] ESG," Sutter stated. "What's really taken off in the last couple of years has been the broader extension of this, with actual serious discussion of [ESG reporting] possibly becoming legally mandated."
According to Rectenwald, there are ideological motivations behind ESG. He said those behind ESG believe capitalism must be "reset" to address climate change.
"The ESG was instituted under this notion of "stakeholder capitalism," Rectenwald outlined. "That was a brainchild of the World Economic Forum founded and chaired by Klaus Schwab, so the ESG is a stakeholder capitalism mechanism in order to reset capitalism in order to create a quote-unquote 'fairer, greener future.'"
"... They're environmentalists, and they're somewhat socialists," he added. "They want to redistribute wealth through this stakeholder capitalism idea. They're redistributing wealth, and they're attempting to save the planet from climate change. They're leftists. They're socialists. They're environmental activists from the top. This is an elite crowd."
Rectenwald said ESG investing was extremely widespread. He explained that BlackRock has determined that all investments will be driven down "this ESG path." He went on to say the CEO of Bank of America said companies that didn't meet ESG criteria don't deserve any investments.
"This is a scheme," Rectenwald emphasized. "It's a cartel to drive all production, all wealth and all capital to ESG-abiding companies and to starve the rest from capital investments."
"There are these groups that come with these ESG ratings for businesses," Sutter said. "This is something that is done by outsiders. They're rating it, and it could be separate from what a company is reporting, and so they come up with ESG scores for companies … Some of the largest banks in the US and large investment funds have gone beyond simply saying 'we're going to have an ESG fund as one of the hundred different funds that people can put money into' and saying that they're going to use ESG for guiding all of their investments."
"It's pretty clearly political all the way through," Rectenwald added. "... It's a political tool that they're using to reward compliant companies and to punish others."
Rectenwald said that though ESG scores target the oil industry, the S&P 500 ESG index includes Exon Mobile, one of the world's largest producers, and JPMorgan Chase, the largest investor in oil production.
"They are among the top 10 ESG performers," he continued. "Yet, Tesla, who creates more electric vehicles than any other manufacturer, is off of that index altogether … That's because Elon Musk tried to buy Twitter. It put him in the crosshairs of the woke cartel."
Rectenwald said that MSCI admitted their ESG ratings were not based on rating environmental impacts at all.
"Blackrock Inc. is MSCI's biggest customer, and they're the biggest asset manager pushing the ESG index, so it goes to show … that the ESG score is a mirage," Rectenwald stated. "It isn't really about the environment. It's a political tool that they're using to reward compliant companies and to punish others … It divides the woke from the unwoke.
Impact of ESG investing
Some argue that ESGs are useful to measure the health of a company beyond immediate profits. ESG The Report suggests that ESG investing encourages companies to think broadly and consider the impact on society, allows investors to place their money in companies that align with their beliefs and even deliver better returns.
However, according to the Harvard Business Review, as of December 2021, ESG funds haven't performed better than others.
Rectenwald said ESGs have even contributed to the rise of energy prices.
"The oil companies know that [their days are numbered in terms of] how long they will be able to supply oil for the market," Rectenwald declared. "So they're cutting back on investments and drilling and so forth. This will drive up the cost of gasoline, oil, natural gas and electricity."
"People who think that climate change is the end of humanity want to put an end to fossil fuels," Sutter added. "They can't go to Congress and get Congress to pass a law to do that. So what are they going to do? I think they've thought, 'Well, what if we could keep companies in the oil and gas sector from accessing any capital?'"
Rectenwald also said ESG investing favors large corporations over small businesses.
"It very much favors large companies because the compliance is very expensive," Rectenwald stated. "You have to have a whole staff to deal with this … It's much more difficult for smaller companies to comply. It drives the small business person out of business eventually."
DE&I
"The other stuff like the diversity, that's part of the governance element of it," Sutter emphasized. "In particular, it's looking to see if you're going to make a commitment to doing something other than hiring the best person regardless of race, sex or creed to saying that you're going to make more positive DEI-type commitments."
"What [DE&I] is is a means for them promoting so-called 'fairness' or 'equity," Rectenwald said. "What it amounts to is this: They're using this social element to, in effect, control these corporations and companies and to drive down the importance of competence and drive up the importance of identity. It threatens to compromise the capabilities of these corporate leaders."
"Diversity is something we all sort of value," Sutter explained. "Most people like the idea of diversity, and most people like the idea of treating people equally … Then there is a gray area where we want to make some kind of public commitment to equity in hiring because it's sending a signal."
Political reactions
Sutter said he's heard some suggest that the Securities and Exchange Commission (SEC) should require companies to publish ESG reports. Others suggest that it should regulate how companies report ESG criteria.
"One of the proposals the SEC was doing in terms of regulations was simply to try to regulate how it is that companies are going to be reporting on this," Sutter outlined. "If you look at a company's statement and you see that they have a report in there … The SEC was trying to push some sort of standardization just to help investors … You should have to justify what you're claiming … That's not really objectionable."
Sutter also said states can, and have, taken action against ESG investing.
"The governors of various states can make sure that their pensions are not being directed at ESG companies and their investments are not being made on ESG scores," Sutter said.
Florida Gov. Ron DeSantis (R) announced legislative proposals in July to prohibit the State Board of Administration (SBA) fund managers from considering ESG factors when investing Florida's money and require SBA fund managers to only consider the expected return on investment on behalf of the state's retirees.
The Insuring Sound Guidance Act was introduced in March to the House of Representatives. The legislation would require investment advisors and ERISA retirement plan sponsors to put financial returns first over other factors when making investment decisions on behalf of clients.
Rectenwald suggested it would take Republicans winning in November's elections for this kind of law to go through.
According to Sutter, the issue of ESG investing needs to be publicized, and citizens should demand that their states not use ESG criteria in investing state money. When more people learn about what ESGs actually are, investors might look for alternative investments.
"The people who run the pensions, it's not actually their money," Sutter added. "They're managing it on behalf of the state and employees and retirees. If it's a business's money that is invested in a 401K or that business's pension plan, that's not really the money manager's money. That money belongs to other people, so are the money managers actually doing what the investors are okay with?"
Sutter went on to say there are new asset management companies that have committed to only making investments that they believe will offer a financial return. One of these companies is Strive Asset Management.
On its website, Strive describes itself as a "depoliticized investment option."
"They are marketing themselves as saying, 'We're not going to be doing ESG," Sutter said. "... If [ESG] is not what investors want, then those big [companies] are going to lose money to other companies like Strive Asset Management that's entering the market."
ESG reports in Alabama
1819 News looked for ESG reports among Alabama's largest corporations and asked them for their input.
Alabama Power's Sustainability Report outlines its initiatives pertaining to ESG.
"Alabama Power's commitment to our customers and state dates back to the founding of our company," replied Alyson Tucker, a spokesperson for Alabama Power. "We're focused on providing safe, secure and reliable power, identifying innovative solutions that meet the needs of our customers, valuing our employees, protecting our state's important natural resources, and strengthening the communities we serve. Our annual sustainability report provides an opportunity for us to share our initiatives with interested customers and stakeholders."
Regions Bank's 2021 ESG Report is available on their website.
"From solid and effective corporate governance to customer support and community involvement, and much more, ESG covers a wide range of topics that are important to many stakeholders," advised media and public relations manager for Regions Bank, Jeremy D. King. "In particular, Regions' latest Annual Review and ESG Report, which is available for download from this page, provides an in-depth, fulsome view of how Regions specifically addresses a wide range of needs."
1819 News asked King why Regions has an ESG report, who it is designed to appeal to and to respond to the criticism of ESG investing. He declined to comment.
1819 News also reached out to other Alabama-based companies with ESG reports, such as Vulcan Materials, Encompass Health and Auburn University but has yet to receive a response.
To connect with the author of this story, or to comment, email will.blakely@1819news.com or find him on Twitter and Facebook.
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