Utah State treasurer pulls millions from investment firm over its climate and social agenda

Utah State Treasurer Marlo Oaks has moved about $100 million in state money that was previously managed by the investment firm blackrock to different asset managers. BlackRock, he said, has been pushing an environmental and social agenda rather than providing the best financial return to state taxpayers.

“The key asset any investment manager has is trust. It is difficult to trust an investment manager who has adopted more than one objective. When a manager is trying to achieve a dual purpose, there is a potential for returns to suffer or volatility to increase,” Oaks said, noting that BlackRock’s funds were a small portion of Utah’s $30 billion Public Treasurers Investment Fund.

Oaks went on to say that 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 are making a lot of money in China and they are undermining national security.”

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

“We focus on sustainability not because we are environmentalists, but because we are investors and trustees for our clients,” BlackRock founder and CEO Larry Fink said in a statement. your annual letter to CEOs in January.

Retirement funds did not change

The Public Treasurers Investment Fund is where the state, cities, counties, and other public entities can park their money for investment income until needed. It is separate from the $45.1 billion owned by Utah Retirement Systems, which funds public employee pensions statewide.

As state treasurer, Oaks sits on the board of Utah Retirement Systems, but investment decisions are made by the entire seven-member panel. Utah Retirement Systems spokesman Brian Holland said URS has about $6.8 billion under BlackRock management and has made no changes to its ESG-related portfolio or asset managers.

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

(Chris Samuels | The Salt Lake Tribune) Utah State Treasurer Marlo Oaks speaks to delegates at 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 become fashionable among large corporations and investment firms. Treasurers say the policies are distorting capital markets and denying funding to fossil fuel industries.

But ESG advocates say financial firms and credit rating agencies are responding to a market demand to move away from those industries. Advisors to the global management consulting firm McKinsey wrote in a quarterly report last month that companies increase their risk if No consider ESG. “Although valid questions have been raised about ESG, the need for companies to understand and address their externalities is likely to become essential to maintaining their social license.”

‘left’ agenda

Oaks detailed his views in a Wall Street Journal op-ed in May that focused on Standard & Poor’s move 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 metrics.

“It’s easy to see that those beliefs are on the left,” Oaks said. “S&P assigns a lower ESG score to states that have “physical hazards” like 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 have written a letter to S&P objecting to the ESG ratings it has assigned to Utah and asking the company to withdraw them.

opinion piece drew a response from Utahn Drew Maggelet, who wrote a letter to the editor of the Wall Street Journal saying, “There is no clear evidence of carbon-free favoritism in S&P state credit ratings. Texas still has the best possible rating and Alaska’s rating has gone up in the last 3 months. ESG ratings also show no evidence of cultural or economic bias to the left. Deeply conservative states like Alabama, Idaho, and South Carolina got the best 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 the risks associated with ESG issues have been incorporated into the broader credit ratings that S&P and other rating agencies have published. during years. The only difference is that S&P is now publishing separate ESG reports.

“ESG grew out of a market demand for greater transparency about the climate, social and governance risks facing corporations in the future. The analysis has also been applied to government bonds, but major rating agencies have yet to penalize government bond ratings for perceived ESG deficiencies. I haven’t seen any indication that ‘wake-up ideology’ is imposing ESG ratings on a market that doesn’t want them.”

Drought boosts Utah’s rating

S&P current ESG rating for Utah puts it in the middle with most states. In the description accompanying the ratings, fossil fuels are not mentioned. Instead, the focus is on the same issue every Utah leader has brought to the fore: drought.

“We believe the state faces elevated natural capital risk due to long-term challenges related to water supply, which could continue to be a constraint to its economy and demographic profile as resources are projected to continue to be suppressed. ”, says the description.

Still, the S&P rating also acknowledged the state’s history of careful planning, a seemingly subjective conclusion state leaders likely agree with: “We believe Utah’s continued demonstration and commitment to planning for the challenges of long-term water help relieve additional pressure within our credit rating. analysis.”

In an interview, Oaks offered no objection to S&P’s current Utah rating, but believes it is still wrong for S&P to produce separate ratings on ESG. “The problem is not necessarily with today’s qualifying. The problem is that we are creating a separate system. … ESG is transferring political problems to financial markets. So it’s a matter of 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, “Over 90% of S&P 500 companies now publish ESG reporting in some form, as do approximately 70% of Russell 1000 companies.”

Other states have gone further

Oaks’ efforts parallel other attempts to bring back ESG in red states. Kentucky, Texas, West Virginia and Oklahoma they have passed laws empowering their state treasurers to stop doing business with financial institutions they believe are boycotting fossil fuel investments. Utah Rep. Rex Shipp, R-Cedar City, introduced a similar bill, House Bill 312in the last legislative session, but never made it out of the House.

The West Virginia state treasurer and the Texas comptroller have sent letters to BlackRock and other big investment firms warning them that they may be denied state contracts if they can’t prove they’re 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 by saying they don’t boycott fossil fuels and have oil and gas holdings to prove it.

And the idea of ​​“boycotting the boycotters” has brought its own critics who point out that removing potential contractors from the market only makes it less competitive, ultimately hurting taxpayers. They also point out that it is substituting the subjective opinions of politicians for the subjective opinions of investment firms.

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

Drew Maggelet is a member of the advisory committee for The Salt Lake Tribune’s Innovation Lab.

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