Florida, Utah Take on ESG Farce

Is this man a model for corporate social responsibility? Russian President Vladimir Putin on Sunday in Moscow.


Photo:

Sergei Guneyev / Zuma Press

Florida’s efforts to defend its schools against Walt Disney Co.

has revealed the empty rhetoric of “stakeholder capitalism”. Now Utah is shedding light on the broader movement for “corporate social responsibility.” In both cases, aggressive virtue signals can hide political agendas that are not in the interests of consumers, investors, workers or voters. Moreover, attempts to judge companies by how responsible they are have recently yielded results that are almost impossible to believe.

Karen Pierog reports in Bond Buyer on Utah’s scrap with one of the credit rating giants:

Utah’s top-ranking officials on Thursday demanded that S&P Global Ratings stop applying environmental, social and governmental factors to the state through the use of what they called a politicized rating system based on indeterminate factors.

A letter to S&P, signed by Governor Spencer Cox, Treasurer Marlo Oaks, other state officials, legislators, and the Utah congressional delegation, stated their objection “against any ESG rating, ESG credit indicator, or any other ESG scoring system calling out ESG factors. separate from, in addition to or apart from traditional credit ratings. “

Utah benefits from a top credit rating, but is concerned that policy factors could contaminate the process of rating bond issuers’ creditworthiness. The letter says:

S&P recognizes that “having a social mission and strong [environmental, social, and governance] characteristics are not necessarily linked to strong creditworthiness and vice versa. ” S & P’s ESG credit indicators politicize what should be a purely financial decision. This politicization has manifested itself in the capital markets, where, for example, banks are under pressure to cut off capital for the oil, gas, coal and arms industries. ESG is a political assessment and should be characterized as such …

No financial entity should replace its policy assessments with objective financial analysis, in particular in matters unrelated to the underlying entities, assets and cash flows it evaluates. This is especially true for a properly regulated independent entity such as S&P, which has the task of providing objective clarity and insight. The use of ESG-related quantitative measurements and analytical frameworks confuses the distinction between subjective normative assessments and objective economic assessments. It is therefore unreasonable for S&P to weight indefinite and normative issues …

Although it can be difficult to deliver “forward-looking meaning[s] about an entity’s capacity and willingness to meet its financial obligations when they fall due, ”integrating this analysis with the political whims of the time is unacceptable. If they are not political, but instead are economically material, then they would be caught in the traditional credit analysis. ESG indicators are therefore not necessary.

So far, S&P has not responded to the letter from Utah. A report from the company says:

Our ESG credit indicators provide additional information and transparency at the device level and reflect our perception of the impact that environmental, social and managerial factors have on our credit rating analysis.

In S & P’s defense, it can be argued that they are simply responding to demands from political activists within pension funds and large financial institutions – and the Biden administration’s financial regulators.

In addition to S & P’s ESG credit indicators related to the company’s credit ratings, Utah officials also aim for ESG scores issued by a separate section of S&P. The Utahs write:

Even proponents of ESG accept that there is no agreed standard for ESG reporting and that various ESG sub-components are inherently incommensurable. For example, how should environmental goals be prioritized over social, or government goals over environmental ones? This is not to say anything about what factors can populate the social area …

Nevertheless, S&P has pushed for and in the process generated some truly amazing results. For example, S&P gave Russian-controlled energy producers higher ESG ratings than similar entities in the US Russian energy giants Gazprom and Rosneft, which exceeded US energy companies ExxonMobil and Chevron on S & P’s ESG scale. This despite the fact that Vladimir Putin’s Russian government is the majority owner of Gazprom and owns a 40% stake in Rosneft – the same government that recently invaded neighboring Ukraine in an unprovoked and indefensible attack in violation of international law. That attack appears to be degenerating into a total war against all Ukrainians, including non-combatant civilians, in violation of the Geneva Conventions and has resulted in thousands of civilian casualties and over 10 million displaced to date.

While S&P recently removed all Russian corporate results from its website, it is inconceivable how these energy giants, controlled by a corrupt and ruthless regime – and having been sanctioned for this regime’s misadventures before – managed to amass ESG scores together until a a few weeks ago that exceeded law-abiding US companies that were critical of US energy security … S&P also gave the Chinese state-owned China Petroleum & Chemical Corp

a higher ESG score than ExxonMobil and Chevron despite Chinese human rights abuses.

We also note that Russia’s leading bank, Sberbank, was sanctioned by both the US and the EU in response to Russia’s annexation of Crimea in 2014, and was cut off from the US – led financial system following Russia’s invasion of Ukraine this year. Inexplicably, however, Sberbank’s S&P ESG score was higher than that of the largest US bank, JP Morgan..

As for the credit indicators specifically related to S & P’s credit ratings, the Russian energy companies scored lower than the US energy companies on governance, but had the same score on social and environmental factors. Should we believe that Putin-controlled companies are as socially and environmentally sound as American companies controlled by shareholders?

It seems that the ESG is not about creating fair assessments of the company’s behavior. So what is it really about? Utah Treasurer Marlo Oaks takes a crack at a statement on the state letter:

ESG is about controlling and enforcing behavior. It seeks to do through the capital markets what activists and their government allies have not been able to do through democratic processes. It is a political score that, consciously or not, can result in market participants using economic power to drive a political agenda.

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In other news

A ‘war’ against judges
Paul Newberry writes from Atlanta to the Associated Press:

When you look at the ugly bruise that surrounds Kristi Moore’s left eye, it’s not surprising that so many judges and umps hang up their stripes.

Why endure incessant mockery and threats from out of control parents?

Why worry about potential violence – even the chance of losing your life – because someone thinks you called off a 12-year-old softball match?

America is facing a crisis in preparatory and youth sports, where fewer and fewer people are willing to take on the thankless job of judging games.

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James Freeman is the co-author of “The Cost: Trump, China and American Revival.”

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Follow James Freeman on Twitter.

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