US Republicans are cracking down on ESG. Is Australia next?

The comptroller is basically the chief financial officer of Texas and, by extension, its oil sector, which produces nearly 43 percent of US crude oil supplies, making it the world’s largest oil-producing state. great.

For investment giants like BlackRock and Vanguard, both named to the comptroller’s list, it’s a case of “Houston, we’ve got a problem.”

ESG ‘opaque and wicked’

BNP Paribas, Credit Suisse, UBS and Schroders were also among the 10 financial companies, along with Danske Bank, Nordea Bank, Swedbank, Svenska Handelsbanken and Jupiter Fund Management.

In announcing the list, Hegar accused the environmental, social and governance movement of producing an “opaque and perverse system,” which has meant that some financial companies no longer make decisions in the best interests of customers and shareholders.

Instead, they “use their financial clout to push a social and political agenda shrouded in secrecy,” he says.

“Our review focused on the boycott of energy companies, rather than a review of the entire ESG movement.

“This investigation uncovered a systemic lack of transparency that should concern all Americans, regardless of their political beliefs, especially the use of doublespeak by some financial institutions when publicly engaging in anti-oil and gas rhetoric, but they present a very different story behind closed doors.

“This list represents our initial effort to shine a light on the entities that are involved in these practices and create some clarity for Texans whose tax dollars may be working to directly undermine the economic health of our state.”

Several companies on the list have rejected the comptroller’s list, claiming that they are not boycotting the energy sector.

‘Dangerous precedent’

The chief executive of the Australasian Responsible Investment Association, Simon O’Connor, described the move as a “dangerous precedent”.

“It is far from the expertise of the politicians in question to tell professional investors how best to generate returns on the retirement savings of Texans or Americans, or anyone,” he said.

“It is worrying… that political actors see it within their competences to start directing where money is or is not invested.”

Recent suggestions by Treasurer Jim Chalmers that Australia’s superfunds could put some of their $3.3 trillion in assets toward challenges in elderly care, housing affordability and decarbonisation have the same flaw, O’Connor added.

“Fundamentally, the role of policy and legislation is to set the broad goals around a retirement or pension system, and to stay away from directing how a pension can best deliver those outcomes for beneficiaries,” he says.

However, there is a distinctly American flavor to the ESG debate, says Brynn O’Brien, director of the Australasian Center for Corporate Responsibility (a pro-ESG think tank). Texas isn’t the first state to jump on the bandwagon.

Florida Governor and potential 2024 presidential candidate Ron DeSantis also passed a resolution prohibiting the state’s pension fund from using ESG factors to support investment decisions.

Instead, the $186 billion ($271 billion) pension fund was ordered to invest with the goal of “maximizing financial return above other considerations.”

“ESG culture wars are, and likely will continue to be, a peculiarly American phenomenon, positioning investment decision-making as a matter of ideology or identity, in this case, Texas Republican identity,” says O’Brien.

“The conversation Australian investors are having about climate change is about financial and physical risk and fiduciary duty. I don’t think we’ll see a similar expression of political identity in Australia.”

However, the RIAA is “alert” about the phenomenon that could emerge in Australia, says O’Connor.

Opposition Leader Peter Dutton in May accused Australia’s corporations of talking more about social than economic issues. And during the 2017 same-sex marriage plebiscite, he said CEOs should “stick to their fabric,” rather than engage in debate.

O’Connor pointed to those comments and a parliamentary inquiry into climate and the credit policies of financial institutions that was to be led by climate change skeptic and former Coalition MP George Christensen, as examples.

“In recent years, we have seen some attempts by members of parliament to come closer to prescribing what investors and banks can and cannot lend and invest,” he said.

“Certainly there are some warning indicators for us that in the Australian context, overshooting is also possible.”

‘Good investment opportunities’

However, under the legal framework, it remains unlikely that an Australian asset owner or retirement trustee could be penalized for divesting from a sector, says retirement lawyer Jonathan Steffanoni of QMV Legal.

He describes Chalmers’ comments as a sign that the government is willing to work with investors to create investment opportunities.

“I think the sentiment has always been that retirement funds will invest in very good investment opportunities that meet their investment strategy,” he says.

“I don’t think there are many specific details as to what changes such investments would require.”

There is history of the government encouraging certain investments, such as pushing retirement funds to invest in government bonds during World War II or losing their grant status.

But the regulator’s focus today is to ensure investors’ decision-making processes are sound, rather than focusing on the outcomes of that decision.

“[Texas] it draws attention to the fact that asset owners are increasingly in a position to exert some influence over economic and social issues in the way they invest,” adds Steffanoni.

“What hasn’t gotten too much attention yet is the possible politicization of the power of asset owners and shareholders.”

He warns that the politicization of shareholder rights and interventions that interfere with investors’ fiduciary duties would likely be detrimental to capital markets and beneficiaries.

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