Earlier this month, Alabama Gov. Kay Ivey signed into law restrictions on financial institutions' ability to use environmental, social governance (ESG) factors to discriminate in business decisions while entering contracts with the state.
ESG scoring 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" (DEI).
Organizations, such as MSCI, award ESG scores to corporations supposedly based on their adherence to ESG values. Some large asset management groups and banks use ESG ratings to choose where to direct capital.
The new law follows an intense battle between lawmakers and lobbyists paid by Alabama's banking community, which resulted in minor changes to the legislation before it made it to the Senate floor.
Nevertheless, the law still prohibits government entities from requiring businesses to engage in economic boycotts. It prohibits companies that do engage in economic boycotts to further social or political agendas from entering into contracts with the state.
It also requires the Attorney General to prohibit adopting federal law that may penalize companies for not engaging in ideologically-charged business boycotts.
Banking is one of Birmingham's most fundamental industries, and large banks worldwide have taken a sharp turn in favor of the ESG agenda over the last decade. A handful of banks headquartered in Birmingham still openly advertise using ESG in investment decisions and business practices, while some remain skeptical.
Regions Bank: Pro-ESG
Sources told 1819 News in May that Regions' lobbyist, senior vice president and head of state government affairs and economic development Jason Isbell was a key player in lobbying against the anti-ESG legislation.
BlackRock Inc. and Vanguard, two asset management companies that are major proponents of ESG, are the bank's largest owners.
Regions has historically defended the ESG agenda. According to its website, Regions believes ESG contributes to its success.
Its website reads: "Regions is committed to our mission to make life better and create shared value. Regions recognizes that the long-term financial performance of our company and our ability to deliver shareholder value are directly tied to the success of our associates, our customers and the communities we serve. We believe that this success stems, in large part, from our continuous improvement efforts related to ESG. For this reason, we believe more than ever that we must consider how ESG matters affect our company and be transparent about our ESG practices and performance. In our ESG reporting, we illustrate how Regions is working to advance our ESG efforts to make life better for our customers, associates and communities, while creating long-term value for our shareholders."
In Regions' 2022 Proxy Statement and Notice, chair of the bank's board of directors Charles D. McCrary touted its ESG report and adherence to standards set by the controversial World Economic Forum.
"The Company enhanced transparency around ESG issues by publishing an expanded ESG Report structured around the World Economic Forum's Stakeholder Capitalism pillars, as well as a Workforce Demographics Report that we will build on for future human capital and Diversity, Equity, and Inclusion (DEI) reporting," McCrary wrote. "Regions led the way among peers with our first standalone Task Force on Climate-related Financial Disclosures (TCFD) Report, covering new ground on climate-related risk and opportunity management and presenting externally assured operational emissions data. The Company achieved previously announced goals around emissions reduction and racial equity commitments and announced new goals related to emissions and sustainable finance, two areas of strategic focus on which Board members are regularly updated."
ServisFirst Bank: Pro-ESG
Another Birmingham-based bank has also pledged allegiance to ESG. ServisFirst Bank stated its commitment to "ensuring the adherence to the highest standards" of ESG on its website:
"ServisFirst Bancshares, Inc. (ServisFirst) believes that as a company operating in the financial services industry, we can have a significant role in engaging with environmental, social, and governance (ESG) matters. We are committed to ensuring adherence to the highest standards of this ESG policy in all our operations."
Oakworth Capital Bank: Potential ESG skeptic
However, not all banks headquartered in Birmingham are necessarily positive about the growth of ESG investing.
In fact, 1819 News searched the websites of several banks based in the city, and the vast majority had no official statement for or against ESG.
The same went for Birmingham's Oakworth Capital Bank. However, at least some individuals at Oakworth are openly skeptical about ESG.
In a February episode of Oakworth's podcast "Trading Perspectives," three Oakworth financial experts questioned the motives behind ESG investing.
"To a lot of people now, it is a way to enact the changes that they would like to see, and it's really through my understanding of a misunderstanding of capitalism," said Portfolio Manager in Wealth Management Sam Clement. "… The problem is that it is entirely subjective and the problem with the subjectivity of it is that it is whatever is in fashion at the time is whatever is considered ESG. Take a company like Tesla and Exon. You would probably think Exon is the less pro-ESG company … Meanwhile, Exon was in ESG indexes, and Tesla really wasn't really mostly based on the acts of the CEO not liking the CEO based on my information."
"You take a look at some of the top sort of companies that have adopted ESG standards, and what have you, and then you take a look at their executive pay, it's outrageous," added Oakworth's Managing Director of Investments and Thought Leadership John Norris. "… It seems like if you were truly kind of living what you preach if you will, you might not take home such a sizable paycheck, and you might want to pay your employees a little bit more."
Don't miss out! Subscribe to our newsletter and get our top stories every weekday morning.