WASHINGTON, D.C. – Attorney General Karl A. Racine today led a group of 17 state attorneys general in warning the chairs and ranking members of the Senate Banking, Housing, and Urban Affairs Committee and the House Financial Services Committee about Republican efforts to interfere with financial institutions’ ability to make sound investment decisions on behalf of hardworking Americans.
The group explained how consideration of environmental, social, and governance (ESG) factors can help grow and protect Americans’ retirement savings, and that the Republican efforts to prevent consideration of these factors are nothing more than an attempt to kowtow to certain corporate interests.
“By kowtowing to the demands of a small group of corporate donors, Republican politicians are engaging in a dangerous misinformation campaign to influence how investment decisions are made,” said AG Racine. “Here’s the truth: considering environmental, social, and governance factors is the best practice of investment professionals throughout the world and the overwhelming majority of trustees in Republican-led states agree. Millions of workers rely on financial experts to help them retire and support their families in their golden years. Thoroughly considering all potential risks before making investment decisions is a fundamental principle of capitalism. These anti-ESG efforts are akin to putting a blindfold on investors.”
ESG is an assessment tool that helps investors achieve the highest possible rate of return by exposing potential risks or rewards associated with an investment. An ESG analysis ensures investors—including pension fund managers—are operating in the best interest of workers and retirees who rely on financial experts to make informed decisions that will help their retirement savings grow over time.
Below are examples of how investors use ESG assessments.
- Environmental (e): An environmental assessment is intended to reveal the environmental footprint of an investment. If, for example, a company uses toxic chemicals in its products, ESG would help an investor evaluate the degree of risk this poses to that company’s profits.
- Social (s): A social assessment is intended to reveal a company’s relational risk—including relationships with employees, suppliers, and/or customers. Opioids, for example, may have created high-demands that looked enticing to investors initially. However, the real-human impacts that resulted from opioids has had astronomical financial consequences on opioid manufacturers and distributors.
- Governance (g): A governance assessment will reveal whether a company is following the industry best practices for leadership and whether it has appropriate checks and balances in place. FTX is the most recent demonstration of why governance assessments are critical. It has been widely reported that FTX’s operations lacked basic governance practices. The financial implications of these inadequate corporate governance measures have permeated the entire cryptocurrency industry.
About the Letter
The coalition of 17 attorneys general are pushing back against a misinformation campaign led by certain Republic attorneys general intended to curtail consideration of ESG factors. Republican attorneys general have sent a letter to BlackRock CEO Larry Fink criticizing the use of ESG factors by pedaling bogus and unfounded assertions about why they are used. Republican members of Congress have also opened investigations into some companies over their ESG policies and introduced legislation on the issue.
The letter, led by Democratic attorneys general, argues that investors have a fiduciary duty to consider ESG when making investment decisions, that ESG is legally sound, and that ignoring ESG puts politics over retirees’ hard-earned savings.
Click here to view the letter from AG Racine and 16 other attorneys general to U.S. Senators Sherrod Brown and Patrick Toomey, chair and ranking member, respectively, of the U.S. Senate Committee on Banking, Housing, and Urban Affairs, as well as U.S. Representatives Maxine Waters and Patrick McHenry, chair and ranking member, respectively, of the U.S. House Committee on Financial Services.