OPINION:
In a letter a few days ago to one of the rating agencies (S&P) that help determine the value of companies, the state of Utah took clear and direct aim at the financially disastrous and politically damaging phenomena of investing based on environmental, social and governance considerations.
ESG investing is a pet project of the left. Its sole purpose is to deputize or coerce companies to join in the great leftist jihads of the day, whether environmental excesses or an overweening concern with possible racism, sexism or whateverism. ESG investing allows the left to hijack — usually without the knowledge or consent of retail investors — the funding streams that would otherwise go to build healthier, more profitable companies.
The precise mechanism is that rating agencies and others assess companies’ adherence to standards created by the left. The companies are, of course, always deficient, always in need of reeducation and always compelled to divert more money to the left.
States also get dragged into this process because the rating agencies and others grade them on their investments’ political correctness and financial sturdiness.
The state of Utah, led by Gov. Spencer Cox, has had enough. Its letter to S&P Global lists many problems with ESG ratings, including S&P’s acknowledgment that “having a social mission and strong ESG characteristics does not necessarily correlate with strong creditworthiness and vice versa.”
The state of Utah was also rude enough to point out that S&P gave Russian energy companies Gazprom and Rosneft — owned mainly by the Russian government — higher ESG scores than ExxonMobil and Chevron, despite the recent unpleasantness in Ukraine. S&P also gave the Chinese state-owned China Petroleum & Chemical Corporation a higher ESG score than ExxonMobil and Chevron, despite the fact that the two most recent presidential administrations have identified communist China as a genocidal regime.
It’s not just energy. Russia’s leading bank, Sberbank, was sanctioned by the U.S. and the EU in response to Russia’s annexation of Crimea in 2014. That slowed S&P down not at all. Sberbank’s scored better on ESG than that of the largest American bank, J.P. Morgan. That’s right; S&P considered a bank that had already been sanctioned as better concerning ESG than the largest bank in the United States.
Full credit is due to the state of Utah for exposing ESG for what it is. S&P and others politicize what should be purely financial decisions and assessments. This politicization has pressured banks to cut off capital to the oil, gas, coal and firearms industries. It is just a matter of time before other industries are declared off-limits. ESG is political advocacy masquerading as financial advice and should be characterized as such.
The state of Utah makes it clear in its letter that it thinks S&P may be involved in a conflict between its obligation to provide unbiased financial assessments and its political entanglements, specifically citing its membership in an environmentally focused alliance of financial companies.
The letter ends with a battery of questions for S&P, no doubt prefatory to eventual litigation. The state’s letter is signed by the governor, the lieutenant governor, the attorney general and the entire congressional delegation (yes, even Sen. Mitt Romney). It is an impressive and welcome addition to the growing resistance to ESG.
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