Ben Lewis, a management professor at Brigham Young University, has researched environmental, social, and governance (ESG) investments for over a decade. Last year, it came as a surprise when a candidate for local government began discussing it for the first time outside of work.
“As part of his platform, he expressed fears that the ESG movement was essentially China’s means of infiltrating communist beliefs into the United States,” he added.
“ESG has no relation to China. Hence, I was really bewildered and thought, “What is this?”
Lewis stated that businesses should care about more than just profit. The philosophy considers aspects such as a company’s environmental consciousness, workforce diversity, and management style.
Also, banks utilize it to assess organizations for investment or financing purposes. That is also not an original idea.
Lewis stated that it wasn’t named ESG until perhaps the middle of the 2000s. The concept that businesses should be socially and ecologically responsible has existed since the 1970s.
A political pigskin?
On March 20, President Joseph Biden cast the first veto of his term, preventing a measure that would have prevented retirement fund managers from considering ESG concerns in their investment decisions. The entire Utah congressional delegation supported the measure.
Several Republicans and Democrats assert that the practice prioritizes political goals over business. Utah Republican officials, including Governor Spencer Cox, rebuked Biden’s veto strongly.
“The folks who handle the money, the retirement accounts of individuals in this nation no longer have to worry about the returns that generate income so that you may retire,” Cox said Fox Business. They may concentrate on these other matters.
Yet, some do not share this view. Lewis argues that investment firms would argue that by considering environmental and social governance issues, “they are considering the long-term viability of businesses.”
“For instance, if you consider an oil and gas firm, would they continue to operate in the same manner 50 years from now? Very likely not.”
Lewis is not alone in holding this opinion. Chad Carlos, a BYU management professor, stated that any information that affects a company’s performance is crucial for investors to be aware of: “it is possible that these three aspects of environment, social, and governance can have major and serious financial effects.”
In Utah, it is all the vogue to criticize ESG. This year, the legislature approved a resolution against the investing practice. They contended that it hurts the economy and unfairly restricts the availability of energy derived from fossil fuels.
Attorney General Sean Reyes has joined lawsuits contesting the legislation. State Treasurer Marlo Oaks went so far as to refer to it as part of “Satan’s scheme” during the Salt Lake County Republican Party Organizational Convention on March 11.
Threats to the fossil fuel sector have prompted similar anti-ESG measures in other states, such as Texas and West Virginia.
“I can see the anxiety that these massive wealth managers may exclude investment in [their] primary source of jobs and economic growth. This might be a red flag for these states, said Carlos. Thus, I can suppose that comparable factors are at play [in Utah].
The City of Riverton enacted its own resolution urging its finance staff to collaborate with corporations who emphasize profitability. That really came to his notice as he was working on the municipal budget for this year, according to Mayor Trent Staggs. His attention was drawn to how different credit rating organizations evaluated the city’s debt.
“While I was reviewing their debt rating, I saw that environmental, social, and governance elements are now included. “I found that peculiar,” stated Staggs. “I asked myself, ‘What on earth does this purely political score have to do with our city’s capacity to pay its debt?'”
How it operates for monetary institutions
The Utah Bankers Association had no position on the ESG resolution passed by the legislature. President Howard M. Headlee stated that Utah’s financial institutions feel as though they are trapped in a political tug-of-war.
He stated, “We truly want want to be banks.”
Headlee stated that if banks are performing their duties properly, they likely take ESG issues into account.
“We already consider the majority of these risks when we offer loans,” he added. So, if there is a financial foundation, it is being evaluated. If there is no financial justification, we generally shouldn’t evaluate it.
Investors are interested in knowing, for instance, if a business has ineffective leadership methods.
According to Headlee, things become complicated when a large firm attempts to dictate policy.
Every firm has the right to develop its own policy about these matters, as opposed to utilizing its economic might to impose its perspective on others.
In the end, it boils down to one question: Are companies permitted to influence environmental and social policy, or is that the responsibility of legislators?