ESG Investing Fight Is Heating up in Kentucky and Could Cost Taxpayers
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The image that comes to mind when I think of fossil fuel villains is Batman’s adversary Two-Face. To be two-faced is to be deceitful, and deception is what the fossil fuel industry executives excel in. One face flaunts how green, clean, and environmentally conscious they pretend to be (what we call greenwashing), but the other shows their true nature: decades of lies, disinformation, and efforts to halt progress so that they continue to profit off their products that are poisoning people and our planet.
Fun fact: Aaron Eckert is the actor who plays Two-Face in The Dark Knight and he stars in Thank you for Smoking, a satirical film about a lobbyist for Big Tobacco who pushes cigarettes on the public while knowing their true danger. And yup… Big Oil got its playbook from those tobacco guys.
In reality, there is a not-so-secret group of villains who play a leading behind-the-scenes role in delaying climate action, groups like the American Legislative Exchange Council, the Heritage Foundation, the Heartland Institute, and the American Petroleum Institute. They write bills that end up in state legislatures and Congress, they funnel money into campaigns against climate progress, and they try to sway public opinion in favor of their agenda.
Their sticky fingers are evident in state legislatures across the country in a fossil fuel industry-led effort to end an investment practice called environmental, social, and governance or ESG investing.
What is ESG?
My colleague Laura Peterson provides this definition: “ESG funds take into account a company’s environmental, social and governance practices, such as its climate policies or its executive compensation, but their primary goal is always to maximize financial returns.”
We, the public, understand that companies need to make money for their shareholders, and we’d like for them to consider the social and ethical implications of their practices in addition to their bottom line— that’s called corporate accountability, and aligns closely with ESG values. Yet some companies may tout their use of ESG investing even when their investments don’t align with ESG criteria, resulting in harmful greenwashing and the promotion of empty climate pledges or other disinformation.
A common tactic of people who don’t want you to get involved in something is to tell you that “it’s too complicated.” That’s why I wanted to write this blog post—to let readers know what ESG is, why we should care, how it affects us, and what we can do about it! These questions provide a simple framework, introduced to me by my friend and mentor Dr. Adrienne Hollis, to address complicated issues.
It is happening now in Kentucky
As y’all know, I live in Kentucky and like to write about things I care about happening in the Commonwealth. And, oh boy, is there a lot to say about ESG in Kentucky!
Last year, the Kentucky legislature passed SB205 to address “state dealings with companies that engage in energy company boycotts.” The bill was sponsored by Kentucky state senator Robbie Mills. We know that these efforts were in direct service of the coal industry because in October 2022, Senator Mills was presented an award by the Kentucky Coal Association (KCA) specifically for his work to pass that bill.
Who else has been applauded by the KCA? Kentucky State Treasurer Allison Ball, who is a member of the State Financial Officers Foundation, an organization that has “hosted representatives from the oil industry and funneled research and talking points from conservative groups to the state treasurers, who have channeled the private groups’ goals into public policy,” according to an investigation by the New York Times.
Treasurer Ball has wasted no time in implementing SB205 to push forward this fossil-funded agenda and has named 11 financial institutions that could be subject to divestment for engaging in so-called “energy boycotts.”
Attorney General Daniel Cameron has also used his office in service of anti-ESG efforts, and last fall the Kentucky Bankers Association sued Attorney General Cameron for what they see as an unlawful investigation into ESG practices.
Congressman Andy Barr, representing Kentucky’s 6th District, is attempting to overturn a Department of Labor rule “allowing retirement plan fiduciaries to consider climate change and other environmental, social and governance (ESG) factors in their investment actions.”
Kentucky officials are not doing this alone, it is part of a coordinated effort.
Opponents of ESG claim that companies are boycotting fossil fuel investments in favor of renewables and not adhering to their duties to maximize their returns, and that’s just not the case.
Studies show that ESG investments often perform better than traditional financial investments.
As my colleague Elliot Negin points out, “One of the anti-ESG Republicans’ main targets, BlackRock has nearly $260 billion invested in fossil fuel companies around the world, including $91 billion in Texas, the first state to enact an anti-fossil fuel industry divestment law.” In a time when we need to rapidly cut emissions in order to mitigate the worst effects of climate change, we in fact need these big financial institutions to increase their commitment to decarbonization and the clean energy transition, instead of continuing to drag their feet.
The costs could be put on us—the taxpayers
Kentucky is following in the steps of Texas, and initial studies warn that anti-ESG action could cost taxpayers. According to a recent report, “if Kentucky had enacted ESG legislation similar to that in Texas, the total increase in interest costs for bonds issued in Kentucky in the last 12 months would range from $26 million to $70 million.”
How does that interest cost affect taxpayers? Steven Rothstein, managing director of Ceres Accelerator, explains, “In the long run, we’re worried that those taxpayers and pension holders will actually get hurt with higher risk and low return… It’s just higher interest costs, and that is because of having less bankers being able to bid for that work.”
The legislation against ESG in Kentucky and the State Treasurer’s early efforts to implement sanctions against financial institutions under SB205 could have real consequences for Kentuckians who are already struggling to keep up with increasing costs. That’s why we must take a pause and ensure that these wonky policies are not purely politically motivated and at the expense of taxpayers.
The cost of climate change
Unfortunately, extreme weather and climate risk are going to continue to be important considerations in our economic decisions.
On January 12 there was a tornado and an earthquake in Kentucky! After the historic tornadoes in Kentucky in December 2021, I wrote, “Evidence is accumulating that climate change contributes to conditions that provide more power to storms capable of producing tornadoes.” And, did you know that Kentucky is number one (!) in flood-related disaster declarations—more than any other state!
And the frequency of billion-dollar disasters in Kentucky has increased in recent years, “From 1980 through 2000, Kentucky was affected by 20 different ‘billion-dollar disasters’— events which incurred damages worth $1 billion or more nationally. Since then, when adjusted for inflation, the state has been affected by 56.“ We simply cannot ignore the economic costs of climate risk.
We can do something about it today
I think we can all agree that we want sound investments that will yield the best financial returns, and we especially do not want companies to engage in greenwashing without meaningful action. I know we can agree that we don’t want political grabs for power to fall on us taxpayers.
And luckily, we don’t need a fictional Batman superhero to save the day! Take a few moments today to tell your state treasurer that science shows taking climate change into account is economically and financially sound investing policy.