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Republicans ride ESG backlash to state financial offices

GOP wins 29 directly elected positions nationwide, flipping auditor, controller or treasurer offices in five states

Rep. Sean Casten, D-Ill., asked bank CEOs in September to explain their support for a group that Casten said has been “weaponizing state treasurers and lawmakers against climate-related financial risk management.”
Rep. Sean Casten, D-Ill., asked bank CEOs in September to explain their support for a group that Casten said has been “weaponizing state treasurers and lawmakers against climate-related financial risk management.” (Tom Williams/CQ Roll Call file photo)

Republicans picked up state financial officer positions during the midterm elections amid a campaign against environmental, social and governance investing.

Five positions — in Kansas, Iowa, Missouri, Nevada and Wisconsin — flipped from Democratic to Republican in races for state auditor, controller or treasurer. Of the 50 directly elected positions, Republicans won 29 and Democrats won 19, according to an analysis from Ballotpedia. Two races remain uncalled.

A handful of Republicans’ campaigns for state financial officers focused on ESG, echoing sentiments from GOP officials at statehouses across the country and in Congress who say ESG investing is harming capital markets and domestic energy production and reject the case made by Democrats, major investors and other proponents.

At stake is a suite of legislation and rules that would curb ESG as a material consideration, along with other financial factors, for investors. The proposals include policies for states’ pension funds to divest hundreds of millions of dollars from financial institutions that incorporate ESG — and especially climate — in their investment decisions.

At least 17 states are proposing rules that would nearly ban the use of ESG in such decisions. Several Republican state treasurers and other financial officers implied they would double down on such policies in the coming months.

“ESG funds only invest in companies based on their environmental and corporate policies, making returns on investment a secondary concern,” Republican Kansas state Rep. Steven C. Johnson, who beat Democratic incumbent Lynn Rogers in the state’s treasurer race this month, said on his campaign website. In his new role, Johnson will manage the state’s investments and pensions, including the $20 billion Kansas Public Employees Retirement System.

Other elected officials have already shown their opposition to ESG in other capacities. Republican Utah state Treasurer Marlo Oaks, who won reelection, this year joined the state’s congressional delegation to criticize S&P Global Inc.’s credit rating division for plans to supplement its analysis of states with a score on certain ESG indicators.

The State Financial Officers Foundation, a public policy nonprofit organization that promotes free markets and what it calls fiscally responsible public policy, has been one of the most active groups advocating for anti-ESG policies. The group has 28 state financial officers as members, including Oaks and Missouri state Treasurer Scott Fitzpatrick.

The group this week launched an anti-ESG campaign dubbed “Our Money, Our Values” in an attempt to convince the public that the consideration of climate change or social justice in investment decisions is politically driven and will hurt Americans’ investments in the long run. 

“ESG is a highly subjective political score infiltrating all walks of life forcing progressive policies on everyday Americans resulting in higher prices at the pump and at the store,” the organization’s CEO, Derek Kreifels, said in a statement.

The State Financial Officers Foundation has garnered criticism from Democrats, who are concerned about the recent wave of anti-ESG rules. 

“The State Financial Officers Foundation is a dark money group that has been weaponizing state treasurers and lawmakers against climate-related financial risk management by coordinating to cancel contracts and otherwise sever ties with financial firms that consider climate change in their business strategies,” Rep. Sean Casten, D-Ill., said in a statement Tuesday.

During a House Financial Services hearing in September with Wells Fargo & Co. CEO Charles Scharf and JPMorgan Chase & Co. CEO Jamie Dimon, Casten questioned the two executives over the companies’ sponsorship of the organization. Scharf and Dimon said they “probably would cancel” any financial support to an organization spreading misinformation. However, the companies later declined to take such measures after Casten and 16 other members of Congress urged them to do so.

Brian Smith, Wells Fargo’s head of government relations and public policy, told Casten in a subsequent letter that the bank regularly engages with various associations “whose memberships have varying political views.” The bank’s involvement with the State Financial Officers Foundation was sponsorship of a conference held by the group, Smith said in the Nov. 8 letter.

“We regularly evaluate our sponsorships and engagements with outside organizations, including that of SFOF, as part of our outreach and risk management efforts,” Smith said. “While we may not agree with every position this or any other organization takes, engagement overall is important for our customers, company, and employees.”

JPMorgan declined to respond to the inquiry, according to Casten’s office. A representative from JPMorgan did not immediately respond to a request for comment.

“By refusing to end their sponsorship, [Wells Fargo and JPMorgan] are choosing to be complicit whenever states pass harmful laws that force them to arbitrarily cancel contracts with banks that take climate risk into account,” Casten said in the statement Tuesday. “These laws are gambling with workers’ retirement and driving huge costs for the public in Texas and other states where they’ve been passed.”

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