The depthless stupidity of Republicans' anti-ESG campaign

In this episode, Kelly Mitchell of journalistic watchdog group Documented discusses Republicans’ furious pushback against ESG funds due to their ostensible greenness, and the ridiculousness of said vehemence since ESG ratings are actually a poor reflection of companies’ true environmental impact.

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Text transcript:

David Roberts

For the last few years, the fastest growing segment of the global financial services industry has been ESG (environmental, social, and governance) funds.

Here’s how it works: one of several ratings firms uses its own proprietary formula to rate how well a company is responding to environmental, social, and governance risks. An environmental risk might be: will the county where you’re locating your data centers have sufficient water supply in coming years? A governance risk might be: have you filed all the proper disclosures?

Fund managers like BlackRock then gather highly rated companies into ESG funds, which are sold to investors as socially responsible. Hundreds of billions of dollars flow into ESG funds every year.

Note that there’s a bit of a shell game at the heart of the enterprise. What customers and investors generally think is that a company gets high ESG ratings because it goes above and beyond in those areas, that it is trying to “do well by doing good.” But in reality, high ESG ratings simply mean that a company is responding to material risks — maximizing its profits, as public companies are bound by law to do.

So Tesla gets no ESG credit for accelerating the electric vehicle market, but it can pull a low ESG rating (and fall out of ESG funds) over vulnerability to lawsuits over working conditions. (This is why Elon calls ESG “the devil incarnate.”) McDonald’s loses no ESG points for the enormous carbon impact of its supply chain, but it gains points for reducing plastic in its packaging, because regulations against plastic packaging are imminent in Europe.

So investors get to feel like do-gooders and big companies are rewarded for carrying out their legal obligation to assess risks to their business. There’s not much social benefit to the whole thing, but everyone feels good and green and happy.

Except now there’s a problem: Republicans bought it. The whole sales pitch — they believe it. They believe that companies in ESG funds are going out of their way to do social and environmental good … and they’re furious about it.

Over the past year or two, an enormous, billionaire-funded backlash against ESG has consumed the GOP, leading to multiple congressional hearings, hundreds of proposed state bills, and red-state treasurers vowing never to do business with woke lefty activist funds like [checks notes] BlackRock.

It is stupid almost beyond reckoning. And I’m just brushing the surface. To dig into the deep layers of dumb and where it all might go, I called Kelly Mitchell. She’s a senior analyst at the journalistic watchdog group Documented, which uncovered emails and other communications between the architects of the anti-ESG campaign that led to a New York Times exposé.

All right then, let's do this. With us, we have Kelly Mitchell from Documented. Kelly, welcome. Thank you so much for coming to Volts.

Kelly Mitchell

Thank you, David.

David Roberts

Kelly, when I first decided to do this episode, I started looking into it, thinking, you know what, this all seems kind of stupid. But what happened is as I dug in and explored it into the nooks and crannies, some of the background, some of the work you've done, some of the work Documented has done, what I discovered is that it is actually so much stupider than I ever could have imagined. The depth of stupidity here is remarkable. So I just want to thank you. I feel like you should get hazard pay for what you do. And I just want to thank you for immersing yourself in this. It must be wearying.

Kelly Mitchell

It is. It's like the Thunderdome of stupidity. But I'm glad we can talk about it.

David Roberts

Yes, let's talk about the levels. Okay, so let's bracket for the moment what ESG actually is in reality. We'll get to that later. Bracket for the moment the merits of the criticisms that conservatives have of ESG and let's just talk about what's happening. So I think probably normal news consumers are aware that sort of ESG, or the sort of boogeyman of ESG, has come up sort of out of nowhere and is everywhere now. So maybe just tell us a little bit about what has happened here, who's doing what and what are the bills? And tell us the phenomenon we're discussing.

Kelly Mitchell

Well, the current iteration of this phenomenon really kicked into high gear probably in about 2021. And there's been a long history of folks who have opposed corporate social responsibility, who have opposed any restriction on investment in things like coal or natural gas. But a lot of gasoline was thrown on the fire in 2021, probably for two major reasons. So first is that Larry Fink, the CEO of BlackRock, published two back-to-back letters to his clients, to corporate CEOs, basically saying that BlackRock, the largest investment firm in the world, was now going to consider climate risk as a fundamental investment risk and wanted CEOs to do the same.

And the second is that in May of 2021, an activist investor company called Engine 21 or Engine No. 1 rather, bought a small slice of ExxonMobil and used that slice to wage a battle to get new board seats on Exxon's board that would take into account climate risk and against a 100 million dollar campaign by Exxon. They succeeded. And they succeeded with the help of large institutional investors like BlackRock. And I think those two moments sort of broke a lot of people's brains. Wall Street is not supposed to be against the fossil fuel industry, it's not supposed to be against the right-wing apparatus.

And it provided this galvanizing moment for a lot of dark money groups to look for ways to mobilize state agencies and state legislatures against ESG.

David Roberts

Brains then broken, what do they start doing?

Kelly Mitchell

There's two fronts that open up. So first you see a big infusion of resources by groups like the Heritage Foundation by Leonard Leo's, Consumers' Research into weaponizing state treasurers to attack, quote, unquote, woke investing or ESG. And it's a smart play because state treasurers are people that nobody pays any attention to.

David Roberts

What are they? Maybe just take a minute and tell us. Like, I know that such a thing exists, but I couldn't tell you in a million years what they do.

Kelly Mitchell

Yeah. So basically they're in charge of managing large pools of money that the state uses to pay its bills for the long time, to receive tax money, to give tax money to folks who need it. And in that role they get to decide who manages that money, how that money is invested —

David Roberts

Pension funds and the like.

Kelly Mitchell

Exactly. And so there was this big opportunity to kind of utilize these folks to start pulling money