Economy

Ray Carter | September 21, 2023

Oklahoma House Speaker warns of ESG’s economic harm

Ray Carter

As a third-generation banker, House Speaker Charles McCall has a better understanding of the financial industry than many people. And that expertise is one reason he is among the state leaders warning against the imposition of “Environmental, Social, and Governance” (ESG) policies on businesses as a condition of obtaining loans from major financial firms.

“ESG is a mechanism by the far left to institute far-left policies around the area of environmental, social governance,” McCall told attendees at a recent meeting of the OCPAC Foundation in Oklahoma City. “That would be the environmental and climate agenda of the left that they can’t get passed in the Congress.”

He noted ESG is also used to pressure companies to embrace “social justice” goals of the political left that McCall said undercut citizens’ judicial rights.

“They want to institute that through the business community, and more specifically through Wall Street,” said McCall, R-Atoka.

Large investment funds are now being used to force ESG policies onto other companies, including through the large companies’ control of state pension funds when those firms are hired as money managers, McCall noted.

Oklahoma has about $10 billion in its pension funds that are invested to provide retirement benefits for various state workers, including teachers, police, and firefighters.

Some large investment companies have directed states’ pension funds to companies that promote the ESG agenda, and away from companies that don’t align with those goals, such as oil companies. Those decisions are based on ideology instead of business fundamentals.

“They are effectively pushing out businesses in the oil and gas industry,” McCall said. “They are restricting capital to them. This is a real issue for the state of Oklahoma. We are an energy state.”

According to the Oklahoma Energy Resources Board, the total economic impact of oil and gas and component industries in the state in 2022 was $64.9 billion, 27 percent of the state’s total economic activity. That included 198,965 direct or supporting jobs and $23.7 billion in salaries and wages.

But ESG policies are attempting to wipe out that investment and those jobs.

“They can’t get the capital to go out and do exploration and some of their other functions unless they comply with these ESG rules,” McCall said.

Oklahoma is among the states that have pushed back by outlawing the use of pension funds for ESG investments rather than for maximized returns.

House Bill 2034, which created the “Energy Discrimination Elimination Act of 2022,” required the office of the state treasurer to conduct a review of investment firms to identify those that boycott investments in oil-and-gas companies regardless of the impact on investment returns.

The law, which prevents ESG-promoting entities from handling state pension funds, has gotten the attention of some of the largest financial companies in the nation.

In May, officials with Blackrock, Inc., met with Gov. Kevin Stitt to plead their case and be taken off the state list of entities that cannot oversee state pension contracts.

“We had a good conversation,” Stitt said in May. “Blackrock doesn’t want to turn into the next Bud Light, that’s for sure, so they’re traveling the country and (are) very concerned when they show up on lists.”

However, Blackrock has yet to institute policy changes that would jettison ESG and allow the firm to again receive contracts from Oklahoma’s pension systems.

On Aug. 15, Oklahoma State Treasurer Todd Russ released an updated list of the institutions that remain on the restricted financial company list, following further analysis of their environmental, social, and governance policies. BlackRock remained on the list, as did Wells Fargo & Co.; JPMorgan Chase & Co.; Bank of America; State Street Corp.; and Climate First Bank.

“The State of Oklahoma should not be investing money with companies that boycott one of our own industries,” Russ said. “These financial companies are using ESG policies to promote a political, social agenda instead of allowing the free enterprise system to work. When a state boycotts a major industry like oil and gas, the result is less diversification of funds, which can lead to more risks and potentially lower returns for investors.”

McCall noted that ESG policies do more than prevent companies from obtaining capital if they don’t embrace a politically correct agenda. ESG policies also harm retirees who depend upon their pensions for income.

“Here’s the thing about ESG funds: They underperform the S&P 500,” McCall said. “So every time somebody puts money in an ESG fund, they’ve made a decision at the expense of a beneficiary, of those pension holders. They should be maximizing the return.”

A number of studies have shown that ESG investing policies have worse rates of return than what occurs when companies focus on growth potential. For example, a study by UCLA and New York University found that over five years ESG funds underperformed the broader market, averaging a 6.3 percent return compared to 8.9 percent return respectively. Additionally, in comparison to other investment plans, ESG investors generally end up paying higher costs for worse performance.

McCall noted that concentration in the financial sector has given a relative handful of firms outsized influence, including the ability to force feed a political agenda on other businesses.

AmeriState Bank, which McCall’s family has operated for years, is one of about 210 banks operating in Oklahoma today. But McCall noted there is a significant difference between “Main Street banks” like the one his family has operated and “Wall Street banks.”

Currently, about 65 percent of assets nationwide are held by only five to 10 banks, he noted.

“That’s systemic risk,” McCall said. “That means if one of those banks gets in trouble, the government won’t let them fail.”

He noted that Silicon Valley Bank had over $200 billion in deposits, of which more than 95 percent were uninsured because the deposits exceeded the $250,000 maximum for insured deposits. When Silicon Valley Bank collapsed earlier this year, government officials rushed to bail it out.

“If AmeriState Bank, my family’s bank, did what they did,” McCall said, “they’d shut us down.”

Ray Carter Director, Center for Independent Journalism

Ray Carter

Director, Center for Independent Journalism

Ray Carter is the director of OCPA’s Center for Independent Journalism. He has two decades of experience in journalism and communications. He previously served as senior Capitol reporter for The Journal Record, media director for the Oklahoma House of Representatives, and chief editorial writer at The Oklahoman. As a reporter for The Journal Record, Carter received 12 Carl Rogan Awards in four years—including awards for investigative reporting, general news reporting, feature writing, spot news reporting, business reporting, and sports reporting. While at The Oklahoman, he was the recipient of several awards, including first place in the editorial writing category of the Associated Press/Oklahoma News Executives Carl Rogan Memorial News Excellence Competition for an editorial on the history of racism in the Oklahoma legislature.

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