Utah, ESG, and Progressive’s Threat to Democracy

Utah, ESG, and Progressive’s Threat to Democracy

– By Howard Sierer –

“A man hears what he wants to hear and disregards the rest.”

These lyrics from Simon and Garfunkel’s song “The Boxer” illustrate how progressives’ siren song of using “environmental, social and governance” (ESG) criteria to evaluate businesses requires overlooking all of ESG’s numerous warts. Like other progressive utopian ideals, the devil is in the details.

An opinion column last month in the Independent explained how “environmental, social and governance goes beyond the role of a corporation to maximize profits on behalf of shareholders.” The column embraced the concept that businesses should be evaluated on ESG ideals and went on to suggest that Utah should, at a minimum, focus on reducing greenhouse gas emissions.

The concept sounds attractive until one tries to define the factors that make up ESG. Deciding which factors should be considered and how they should be weighted is an inherently political process where “beauty is in the eye of the beholder.” Focusing on greenhouse gas emissions sounds simple enough at first blush, but how should the hundreds of thousands of acres covered over for solar panel installations be evaluated? Environmental activists can’t agree.

Canceling oil and gas leases as the Biden administration has done has a social impact on virtually all Americans as gasoline prices skyrocket. Meanwhile, his administration is denying permits to open mines in Minnesota and Nevada, both of which would produce rare earth minerals like lithium which are vital parts of electric car batteries. Permit denials delay progress on the “net-zero” carbon dioxide emissions goal that restricting oil and gas was meant to facilitate.

These and myriad other examples show how difficult it is for government to balance competing demands on our economy and why free markets that respond not to government bureaucrats but to customer demands have been so successful in making our economy the envy of the world.

Progressives are of two minds when it comes to implementing their preferred government policies. On the one hand, they obsess about former Pres. Trump’s “threat to democracy” when he claims the 2020 election was stolen. On the other hand, their frustration boils over when they see our democratically-elected Congress fail to pass progressive legislation.

The progressive solution to Congressional deadlock is a threat to democracy. Unable to move controversial legislation through Congress, progressives urge Pres. Biden to issue executive orders that in effect “legislate” their policies. A current example: Biden’s $500 billion student debt forgiveness, unauthorized by Congress and adding to taxpayers’ national debt burden. Who is the threat to democracy?

The Independent columnist explained that “The gridlock we see in our political system is forcing people to look elsewhere to solve some of our thorniest problems.” And that “elsewhere” is to exert pressure on businesses to implement progressive policies, finding CEOs whose political views match theirs and shaming those whose views don’t.

Two recent examples show how progressive CEOs are using their positions of public trust to implement ESG policies without explicit direction or even the knowledge of those directly affected.

You may have never heard of BlackRock CEO Larry Fink, but stock markets know him all too well. His firm is by far the largest financial management company in the country, with over $9 trillion (yes, trillion) in assets under management. Even if you don’t own BlackRock funds directly, it’s very likely that a pension plan that impacts you, whether public or private, does.

Fink has partnered with a variety of progressive advocacy groups to steer his firm’s investments to go, as the Independent columnist says, “beyond the role of a corporation to maximize profits on behalf of shareholders.” That means everyone with a stake in those $9 trillion is sacrificing investment return and unwittingly supporting progressive causes.

BlackRock’s ESG policies are being challenged by 19 state attorneys general, including Utah’s, who sent a letter pointing out inconsistencies and conflicts between BlackRock’s fiduciary responsibilities to investors and its public statements and commitments.

Standard & Poor’s, the country’s leading rater of both public and private entities’ financial soundness, is likewise coming under fire. In April of this year, the State of Utah, its two U.S. Senators and all four of its elected representatives signed a letter challenging S&P for lowering Utah’s credit rating based solely on ESG factors that S&P began using only last year. Lower credit ratings translate to higher bond interest costs for taxpayers.

Utah’s letter states that “we view this newfound focus on ESG as politicizing the rating process. If [ESG criteria] are not political, but are instead financially material, then they would be captured in the traditional credit analysis. ESG indicators are, therefore, not necessary.”

That view is acknowledged by S&P itself when it stated that “having a social mission and strong ESG characteristics do not necessarily correlate with strong creditworthiness and vice versa.”

Utah’s letter adds that “even advocates of ESG accept that there is no agreed-upon standard for ESG reporting and that various ESG sub-components are inherently incommensurable.” So why is S&P using ESG to rate creditworthiness? The answer: its management embraces progressive causes.

Up to now, companies have not been required to report on their ESG policies and practices, although many choose to do so in response to activist pressure. Activists can portray silence as a company having something to hide. That is likely to change as Pres. Biden’s SEC has proposed a rule requiring all companies to report in compliance with a consistent set of standards.

Since any SEC standards will necessarily be political in nature and in most cases, require reporting on what Utah’s attorney general called “inherently incommensurable” factors, expect controversy and activist lawsuits to abound for years to come.

I agree with Milton Friedman’s famous essay in the New York Times Magazine, “The Social Responsibility of Business is to Increase its Profits.” To do so on a sustained basis requires a business to provide products and services that satisfy its customers.

Want to implement your own version of ESG, whatever it is? Convince customers to buy from your preferred businesses.

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