Utah state treasurer pulls millions from investment firm for climate and social program

Utah State Treasurer Marlo Oaks moved about $100 million in state money previously managed by the BlackRock investment company to the various asset managers. BlackRock, he said, pushed an environmental and social agenda instead of bringing the best financial return to state taxpayers.

“The key asset of any investment manager is trust. It’s hard to trust an investment manager who has adopted more than one objective. When a manager is trying to achieve a dual goal, it’s possible for returns to suffer or volatility to increase,” Oaks said, noting that BlackRock funds were a small part of the $30 billion Public Treasurers investment fund. Utah dollars.

Oaks went so far as to say BlackRock, the world’s largest asset manager with $10 trillion in stocks, bonds and other assets under management, is a national security threat. “BlackRock is rewarded in China. They make a lot of money in China and it damages national security.

A representative for BlackRock declined to comment on Oaks’ claims, per company policy. But BlackRock has faced similar complaints in other GOP-dominated states, and the company said its efforts were driven by clients who want long-term investment prospects. More than half of the assets managed by BlackRock are held by pension funds that have long-term investment objectives.

“We focus on sustainability not because we’re environmentalists, but because we’re capitalists and trustees for our customers,” said BlackRock founder and CEO Larry Fink. its annual letter to CEOs in January.

Pension fund unchanged

The Public Treasurers Investment Fund is where the state, cities, counties, and other public entities can park their money to earn investment income until needed. It is separate from the $45.1 billion held by Utah’s Retirement Systems, which funds the pensions of public employees statewide.

As state treasurer, Oaks sits on the board of Utah Retirement Systems, but investment decisions are made by the full seven-member panel. Utah Retirement Systems spokesman Brian Holland said URS has about $6.8 billion under BlackRock’s management and hasn’t made any changes to its portfolio or its managers. of ESG-related assets.

“However, the Utah State Retirement Board continuously monitors the performance of our investment managers and makes changes as needed,” Holland said. “We consider all material risk and return factors.”

(Chris Samuels | The Salt Lake Tribune) Utah State Treasurer Marlo Oaks speaks with delegates to the Utah Republican Party nominating convention, Saturday, April 23, 2022, in Sandy.

Oaks’ decision stems from an effort by Republican state treasurers who are challenging so-called environmental, social and governance policies that have spread to big business and investment firms. Treasurers say the policies distort capital markets and deny funding to fossil fuel industries.

But ESG advocates say financial firms and ratings agencies are responding to market demand to steer away from these industries. Advisors at global management consulting firm McKinsey wrote in a quarterly report last month that companies increase their risk if they don’t think about ESG. “While valid questions have been raised about ESG, the need for companies to understand and address their externalities will likely become critical to maintaining their social license.”

“Left” Agenda

Oaks detailed his views in an opinion piece from the Wall Street Journal in May, which focused on Standard & Poor’s decision to provide ESG ratings for each of the 50 states. He said the ratings are driven by S&P’s subjective beliefs rather than objective financial measures.

“It’s easy to see that these beliefs are left-wing,” Oaks said. “S&P assigns a lower ESG score to states that have both “physical risks” such as earthquakes and natural disasters and a higher percentage of their economy tied to natural resource extraction, such as Texas, ‘Alaska and Louisiana.’

He noted that he and other Utah political leaders wrote a letter to S&P objecting to the ESG ratings it assigned to Utah and asking the company to withdraw them.

The editorial attracted an answer from Utahn Drew Maggelet, who wrote a letter to the editor of the Wall Street Journal saying, “There is no clear evidence of zero-carbon patronage in S&P’s state credit ratings. Texas still has the best possible rating and Alaska’s rating has increased over the last 3 months. ESG ratings also show no left-leaning cultural or economic biases. Deeply conservative states such as Alabama, Idaho and South Carolina earned top marks. California has the worst combined score.

In an interview, Maggelet, a multifamily housing analyst with significant family ties to the oil and gas industry, noted that risks associated with ESG issues have been incorporated into broader credit ratings than S&P and other agencies. ratings have been publishing for years. The only difference is that S&P now publishes separate ESG reports.

“ESG was born out of a market demand for more transparency on the climate, social and governance risks companies face in the future. The analysis has also been applied to government bonds, but major ratings agencies have yet to penalize government bond ratings for perceived ESG deficiencies I have seen no indication that “woke ideology” is forcing ESG ratings in a market that does not want them .”

Drought pushes Utah coast up

S&P current ESG score for Utah places it in the middle with most states. In the description accompanying the ratings, no mention is made of fossil fuels. Instead, the focus is on the same issue that all Utah leaders have brought to the fore: the drought.

“We believe the state faces high natural capital risk due to long-term challenges with water supply, which could remain a constraint on its economy and demographic profile as resources are expected to remain removed” , indicates the description.

Yet S&P’s rating also acknowledged the state’s history of careful planning, a seemingly subjective conclusion with which state leaders are likely fine: “We believe the continued demonstration and commitment of the ‘Utah’s planning for long-term water challenges is helping to alleviate additional pressure within our credit rating. analysis.”

In an interview, Oaks had no objections to S&P’s current rating for Utah, but he believes it is still inappropriate for S&P to produce separate ESG ratings. “The problem is not necessarily with today’s rating. The problem is that we are creating a separate system. … ESG shifts political issues to financial markets. Then, whoever has the most money wins.

If Oaks and his fellow treasurers really want to kill ESG, it’s probably too late. As the McKinsey report notes, “More than 90% of S&P 500 companies now publish ESG reports in some form, as do around 70% of Russell 1000 companies.”

Other states have gone further

Oaks’ efforts parallel other attempts to attract ESG to Republican states. Kentucky, Texas, West Virginia and Oklahoma have passed laws allowing their state treasurers to stop doing business with financial institutions they deem to boycott fossil fuel investments. Utah Rep. Rex Shipp, R-Cedar City, introduced a similar bill, House Bill 312in the last legislative session, but he never left the House.

West Virginia’s state treasurer and Texas comptroller have sent letters to BlackRock and other major investment firms warning them they could be denied state contracts if they don’t. could not demonstrate that they were not boycotting fossil fuels. One of the companies targeted by West Virginia is Goldman Sachs, which has a large employee base in Utah. Companies have generally responded that they do not boycott fossil fuels and that they have the oil and gas holdings to prove it.

And the idea of ​​“boycotting the boycotters” has drawn its own criticisms which point out that eliminating potential entrepreneurs from the market only makes it less competitive, which ultimately hurts taxpayers. They also point out that it substitutes the subjective opinions of politicians for the subjective opinions of investment firms

“What they have created is an opaque system in which politicians have discretionary power,” Witold Henisz, associate dean of the Wharton School at the University of Pennsylvania, told E&E News.

Drew Maggelet is a member of the Salt Lake Tribune Innovation Lab Advisory Board.

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