State Treasurer Young Boozer insists that the Alabama State Treasury (AST) does not make investment decisions using environmental, social and governmental (ESG) criteria.
This approach evaluates how a corporation aligns itself with social goals beyond earning a profit for its shareholders. These goals often pertain to environmental sustainability and advocacy for specific 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, Vanguard and State Street, and banks, such as JPMorgan and Bank of America, use ESG ratings to choose where to direct capital.
In an interview with 1819 News, Boozer explained that though the AST does not use ESG as a factor in determining where to make investments with state money, some of the accounts the state is invested in, managed by third-party companies, might use ESG criteria.
Retirement Systems of Alabama
Boozer also said he couldn't speak for all money invested by the state.
The AST is responsible for receiving, depositing and investing state funds, bonds, unclaimed property, college savings programs and public funds deposits.
Nevertheless, it is not the only state agency responsible for investing money.
For instance, the Retirement Systems of Alabama (RSA) handles all public employee pensions.
In a statement provided to 1819 News last week, RSA denied using an "ESG plan" or "ESG scoring."
"As we have previously stated, RSA does not have an ESG plan or use ESG scoring," a spokeswoman told 1819 News. "RSA will not use its investments to promote social or political agendas. RSA's primary criteria for investing is the profitability of the company and its investment return. In determining the profitability of a company, many factors are considered. 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."
That is a much more definitive response than what RSA has previously said. In August, a spokeswoman for RSA told 1819 News that though the RSA does not have an ESG policy, ESG criteria are "important and a factor."
Previous, a spokeswoman speaking on behalf of RSA said the agency did 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.
She had also declined to comment on why ESG scores are considered important, nor did she respond to the criticisms of ESG investing.
Alabama Attorney General's battle with BlackRock
Alabama Attorney General Steve Marshall has been a harsh critic of ESG investing in the Alabama state government.
Marshall said in an interview with 1819 News in September that "ESG is simply another mechanism for the left to impose their philosophy on this country."
Marshall has been one of many Republican attorneys general to petition against measures at the federal level which might benefit companies for ESG investing or having good ESG scores or require companies to issue something along the lines of ESG reports.
On June 15, 2022, Marshall signed a letter with other state attorneys general to comment on proposed rule amendments from the Securities and Exchange Commission (SEC) titled "The Enhancement and Standardization of Climate-Related Disclosures for Investors."
The proposed rule sought to require companies to disclose climate-related information to investors.
On December 31, 2021, Marshall signed another letter against a proposed rule of the U.S. Department of Labor (USDOL) that would allow Employee Retirement Income Security Act (ERISA) fiduciaries to "make investment decisions that reflect climate change and other environmental, social, or governance considerations, including climate-related financial risk, and choose economically targeted investments selected, in part, for benefits apart from the investment return."
Marshall and other authors of the letter did not believe that fiduciaries should consider social and political issues in decisions about what to do with an employee's retirement savings.
Marshall signed another letter in August that claimed BlackRock, one of the world's largest asset management companies, has committed to leveraging its large asset holdings to accelerate net zero emissions against client wishes.
In response to the letter, BlackRock said it had never forced specific emission targets on any company and doesn't coordinate investment decisions with others on climate issues. The response also claimed that BlackRock had invested "hundreds of billions of dollars" in energy companies.
The response said BlackRock's motivation for using ESG criteria in its investments reflects shareholder votes and that its investment professionals believe climate change poses an actual risk for investors.
BlackRock and Alabama
Earlier this month, Louisiana Treasurer John Schroder informed BlackRock that his state would be liquidating its investments with BlackRock, divesting almost $800 million from the company, according to reports.
Schroder cited "anti-fossil fuel policies" as the reason for the Louisiana treasury's decision.
Boozer said the AST used to have a money market mutual fund with BlackRock, but he liquidated it in July.
According to Boozer, the decision to liquidate was both a financial decision and a response to the company's political involvement.
He said when Alabama issued bonds for financing two new prisons in June, BlackRock had expressed interest in buying but pulled out at the last hour when activists filed a lawsuit against the state.
Boozer said he reevaluated the investment with BlackRock after the incident and found it was not performing as well as funds with other companies, so he moved it to get a better return.
"The state of Alabama wants to do business with the corporations and entities that want to do business with us, and if they don't, that's fine," Boozer said. "We'll do business with somebody else."
Boozer said he was unsure if BlackRock's fund was underperforming due to ESG investing.
Safety, liquidity and yield
The AST mainly looks at short-term investments, which can be as quick as overnight or as long as 180 days. It might handle other funds with a longer maturity, but those are not the majority of funds managed by the agency.
Boozer said that the investments he makes for the state are determined primarily by three factors: safety, liquidity and yield, though he said they do consider other factors.
"Sometimes yields vary from one provider to another, so our goal is to earn as much as we can on our investments based on that method," Boozer said.
Boozer criticized the practice of ESG investing, claiming it is "incredibly subjective."
"I like to work on objective principles, and that's how I try to run the investments that we have," said Boozer.
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