Indiana attorney general Todd Rokita has joined a multistate effort to reverse a Federal Energy Regulatory Commission decision allowing an investment management company that pledged to achieve net zero emissions to own a substantial amount of utility company voting securities.
FERC authorized Vanguard Group Inc. and its subsidiary companies to acquire and administer up to 20% ownership in voting securities in 2019 and reauthorized the company for another three years in August.
Rokita and the Republican attorneys general of 12 fossil fuel-dependent states oppose the decision, saying the company breached a key tenet of the agreement: a promise not to exercise control over the day-to-day management of the utilities it dealt with or affect the prices at which power is transmitted or sold, via its participation in the Net Zero Asset Managers Initiative and other alliances to achieve net zero greenhouse gas emissions.
“Vanguard’s own public commitments and other statements have at the very least created the appearance that Vanguard has breached its promises to the commission by engaging in environmental activism and using its financial influence to manipulate the activities of the utility companies in its portfolio,” the attorneys general wrote in a motion to intervene submitted to FERC.
The Net Zero Asset Managers Initiative is nonbinding, but requires signatories to publish climate-related financial disclosures.
Vanguard has since dropped out of the initiative, saying the initiative’s commitment to fighting climate change had resulted “in confusion about the view of individual investment firms,” according to the Financial Times.
“We have decided to withdraw from NZAM so that we can provide the clarity our investors desire about the role of index funds and about how we think about material risks, including climate-related risks — and to make clear that Vanguard speaks independently on matters of importance to our investors,” the company said in a corporate statement.
The company said its decision to withdraw would not affect its commitment to helping investors navigate the risks that climate change can pose to their long-term returns and would continue to interact with companies they fund to understand how they address material risks, including climate risks, in the interests of long-term investors.
Human activities, especially using fossil fuels that release large amounts of greenhouse gases when burned, have caused deadly and costly changes in the earth’s climate.
In some parts of the world, climate change has become more deadly than cancer. Climate change effects like heat stress, rising sea levels, damaged infrastructure and reduced agricultural productivity could cost the U.S. economy $14.5 trillion over the next 50 years if the country does not address the causes of climate change, like fossil fuel use. Conversely, the U.S. economy could gain $3 trillion if it rapidly decarbonizes, according to auditing firm Deloitte US.
Fossil fuel companies reported record profits in 2022, including coal, which experienced a downward turn for about a decade before a brief resurgence in 2021 when coal became the largest source of electricity generation in 15 states due to high natural gas prices.
According to the Indiana Department of Natural Resources, the state’s mining industry, including coal, supports about 2,500 jobs and adds about $750 million to the state economy.
Coal has had an outsized influence on state lawmakers and officials via hundreds of thousands of dollars in direct political donations. Lawmakers and officials, in turn, work to protect the industry despite its effect on the climate and its diminishing economic prospects.
Rokita and state lawmakers have targeted banks and other financial institutions that use environmental, social and governance considerations, or ESG, in investing, saying those considerations, like reducing greenhouse gas emissions, discriminate against fossil fuels.
Rokita called ESG investing “weaponized wokeness.”
“[W]e’re fighting the dangerous trend toward investment strategies that are designed not to maximize financial returns but rather to impose leftist social and economic agendas that otherwise could not win approval at the ballot box,” Rokita said in a press release. “The advocates of this approach claim their activism does not interfere with making money, but they are deliberately trying to mislead the public about their ploys to subvert the will of the people for the sake of ‘progressive’ politics.”
Investment management companies like BlackRock Inc. call ESG investing “sustainable investing” that allows investors to build more resilient portfolios and achieve better long-term, risk-adjusted returns.
A five-year analysis of global stocks found that stocks tilted toward companies with positive ESG scores outperformed benchmark portfolios by 0.13% globally, 0.17% in North America, 1.02% in the Asia-Pacific region and 1.59% in Europe.