Charlie Masters, a farmer in Kentucky, has watched the prices rise.
Diesel fuel and nitrogen fertilizer, two of the most critical ingredients for running his Fleming County beef and produce operation, are still costlier than just two years ago. That’s partly due to recent fluctuations in the prices of oil and natural gas.
What’s behind those trends?
“I’m sure there are other market forces at work—we can all blame Putin or somebody—but I put a lot of the blame on ESG,” Masters told The Epoch Times in a Dec. 8, 2022, interview.
ESG stands for environmental, social, and corporate governance, an investing approach that has picked up steam in the past few years.
Its defenders argue that ESG criteria help investors respond to risks and opportunities that traditional financial metrics ignore—for example, long-term challenges with drought, fire, and flooding that many scientists link to greenhouse gas emissions.
Top asset managers such as BlackRock, Vanguard, and State Street have taken the lead on ESG, alongside many of the country’s biggest banks.
Yet critics worry ESG distorts the market by politicizing financial decisions. The problem, they say, was most acute over the past two years, when Democrats controlled both houses of Congress as well as the presidency.
“It was particularly egregious in the first few months of the Biden administration, when there was a clear market signal, and a message sent by the administration, that they were doing everything they could to discourage any long-term investment in oil and gas,” Tim Stewart, president of the fossil fuel industry group U.S. Oil and Gas Association, said in a Jan. 5 interview with The Epoch Times.
ESG skeptics argue that the paradigm has made it significantly harder for coal, oil, and natural gas companies to finance new mining and drilling.
Jackie Haney, CEO and managing partner of the energy-focused private equity firm UnionRock, is one of many in her industry who have had to adjust to shifting views from big investors.
She had to deliver many more presentations to finance UnionRock’s second private equity fund than she did while raising capital for its inaugural fund.
In a Jan. 5 interview with The Epoch Times, she said she thinks multiple factors made investors more wary during her second effort at fundraising, including relatively poor results from similar upstream and midstream investments in the past.
The only divestment she could directly trace to ESG came from university endowments, many of whose boards have recently voted to stop funding fossil fuel companies.
Yet, in recent months, prospects have brightened.
Haney predicts that her next fundraising round won’t require nearly as many presentations as her second effort did–and even as energy prices slide, she doesn’t think production will come to a screeching halt.
Beyond the ‘E’ in ESG
Following the ascent of ESG in the private sector and ESG-like policies from the federal government, Republican officials from states across the country have struck back. They’ve worked together to defend an industry long aligned with their party.Yet, according to those politicians, ESG threatens much more than the prosperity of fossil fuel-producing states.
To some, ESG makes visible a larger effort to yoke together the public and private sectors. On that view, the movement serves radical goals–ones it can’t achieve through the democratic process alone.
“This isn’t your typical revolutionary activity,” West Virginia state Treasurer Riley Moore said in a Dec. 2, 2022, interview with The Epoch Times.
“This is taking place in boardrooms and drab government office buildings, and behind closed doors with some of the most influential people on the face of the planet,” he said.
“This is very, very top down, rather than some type of grassroots movement.”
“The ‘S’ is sort of the Brave New World next step in ESG,” Kentucky state Treasurer Allison Ball said in a Nov. 29, 2022, interview with The Epoch Times.
“It’s taking investment and making it ideological.”
In line with that phenomenon, ESG’s “social” side has encompassed the push for “racial equity audits” of large companies, often from ESG-oriented asset management firms that use shareholder proposals to advance political aims.
That enthusiasm can be traced back to the death of George Floyd at the hands of Minneapolis police in 2020, when a socially acceptable, borderline socially compulsory form of racial advocacy quickly gained momentum. As protests, riots, and violent crime rocked the country, American corporations pledged billions of dollars to causes they expected would burnish their image.
Many influential companies, including McDonald’s and Microsoft, have already carried out racial equity audits, often administered by third-party companies.
“To combat systemic racism, corporations should recognize and remedy industry–and company-specific barriers to everyone’s full inclusion in societal and economic participation,” the shareholder proposal read. It argued that Travelers’ non-white policyholders could be treated differently than its white customers.
In their recommendation against the proposal, Travelers’ Board of Directors claimed Trillium’s plan would “[conflict] with the Company’s longstanding practice not to take race into account in its underwriting and pricing decisions.”
The proposal narrowly failed, winning 47 percent of shareholders’ votes.
Utah Attorney General Sean Reyes, one of many state-level Republicans fighting ESG, told The Epoch Times he thinks the failed shareholder resolution violated the laws of numerous states.
“As a person of color, I know that there’s discrimination out there. I’ve experienced it–in some cases, significantly. Is there inequality in different sectors? I do believe that’s true. But there are other ways to address that than to force an insurance company to start breaking the law,” he said in a Dec. 21, 2022, interview.
Trillium, for its part, has pointed out that the Biden administration’s Securities and Exchange Commission (SEC) couldn’t conclude that Trillium’s racial equity audit proposal to Travelers would violate state law.
That same agency delivered a significant victory for the “governance” side of ESG in August 2021 when it approved NASDAQ’s board diversity and disclosure rules.
Because of the decision, NASDAQ is poised to require most companies it lists to “have or explain why they do not have a minimum of two diverse board members.“ At least one of those ”diverse” members must self-identify as female. In addition, at least one must self-identify as either LGBT or an underrepresented minority.
By NASDAQ’s definition, then, heterosexual white men who don’t see themselves as transgender cannot be “diverse.”
Fiduciary Duty in Coal Country
In Kentucky, the state treasurer has lent her voice to the chorus of state-level officials speaking out against ESG.During her interview with The Epoch Times, Ball reflected on her deep roots in her state’s rugged eastern half.
“I’m ninth generation from the mountains, the Hatfield-McCoy area. I’ve got generations of relatives who’ve been coal miners,” she said.
“So my radar really shows up when those industries–the coal, oil, and gas industries–are being harmed or targeted.”
Like other state-level Republicans from across the country, she has sought to use her control over public pension money as leverage against ESG activism.
If the companies don’t change their policies within three months of the list’s publication, state governmental entities will, in most cases, have to divest from them. Some carve-outs remain, including for governmental entities that have “suffered or will suffer a material financial loss” by dint of divestment.
State treasurers typically have a straightforward fiduciary duty concerning the funds they oversee: They must serve the interests of those funds’ beneficiaries.
Utah state Treasurer Marlo Oaks told The Epoch Times on Nov. 14, 2022, that ESG may undercut that legally binding obligation.
“To the extent that investment managers have adopted a political agenda—or an agenda that is elevated to the same level as the fiduciary obligation that we have—we then have a dual mandate at play and we cannot entertain that dual mandate legally,” he said.
Reyes likened asset managers’ fiduciary responsibilities to the prime directive from Star Trek.
“That is kind of sacrosanct, right? It’s almost this sacred duty,” he said.
Reyes fears the spread of ESG and similar activist philosophies “deconstructs the whole idea of a fiduciary.”
“How can an average American feel comfortable and good?” he asked.
There’s an additional wrinkle to fiduciary duty in the Bluegrass State.
“In Kentucky, we have another obligation, and that’s to promote the industry and economy of Kentucky,” Ball said.
“That definitely means an eye toward signature industries like coal and oil and gas,” Ball said.
Obama-Era Memories Fuel ESG Skepticism
Opponents of coal, oil, and natural gas, who often count themselves among the champions of ESG, have a different narrative regarding the futures of Kentucky and similar states.Those energy sources, they contend, are so environmentally damaging that they must be rapidly replaced as part of an energy transition to solar, wind, and other alternatives.
On that interpretation, the economic role of fossil fuel production in Kentucky and its neighbors could be supplanted by something like hydrogen.
Ball doesn’t believe that a turn away from coal and other fossil fuels would serve the interests of her state.
“Right now, there really isn’t an alternative,” she said, noting recent increases in food and energy costs.
West Virginia’s Moore has a similar point of view about the coal industry in his state.
In his Dec. 2, 2022, interview, Moore said his state had suffered through a “War on Coal” during the Obama administration, because of actions by administrative agencies under the executive branch.
Thousands of West Virginians lost high-paying coal mining jobs during those years.
“We took a major, major hit there,” Moore said.
He argued that the promise of abundant new green energy jobs in West Virginia during that period ultimately went unfulfilled.
Moore, like Ball, has taken a leading role in Republican state officials’ response to ESG.
Both West Virginia’s Moore and Utah’s Oaks drew attention to what they see as a particularly insidious dimension of ESG–namely, its potential future impact on a state’s ability to secure credit.
The letter voiced concern that adding ESG factors could “unfairly and adversely affect Utah’s credit rating and the market for Utah’s bonds, especially where the alleged indicators are not indicative of Utah’s ability to repay debt.”
“Utah has a pristine credit rating,” AG Reyes told The Epoch Times in his Dec. 21, 2022, interview.
“All of a sudden, if you throw in ESG standards, which don’t affect the traditional metrics, it could drastically alter the state’s ability to bond–to be able to work on projects and issues critical to the citizens of the state.”
“We’re likely going to face a downgrade in our bond rating, because of an ESG score that has nothing to do with the finances in the State of West Virginia whatsoever,” Moore said.
“And so, now it’s going to cost us more money to build roads, hospitals, schools, all of these public projects that are so important to our people, because of a ridiculous score that’s made up.”
Moore, who recently announced his 2024 run for Congress, is the grandson of the late West Virginia Gov. Arch Moore, and the nephew of Sen. Moore Capito.
Farmer Masters, for his part, doesn’t have any family connection to the coal industry. Like Ball and Moore, though, he does have a multigenerational link to the place he calls home.
His parents acquired the land he currently works during the 1950s–“when I was just a tyke,” he said.
Ball and Masters sounded similar when describing the threat to agriculture posed by ESG. The cost of food has a lot to do with the cost of fertilizer. That, in turn, has a lot to do with the natural gas market.
“The big story that I hear, that I hear repeatedly, is the cost of fertilizers, and the way that’s impacting corn, wheat, and even the cost of eggs. A lot of things are produced by farms,” Ball said.
ESG Enthusiasm Now Cooling
Some financial giants have backpedaled from ESG and similar policies in recent months.In early December 2022, for example, Vanguard left the United Nations-affiliated Net Zero Asset Managers (NZAM) Initiative.
Stewart, of the U.S. Oil and Gas Association, thinks conditions in the global economy have forced Wall Street to reckon with the downside of aggressive ESG commitments.
“There’s nothing quite like a 30 percent drop in a NASDAQ investment portfolio, and having energy, particularly fossil fuel, being the only bright star in your entire investment portfolio for ‘22 to make people go, ’You know what, maybe this is not such a good idea. Maybe we ought to have a little more exposure to oil and gas because apparently, they’re doing something right,'” he said.
Ball put it succinctly: “I think the market works. I think there’s a demand for energy, and that’s one reason why energy is doing well.”
“We’re seeing more and more investors coming to the realization that there shouldn’t be a binary approach to energy transition and that investment in hydrocarbons will continue to be viable for their portfolios,” said UnionRock’s Haney.
From his Fleming County farm, Masters was heartened to learn of Vanguard’s departure from the U.N. alliance.
“Maybe people are becoming more aware [of ESG] and the folks like Vanguard are having to react to pressure.”
