Idaho State Treasurer Julie Ellsworth, center, holds up a copy of “Woke, Inc: Inside Corporate America’s Social Justice Scam,” a book written by a guest speaker at a June 2022 discussion of environmental, social and governance standards. (Kelcie Moseley-Morris/Idaho Capital Sun)
While some Idaho legislators and interest groups have expressed deep concern about environmental, social and governance standards in the business world and say it’s part of a “woke agenda” from liberal activists, the president of the Gem State’s largest business organization says the standards are the latest “boogeyman” meant to sow political chaos and division.
A large group of Idaho politicians and lobbyists met at the Statehouse on Tuesday for a discussion about the standards — which are better known as ESG — in the credit rating and business investment space. ESG ratings are part of a process meant to measure certain aspects of a company or entity that may indicate social consciousness, commitment to sustainability and potential investment risks.
The environmental factors for ESG scores include considerations such as carbon emissions, air and water pollution and green energy initiatives, while the social components include commitment to diversity and customer satisfaction, and governance includes factors such as diversity of board members, executive pay and lobbying activities.
Idaho State Treasurer Julie Ellsworth hosted the discussion with U.S. Sen. Mike Crapo, R-Idaho, who joined remotely, as well as Sen. Steve Vick, R-Dalton Gardens, and Rep. Sage Dixon, R-Ponderay. Guest speakers included Vivek Ramaswamy, an entrepreneur who wrote a book called, “Woke, Inc: Inside Corporate America’s Social Justice Scam,” Utah State Treasurer Marlo Oaks and Derek Kreifels, CEO of the State Financial Officers Foundation.
ESG as a business concept isn’t new and has been around for more than a decade, particularly in the natural resources space, said Alex LaBeau, president of the Idaho Association of Commerce and Industry.
What is new? Recent updates from federal organizations, including Standard & Poor’s, a global credit rating agency, and the Securities and Exchange Commission, a federal agency that regulates market activities. Both organizations have announced efforts to update and clarify ESG standards over the past year.
LaBeau said he does have issues with what he considers the arbitrary way the federal standards were decided without input from stakeholders. The Securities and Exchange Commission largely focused on climate factors as part of President Joe Biden’s focus on climate change.
“These criteria may seem innocuous on the surface, but unfortunately many standards are subjective and grant regulators and corporations undue influence on public policy,” Crapo said during the meeting. “Rather than going to state legislatures and Congress to debate and pass laws and policies, there’s an effort to bypass voters and pressure financial institutions to reduce lending to disfavored companies or states.”
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Utah officials objected to ‘moderately negative’ climate rating
Standard & Poor’s released a subscriber-only report at the end of March assigning ESG ratings to states, with most states, including Idaho, rated as “neutral.” The states were rated on a scale of one to five, with one being the most positive. None of the states received a one rating in the environmental, social or governance factors.
Utah’s environmental score was a three, which indicates “moderately negative,” according to a report from Bloomberg, because of concerns around its long-term water supply. California and New York received the same rating.
“We’re told that unless we deal with climate change, then we’re going to lose the globe, we’re all going to die because climate is an existential threat,” Oaks said. “What we don’t hear about is what is the cost of going down the path that we’re being led down. What is the cost of getting rid of traditional energy? … Think about living an 1800s Amish lifestyle. That’s what we’re talking about.”
Oaks said the insurance company for one of Utah’s utility companies was recently informed that coverage for their vehicle fleet wouldn’t be renewed because the company owns a coal-burning power plant and has stakes in two other related companies. The utility company was told the insurer’s underwriting company was cutting ties with companies that profit from coal power.
“It’s very easy to see that if (you and I) at some point in the not-too-distant future don’t have the right profile, if we’re not acting appropriately … we may be denied services as well,” Oaks said. “This is what I call the politicization and the weaponization of capital. And this is what we have to stop.”
The Idaho Legislature’s interim Committee on Federalism met right after the ESG discussion and continued to discuss the issue with Jonathan Williams, a chief economist from the American Legislative Exchange Council, and Scott Shepard, director of the Free Enterprise Project. Williams said Idaho should consider more legislation next year aimed at keeping ESG out of public pension investments.
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Idaho governor, attorney general and others sent letter objecting to ESG rating
In May, many Idaho officials, including Idaho’s congressional delegation and Gov. Brad Little, sent a letter to Standard & Poor’s objecting to the March report assigning ESG ratings to states. Idaho received a rating of two in all three areas, which is a neutral score, with the comment, “ESG factors have no material influence on our credit rating analysis for Idaho.” According to the S&P report, that designation means there was insufficient information to make a determination about Idaho either way. As such, the rating would not yet influence Idaho’s credit ratings or worthiness.
In the letter, state officials detail Idaho’s solid credit ratings and robust reserve funds, saying the state carefully manages its finances.
“In short, Idaho is solvent and should not be penalized by you or any other entity for its sovereign decisions,” the letter said.
The officials also said the score for governance attributed to Idaho should not have been anything other than positive, because the agency’s own explanation of the rating discussed forward-looking governance decisions and risk mitigation without naming any means of measuring those factors.
“This can only mean that either the ratings are political, or S&P is not actually making any inquiry and simply publishing generic ratings,” the letter said. “Neither scenario is acceptable to Idaho. We respectfully request that S&P immediately take down these ratings and cease from engaging in any non-objective ratings criteria.”574943241-Idaho-officials-letter-to-S-P-over-ESG-credit-indicators
Other states have been discussing the issue and taking action related to ESG scores as well. In June 2021, Texas Gov. Greg Abbott signed a bill banning state investments in businesses that had cut ties with the oil and gas industry. At the end of May, the New York Times reported West Virginia’s state treasurer pulled money from one of the world’s largest financial institutions, BlackRock, because the company flagged climate change as an economic risk.
Idaho has already taken action on ESG during 2022 legislative session
Idaho legislators already passed one ESG-related bill during this year’s legislative session with Senate Bill 1405, which prohibits any public agency in Idaho that is engaged in investment activities from considering ESG characteristics in a way that would override typical prudent investment rules.
The House of Representatives also voted in favor of a concurrent resolution stating opposition to the standards, saying the standards are “designed to create a ‘great reset’ of capitalism.”
LaBeau said that line of thinking is driven by people who want to sell books, including conservative commentator Glenn Beck, who visited Republican legislators at the Idaho Capitol in February and discussed the issue with lawmakers, and conservative groups such as the Heritage Foundation.
LaBeau expects the issue will be a focus of the 2023 legislative session, and said he is frustrated by the fact that the conversation isn’t focused on the broader issues related to climate change and instead on what he calls fear mongering.
“It’s become more of a bumper sticker battle than actually talking about the issue itself,” LaBeau said. “Climate change is real, we know it’s real, we all know the factors that are associated with it. So, what are the technologies available (to mitigate it), and how can we bring them online in a way that makes sense, and what is capital willing to risk?”
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