Green Energy Profiteering Scam

J.B. Shurk writes at Gatestone Institute The Green Energy Profiteering Scam.  H/T Tyler Durden.  Excerpts in italics with my bolds and added images.

“Green” Profits Can Only Rise if Citizens’ Freedoms Fall

In free markets, commodities bought and sold possess perceived value. When a buyer and seller reach an agreed upon price for any product, there is a “meeting of the minds.” The value of any natural raw material is proportional to its scarcity. The more of it there is, and the more easily it can be obtained, the less value it holds. A vendor who sells ordinary rocks cannot make a living when his product is found freely all over the ground. If he transacts in gold or silver, diamonds or rubies, however, his hard-to-find “rocks” are worth a small fortune.

If only there were a way to turn ordinary rocks into valuable commodities!

There are, in fact, two well-known ways to do so. An unscrupulous vendor could simply paint ordinary rocks gold and pretend that common minerals are rare, and an unsuspecting customer might never be the wiser. Through fraud, the seller can hijack the perceived value of his goods and undermine the agreed “meeting of the minds” between himself and any deceived customer. His “precious” rocks actually hold no value but provide him with ill-gotten gains. Over time, however, this type of fraud does not last. More discerning customers eventually catch on to the ruse, and that information is shared among prospective buyers. And unless he is quick to move on to a new town with new buyers yet to be deceived, old swindled customers are likely to end his livelihood or much worse. Engaging in fraud comes with serious personal risks.

There is another, safer way, however, to turn ordinary rocks into valuable commodities. The vendor could petition the king of the realm for the exclusive right to gather and sell ordinary rocks. If granted such an extraordinary license — whereby ordinary rocks may only be possessed if first stamped with the vendor’s mark — then an abundantly available natural resource becomes scarce overnight. What was once free now costs whatever the vendor and the king’s tax-collecting chancery decide to charge for the use of regulated rocks. Perhaps citizens with special status or recognized allegiance to the king will still get their rocks for next to nothing. Yet the classical mechanics of supply and demand still come into play for everyone else. Even if the price charged for an officially sanctioned rock is kept low, its value on secondary markets is determined entirely by the scarcity of available vendor-stamped rocks.

How much are licensed rocks worth if they are the only ones that may be legally owned? When a king and vendor conspire to make only a small fraction of available rocks “legal,” then their manufactured “unavailability” makes them extremely valuable. Legally imposed scarcity comes with much fewer personal risks. Licensed monopoly on high-demand commodities is a license to print money.

From this lens, it is easy to see why so many investors love
government intervention in energy markets.

  • When governments limit drilling and mining for hydrocarbons in the ground, they manufacture scarcity.
  • When only certain wealthy individuals and companies can afford artificially expensive hydrocarbon energies as regular business costs, then budding entrepreneurs and small firms can no longer compete. Those at the peak of society’s wealth pyramid have a much easier time staying on top when the same natural sources of hydrocarbon energy once used to amass fortunes are now denied to those who would do the same.
  • A war on “fossil fuels” is a superb tactic for protecting private market share. It is a profitable ideological cause for fattening government revenues. And it is a constant source of income for environmental “nonprofits” and other special interests….
  • Can plastics, heating oil, and most synthetic materials found around a home be magically manufactured without petroleum?

  • Can the global population stave off famine and starvation if farmers are forced to overhaul agricultural and livestock production methods in order to abide by “green” laws limiting the use or release of carbon dioxide, methane, nitrogen, and phosphate — molecules and compounds essential to basic farming and high crop yield fertilizers?
  • Ideology hijacks the market’s natural direction toward an objective and transparent “meeting of the minds.” There is an unspoken but unmistakable fraud. Until governments, including hostile adversaries such as Russia and the United States, conspired to limit the use of hydrocarbon energy and “go green,” the idea that anybody could turn a profit from the wind or sun would have seemed as absurd as a vendor selling rocks freely available all around us.

  • Are electric vehicles as powerful as their internal combustion engine counterparts? Can wind and solar energies really provide nations with reliable power grids robust enough to avoid rolling blackouts? Can plastics, heating oil, and most synthetic materials found around a home be magically manufactured without petroleum?

Pictured: An electric car at a charging station in Berlin, Germany. (Photo by Carsten Koall/Getty Images)

Will not these “green” initiatives wind up looking remarkably similar to the example of the unscrupulous vendor above who learned how to swindle his customers by treating common minerals as rare and painting ordinary rocks gold — or perhaps now, a resplendent green?

Is that not what the imposition of Environmental, Social, Governance (ESG) standards upon markets accomplishes? Is ESG not a concerted effort to warp trading markets with acutely political aims that seek to reward companies and capital investments for their pledged commitment to ideological beliefs rather than their likelihood for generating future profits?

When boardrooms and investors distort free markets by treating stocks and other assets as more valuable than they really are, simply because they are painted a shiny “green,” then ESG overvaluation turns misguided yet “politically correct” fantasies into gold.  Government-enforced environmentalism has created its own class of “green” billionaires. Whenever and wherever governments have mandated that citizens purchase certain goods or suffer legal consequences, the producers of those goods have made financial killings.

Anyone once blissfully unaware of that kind of crummy crony capitalism surely learned a thing or two watching global vaccine mandates drive up pharmaceutical industry profits, while government-granted indemnification clauses rendered vaccine makers free from financial liability for any resulting injuries.

When governments subsidize entire industries, force citizens to purchase those industries’ products, and protect those industries from the legal consequences of their products’ harm, then money flows into the pockets of those with ownership stakes.

Does that sound remarkably similar to another political philosophy that is predicated on the abolition of all private property? What is that old saying somewhat apocryphally credited to Vladimir Lenin? “The capitalists will sell us the rope with which we will hang them.” Or perhaps today it is the “green” capitalists who make money by rendering food and fuel scarce, virtue-signaling “green” advocates who cheer the one-sided transaction, and the increasingly impoverished Western citizens who end up worse off than ever.

This much is certain: irrespective of prevailing politically correct Western “wisdom” and the current environmental “madness of crowds,” should the hydrocarbon bedrock of the global economy be traded for worthless “green” rocks, neither wealthy capitalists nor poor citizens will long survive.

SEC Not Climate Change Enforcer

It should junk its proposed disclosure rule, which is clearly unconstitutional
as per West Virginia v. EPA.

The Supreme Court’s June decision in West Virginia v. Environmental Protection Agency was a shot across the bow of the administrative state. The decision implicates many executive and independent agencies’ rulemakings, but perhaps none more so than the Securities and Exchange Commission’s proposed climate-disclosure rule. The proposal would convert the federal securities regulator into a greenhouse-gas enforcer looking over the shoulders of exchange-listed companies’ directors. Much like the EPA regulation the justices struck down, the new SEC proposal would exceed the authority Congress granted to the agency. If the SEC were wise, it would rethink its rule, lest it face a similar fate in court and see its rulemaking effort thrown into the regulatory waste bin.

Writing for a 6-3 majority in West Virginia, Chief Justice John Roberts invalidated the EPA’s Clean Power Plan under the “major questions” doctrine, which limits an agency’s power to act on issues of “economic and political significance” without clear authorization from Congress.

The court’s doctrine is a species of the separation of powers—specifically the nondelegation principle, which bars the legislature from giving lawmaking power to the executive branch. James Madison argued the point forcefully in the Federalist Papers and in the First Congress. The early Supreme Court let Congress allow the executive to “fill up the details” of “general provisions” of legislation but emphasized that “important subjects . . . must be entirely regulated by the legislature itself.”

In keeping with this principle, the modern Supreme Court has refused to allow administrative agencies “to ‘work around’ the legislative process” to resolve questions “of great political significance,” as Justice Neil Gorsuch noted in his West Virginia concurrence. Court decisions over the past three decades have blocked agencies’ efforts to resolve policy disputes without clear congressional authorization. Those cases range from regulating tobacco to changing telecommunications rate regulation—and, during the Covid pandemic forestalling tenant evictions and broadly mandating vaccines.

The SEC’s regulation is of a piece with those the court has struck down. We warned in a June 16 comment letter to the agency that Congress never assigned the SEC the task of overseeing environmental concerns.

Yet that’s exactly what it sets out to do in its climate rule.

As GOP-appointed SEC Commissioner Hester Peirce noted in a March dissent, the agency is attempting to mandate that companies disclose a host of “climate-related risks; climate-related effects on strategy, business model, and outlook; board and management oversight of climate-related issues; processes for identifying, assessing, and managing climate risks; plans for [climate change] transition; financial statement metrics related to climate; greenhouse gas emissions; and climate targets and goals.”

By sweeping upstream and downstream contractors into its proposed rule, the SEC seeks to regulate companies that aren’t traded on public stock exchanges and therefore should be wholly outside the commission’s regulatory reach. The proposed rule would casually toss aside the “materiality” standard, which limits mandated disclosures to financially material information.

The proposed rule would also implicitly reallocate power from corporate boards and order them to bring climate-related risks to the fore of company priorities—in direct conflict with longstanding state corporate law. Though Congress could pre-empt state law concerning corporate governance, an agency on its own has no such power.

In other words, the SEC’s proposal contravenes foundational principles of separation of powers and federalism. As Justice Gorsuch observed in West Virginia, the major-questions doctrine comes into play “when an agency seeks to intrude into an area that is the particular domain of state law.” The Supreme Court made clear 45 years ago in Santa Fe Industries v. Green (1977) that “absent a clear indication of federal intent, the Court should be reluctant to federalize the substantial portion of the law of corporations that deals with transactions in securities, particularly where established state policies of corporate regulation would be overridden.”

The SEC didn’t acknowledge or seriously engage any of these issues in its 490-page proposal. Though the agency lacks environmental expertise, it employs talented legal minds who understand these legal constraints and could have counseled against venturing beyond delegated authority. If such advice was given, it evidently wasn’t heeded.

But perhaps that will soon change. West Virginia v. EPA provides the SEC with the incentive to revise its approach and focus on the parameters of its authority before finalizing its proposed climate rule, which the agency initially suggested would be released in October. It may well be that the SEC needs to update the guidance on climate-change disclosures it issued over a decade ago. But in doing so, it needs to follow the law—and leave the big issues to the legislative branch, as the Constitution requires.

Mr. Sharfman is a senior corporate governance fellow with the RealClearFoundation. Mr. Copland is a senior fellow and director of legal policy at the Manhattan Institute and author of “The Unelected: How an Unaccountable Elite Is Governing America.”

 

ESG Investing Results: Go Woke, Go Broke

This post has two parts.  First, an update on how nations pursuing high ESG scores have destroyed their prosperity.  Second, an interesting effort by a Canadian MP to empower shareholders against woke managers following the ESG pied piper.

Capital Activist poster.

Gabriella Hoffman writes at Townhall ESG’s Toxic Brand Isn’t Salvageable.  Excerpts in italics with my bolds and added images.

As American consumers and investors start souring on Environment, Social, and Governance (ESG) principles being injected into both the public and private sectors, its loudest defenders say a rebrand will salvage its toxic image.

Its dedicated followers reassure us the product they’re selling — forcibly aligning business values with progressive virtue signaling — is good and noble. They tell us, however, that it’s just not sold well, despite being a popular set of beliefs.

Conceived in October 2005 at a U.N. Who Cares Wins Conference, this pervasive movement has glitzy public relations campaigns along with huge financial and political backing. Alas, no rebrand can salvage ESG given its disastrous real-world impact, ruinous effects on businesses, and growing disapproval among the American public.

Notably, the scoring mechanism associated with ESG is flawed and corresponds to imminent economic decline. Wherever high scores are found, countries have experienced great political instability and corresponding financial ruin.

The nations of Sri Lanka, Ghana, and the Netherlands have all experienced turmoil and boast high ESG scores — 98.197.1, and  90.7, respectively. All these nations, coincidentally, banned fertilizer. 

Sri Lanka was the poster child for ESG investment and has suffered the brunt of these principles. Their most recent prime minister just resigned in shame, following months of protests and unrest stemming from the country committing to net-zero carbon emissions by 2050 and halving its nitrogen use. 

Ghana also took the “E” prong too much to heart, with its government agreeing to raise $5 billion with international capital with Green, Social and Sustainability (GSS) Bonds. Now experiencing runaway inflation, largely due to these GSS bonds, the country is hoping to be bailed out by the International Monetary Fund (IMF).

The Netherlands similarly adopted a new continent-wide Sustainable Finance Disclosure Regulation (SFDR) to boost ESG investment and is now experiencing one of the highest inflation rates in the European Union. This was precipitated by the Dutch government approving a multi-year $21 billion plan to sharply cut ammonia and nitrogen emissions 50% by 2030 which requires one-third of farmers to kill off their herds and shut down indefinitely.

As countries languish with the adoption of ESG policies, private companies should be skeptical of flirting with these high-risk values. All three prongs result in companies losing profit without any measurable social impact.

Imagine that. Prioritizing ESG performance over financial returns doesn’t pay dividends.  Accordingly, consumers and investors are turning against this movement of woke corporatism. 

The Brunswick Group found only 36% of voters “agree unequivocally that companies should speak out on social issues.” A May 2022 Daily Wire/Echelon Insights poll found investors overwhelmingly reject companies pushing social causes over profit. Of the 1,000 respondents polled, 66% of those polled said investors should opt out of ESG-style investments. Gallup similarly recorded that investors still largely prefer performance factors over political or social factors when considering investing opportunities. 

A Modest Reform to Empower Shareholders Against ESG Investing

The National Post reports: The Conservative MP who’s fed up with the menace of woke corporations.  Excerpts in italics with my bolds.

A Calgary MP is set to propose a uniquely Canadian solution to the problem of ‘woke capital’

Up until now, the backlash against woke corporations has mostly come from south of the border. But that’s about to change, as one courageous Conservative MP is set to propose a uniquely Canadian solution to the problem of “woke capital.”

Corporations are generally considered woke when they engage in social activism that is beyond the scope of their business purpose. It is controversial because it is inherently undemocratic when wealthy officers and directors exploit the unique legal status of a corporation in order to marshal significant resources toward their preferred political agendas.

Canadians have had reasons to worry about woke capital for years: ESG (environmental, social and governance) investment policies have undercut our oil and gas industry; businesses have embraced Black Lives Matter, despite serious concerns about the group’s ethics; and multinational corporations have imported American culture wars into our country.

At last, a Canadian MP is pushing back. Conservative Tom Kmiec, who has represented the riding of Calgary Shepard since 2015, is proposing a new bill designed to hold powerful officers and directors accountable.  Kmiec is currently drafting a private member’s bill to amend Section 122 of the Canada Business Corporations Act (CBCA), which is focused on the duty of care that officers and directors owe to their shareholders.

If passed, it would ensure that officers and directors prioritize the interests of shareholders above political agendas that are unrelated to the company’s business purpose.

A summary of Kmiec’s bill, which was obtained by the National Post, explains that it would be “considered a breach in the duty of care owed to shareholders when directors and officers of a large distributing corporation (a company with a total market value of shares above $100 million) make activist statements, including in relation to public policy or social issues, that is not directly related to the business the corporation carries out and that could reasonably be expected to reduce the value of shares.”

Wisely, the bill would not prevent companies from making statements on political or social issues, but would require a firm’s board of directors to seek approval from shareholders first. Kmiec’s office hopes that such a mechanism will “make corporations think twice before opining on something beyond their stated corporate purpose.”

Legislation that promises to protect democracy from corporate power is bound to make some people uncomfortable. The proposed changes to the CBCA promise to loosen the grip that woke liberals have over corporate Canada, which will receive push-back from some quarters. Some critics will also argue that businesses should be free to be activists and governments shouldn’t have a say in the matter.

For its part, Kmiec’s office argues that the bill is in fact pro-business by being pro-shareholder, since, at the moment, “Shareholders have no say over these statements and, if backlash occurs, are left on the hook suffering with pecuniary losses through no fault of their own.”

Asked for additional comment on what motivated him to tackle the issue of undue corporate influence, Kmiec said, “My constituents do not want big business like Bell or TD Bank to dictate or weigh in on political and social issues they have no business in. Nobody wants to be lectured about social justice by their bank or their retailer or their grocer. What matters in Calgary Shepard differs from what matters on Bay Street.”

The bill is expected to be tabled later this month when Parliament returns. Although few private member’s bills actually become law in this country, and there is no guarantee that the bill will even be debated or voted on, it will hopefully allow Kmiec’s ideas to get the attention they deserve.

 

ESG Woke Social Credit System for Global Government

From Think Civics ESG Is A Globalist ‘Scam’ Meant To Usher In ‘One World Government’.  Excerpts in italics with my bolds.

James Lindsay, author of “Race Marxism” and other books challenging woke narratives, has taken environmental, social, and governance (ESG) scores into his crosshairs, calling ESG a weapon in the hands of “social justice warriors” to shake down corporations and a tool in the hands of those seeking to impose “one world government.”

Lindsay told NTD’s “The Nation Speaks” program in a recent interview that the ESG scoring system was initially conceived as a way for investors to track the likelihood that a corporation would be a good bet for investment over the long term.

“In the early 2000s, a few very socially minded socially activist investors got together and thought up this idea that, well, it’s probably the case that companies that are bad at environmental policy, bad with social responsibility, and bad corporate governance are going to be bad bets in long term investment,” he said.

Lindsay believes the ESG concept was suspect from the very beginning and it’s unclear whether higher scores translated into good long-term profitability for participating corporations.  Lack of transparency in how ESG scores are determined is an open door for abuse, Lindsay further contended.

Worse still, he argued that, over time, ESG scores have been hijacked
and “weaponized” by “social justice warriors.”

“They have the leverage to be able to use this like a … financial gun to the head of any corporation that doesn’t do what it wants them to do,” he said, calling it a “blatant weaponization.”

“In fact, it’s racketeering is what it is, is just criminal racketeering, using what looks like a responsible measurement tool as the mechanism. So nobody’s directly responsible for engaging in what is really a mob shakedown of corporations,” he argued.

Even more troubling is Lindsay’s argument that ESG fits into a “broader global agenda” that he said wants to make the West energy poor—to the benefit of countries like China—and as a way of social control.

“They want to implement the exact same control system because they see that it works to control people in China,” adding that, in his view, the “power elite” in the West “often do want to control people.”

“And so they would be using that as a tool to try to get toward one world government,” Lindsay said.

Insider Intelligence estimates that, in 2022, there was $41 trillion in ESG assets under management worldwide.   By 2025, this figure is expected to climb to $50 trillion.

Authored by Cindy Drukier and Tom Ozimek via The Epoch Times

See Also Federal Climatists Target US Personal Pension Funds

 

Elitist Lies About Inflation

The editors at Issues and Insights reveal false and misleading statements by a leading elitist spokesperson, US Treasury Secretary Janet Yellen.  The article is  See If You Can Follow Yellen’s Bouncing Inflation Ball.  Excerpts in italics with my bolds.

Treasury Secretary Janet Yellen said over the weekend that we’re going to have to “put up with inflation for a while longer,” which means that she has now held just about every possible — and almost always wrong — position on an issue about which she is supposedly an expert. Is it any wonder nobody trusts elites anymore?

Yellen was on CNBC over the weekend and, when asked whether inflation had peaked, said:

“Well, it may have peaked, but … I think the shocks emanating from this unjustified attack on Ukraine will prolong inflationary pressures. So, the outlook is uncertain. As you know, the Fed is taking steps to bring inflation down, but I think we will have to put up with high inflation for a while longer.”

Let’s leave aside Yellen’s dubious claim that Russia’s invasion of Ukraine has had any meaningful impact on inflation. Why would it? Iraq’s invasion of Kuwait, which was far more disruptive to the global oil market, bumped oil prices up for a short period but had no broader inflationary effect.

The Putin-is-to-blame for skyrocketing prices is one of team Biden’s big lies
meant to deflect blame. But the press never calls them on it.

No, what’s really troubling is the fact that Biden’s Treasury secretary has been so utterly clueless about inflation since joining his cabinet.

Let’s look at what Yellen has claimed about inflation since early last year and the actual results. The chart shows what inflation was doing when she made these statements.

  1. February 2021: “I’ve spent many years studying inflation and worrying about inflation, and I can tell you, we have the tools to deal with that risk if it materializes.”
  2. March 2021: “I don’t think it’s a significant risk. And if it materializes, we’ll certainly monitor for it, but we have tools to address it.”
  3. May 2021: “I don’t think there’s going to be an inflationary problem, but if there is, the Fed can be counted on.”
  4. June 2021: “Supply bottlenecks have developed that have caused inflation. I believe that they’re transitory, but that doesn’t mean they’ll go away over the next several months.”
  5. October 2021: “I don’t think we’re about to lose control of inflation.
  6. November 2021: “If we want to get inflation down, I think continuing to make progress against the pandemic is the most important thing we can do.”
  7. January 2022: “If we’re successful in controlling the pandemic, I expect inflation to diminish over the course of the year and hopefully revert to normal levels by the end of the year around 2%.”
  8. February 2022: “I think people heard ‘transitory,’ and to them it meant a couple of months. Maybe a better word could have been chosen.”
  9. March 2022: “We’re likely to see another year in which 12-month inflation numbers remain very uncomfortably high.”

Keep in mind who we are talking about here. Yellen has a sterling resume. A doctorate in economics from Yale. Professorships at Harvard and the University of California, Berkeley. On the faculty of the London School of Economics. President of the Western Economic Association and vice president of the American Economic Association. Head of the Council of Economic Advisors under President Bill Clinton. President of the Federal Reserve Bank of San Francisco. Chairwoman of the Federal Reserve.

So how in the world can her pronouncements about inflation under President Joe Biden be as reliable as the weather forecast? Is her understanding of economics tainted by liberal ideology? Is she just doing the bidding of an incompetent and desperate Biden administration?

Does it matter? Yellen is a shining example of why so many in this country
feel betrayed by the people who claim lordship over them.

 

 

 

#1 Security Threat: Net Zero Asset Managers

Rupert Darwall writes at Real Clear Energy Woke Investors Threaten the West’s Security.  Excerpts in italics with my bolds and added images.

In an era of rising geopolitical tensions, it is folly
to let Wall Street determine the nation’s energy policy.

As the West grapples with the energy implications of a hostile Sino-Russian alliance, the steering group of the Net-Zero Asset Owner Alliance, whose members manage over $10.4 trillion of assets, issued a statement urging Western governments not to sacrifice climate goals for energy security. “The world is still heading for an excess of fossil fuel-based energy use that will vastly exceed the carbon budget needed to meet the 1.5° Celsius Paris agreement goal. This trend must be halted,” the United Nations-backed alliance said in its April 8 statement, arguing that “the national security argument for accelerating the net-zero transition has strengthened considerably.”

What, one might ask, is the standing of asset managers to opine on national security matters? They have no expertise in this domain. It turns out that their understanding of the economics of energy policy is defective, too.

The Net-Zero Asset Owner Alliance claims that development of new oil and gas reserves will lock in fossil fuel subsidies, exacerbating market distortions. In fact, the International Energy Agency (IEA) in its 2021 net-zero report states that under its net-zero pathway, tax revenues from oil and gas retail sales fall by about 40% over the next twenty years. “Managing this decline will require long-term fiscal planning and budget reforms,” the IEA warns. Similarly, Britain’s Office of Budget Responsibility estimates that net zero policies will result in the loss of tax receipts representing 1.6% of GDP. So much for the fossil fuel subsidy myth.

If fossil fuels were heavily subsidized, eliminating them would mean fossil fuel subsidies disappear. Instead, it’s tax revenues that would melt away to zero.

The net-zero investors cite figures for the decline in solar and wind energy costs. These numbers are based on so-called levelized cost of energy (LCOE), a metric that aims to measure a plant’s lifetime costs. Wind and solar power are intermittent, but LCOE metrics exclude the costs of intermittency, which increase the more wind and solar are put on the grid. Because wind and solar output responds to weather and not to demand, the value of this output declines the more installed wind and solar capacity is available. It was for these reasons that MIT professor of economics Paul Joskow concluded in a foundational 2011 paper that using LCOE metrics to compare intermittent and dispatchable generating technologies, such as coal and natural gas, is a “meaningless exercise.”  [ See proper energy costing here: Cutting Through the Fog of Renewable Power Costs ]

Wind and solar investors don’t need to understand the economics of the grid to make money – they are shielded from the intermittency costs their investments inflict on the rest of the grid, which is one reason why their views on energy policy can be taken with a pinch of salt. Their economic illiteracy does, however, make it easy for them to subscribe to the green fairy tale of 100% renewables. They’re not responsible for keeping the lights on – that depends on traditional power plants staying fueled up and ready to spin, which is what Germany can’t do without Russian gas. Adopt the net-zero alliance’s call for no new fossil-fuel investment, and the cost of energy is bound to spiral. And if the lights go out, politicians – not woke investors – get the blame.

Investors’ opinions on energy and national security would matter less if they didn’t have political power. Bloomberg opinion writer Matt Levine argues that asset managers of giant funds form a parallel system of government that exercises overlapping legislative powers with those of governments. These government-by-asset-managers, as Levine calls them, tell companies to do things they think are good for society as a whole, “making big collective decisions about how society should be run, not just business decisions but also decisions about the environment and workers’ rights and racial inequality and other controversial political topics.”

Foremost among these areas is climate policy. Although the Biden administration has set a net-zero goal, Congress has not legislated it, and it lacks the force of law. The absence of legislation passed by democratically accountable legislators, however, presents no barrier to government-by-asset-managers legislating climate policy for the companies in which they invest. “Investors are making net zero commitments for themselves and demanding that companies issue greenhouse gas reduction targets and transition plans for meeting those targets,” says the Reverend Kirsten Snow Spalding of the not-for-profit Ceres Investor Network on Climate Risk and Sustainability.

Neither Spalding nor the Net-Zero Asset Owner Alliance make a case that forcing net-zero targets on companies will boost investor returns, demonstrating that this is not about investors’ traditional concerns – making money – but about pursuing politics by other means. In this, the Securities and Exchange Commission (SEC) is working hand in glove with woke climate investors. Commenting on the SEC’s newly proposed rule on climate-risk disclosure, Spalding says that for investors who have committed zero emissions by 2050, “this draft rule is absolutely critical.”

Unlike elected politicians, woke climate investors are not accountable for the effects of their climate policies: They exercise power without responsibility. This arrangement weakens America’s ability to respond to the geopolitical challenges of a revanchist Russia and an expansionist China. “We are on a war footing – an emergency,” Energy Secretary Jennifer Granholm declared at the CERA energy conference in Houston last month. “We have to responsibly increase short-term supply where we can right now to stabilize the market and to minimize harm to American families.” Addressing oil executives in the audience, Granholm told them: “I hope your investors are saying these words to you as well: In this moment of crisis, we need more supply . . . right now, we need oil and gas production to rise to meet current demand.”

As Granholm suggested, woke investors have been trying to do the opposite. Despite the war in Ukraine, there has been no let-up in investor pressure on oil and gas companies to scale down their operations. Whatever criticisms might be made of the Biden administration’s handling of the war in Ukraine, it is responsible for taking the awesome decisions that war involves. Investors, by contrast, have no responsibility for the nation’s security and America’s ability to lead the West. By helping investors impose their desired energy policies on American oil and gas companies, the SEC is undermining the national security prerogatives of the Biden administration and eroding America’s ability to meet the challenges of a dangerous world. The SEC is playing in a domain that it has no business being in.

Investors Resisting Corporate Climate Activism

Jerry Bowyer writes at Real Clear Markets Return-Focused Investors Are Starting to Notice the Politicization of Corporations.   Excerpts in italics with my bolds and added images.

We monitor and analyze proposals placed before shareholders for annual meetings held by publicly traded companies for funds, financial advisors and individual stockholders. For far too long, investors who are actually focused on returns have thrown annual proxies into the wastebasket while highly organized activist groups motivated chiefly by political considerations have been using shares as a mechanism to promote their own particular brand of social change. Recently, however, return-focused investors have begun to notice the degree to which a small minority has been politicizing corporate life, and a backlash has clearly formed against that.

One of the main issues has been increasing attempts to use shareholder engagement against fossil fuel usage, which came to a head last year when three anti-oil board members were elected to board seats at Exxon, a major oil company (Activist firm Engine No. 1 claims third Exxon board seat (cnbc.com)). A small activist fund received some assists in this campaign from a number of government employee pension funds and Blackrock. There was understandable backlash from public pension plans of energy-producing states, which received media coverage. Blackrock executives have tried to walk back some of the more heated rhetoric from CEO Larry Fink when dealing with energy-friendly clients.

Climatists storming the Exxon Bastion, here seen without their shareholder disguises.

What we are seeing so far in the early phase of this year’s annual shareholder meeting season is a spate of proposals, typically from political activist groups, pushing more aggressive anti-carbon measures. We’re also seeing investors rejecting such proposals. For example, as of this writing, the tentative vote counts for Royal Bank of Canada show shareholders voting down all of the items placed on the ballot by activists, including several having to do with fossil fuels. This is consistent with the pattern we’ve seen so far.

We’ll leave aside self-imposed fossil fuel divestment plans put forward by management under the moniker “Climate Action Plan”, as we’ve dealt with that issue here (How “sustainable investing” emboldens Putin | Analysis News (christianpost.com)). This analysis is focused on activists’ recent attempts to go even further in opposition to fossil fuels. In general, management teams have opposed these types of proposals, but it is arguable that they are somewhat responsible for bringing them about: advocates frequently cite public statements about environmental commitments and statements about the risks of climate change made by the company and argue that they are simply asking the company to live up to its public posturing.

Managers of these companies are beginning to see that public political pronouncements
do not assuage, but rather embolden, activist demands.

Let’s look at some of the proposals which are showing up on proxies this year:

♦  Annual Advisory Vote Policy on the Bank’s Environmental and Climate Change Action Plan and Objectives

Climate action plans in general have not been rigorously shown to be of benefit to shareholders, nor even to reduce GHG emissions (since nothing prevents other banks from financing the fossil fuels companies which would be de-banked by the proposed plan). So adding an extra level of institutional pressure to managers in the form of automatic annual votes is not warranted. If there is adequate support for a vote in any given year, shareholders of even modest scale can place it on the ballot.

♦  Annual Advisory Vote Policy on the Bank’s Environmental and Climate Change Action Plan

The proposal fails to make a rigorous case for shareholder benefit. The proposal is ostensibly modeled on the Paris Accords, but the Paris Accords are a proposal for regulations which governments would impose on industry, not for limitations which industry would impose on itself. When businesses, for example banks, limit customers on some basis other than profitability, that likely subtracts from shareholder value. And the limitation fails to decrease carbon emissions unless there are broad global restrictions on carbon emissions. Such arbitrary (from a revenue point of view) restriction of potential customers for banking services doesn’t shrink emissions, it simply transfers that business opportunity to other companies and countries. 

♦  Set Up a Climate Change and Environment Committee.

The proposal is for the board to set up a standalone committee focusing exclusively on environmental issues. The support statements tend to be thinly argued, doing little more than asserting that climate change is an important issue and navigating it is a matter of some complexity. In some cases boards of directors have argued against such resolutions by pointing out that there are several committees already which deal with environmental issues, including risk committees. To the degree that environmental issues are specifically of shareholder concern and not just general social concern, it is because of the potential risks, therefore environmental concerns seem most properly housed in the risk committee where they typically reside. There, environmental risks can be analyzed in relation to all risks, not elevated above them as a unique concern above all other risks.

♦  Avoid Bank Participation in Pollution-Intensive Asset Privatizations

When we have seen this proposal it has come from a labor union which tends to engage on political issues. This appears to be an anti-privatization measure with an environmental element added perhaps to get broader support. Financing of privatization is a standard banking practice because it is of potential benefit to shareholders. Whether privatization is beneficial or detrimental to society as a whole is a matter of long debate. In addition, in the case we’ve seen, the proponents make no argument to establish that an operation currently operated by government, which produces environmental impact, would become more environmentally harmful if it were transferred to the private sector, and so it provides no environmental reason why banks should not engage in the otherwise profitable business of financing such transfers.

♦  Update the Bank’s Criteria for Sustainable Finance to Preclude Fossil Fuel Activity and Projects Opposing Indigenous Peoples

This resolution was submitted by an activist group, Investors for Paris Compliance, on behalf of two shareholders (this is a common practice in regards to ESG proxy proposals). This proposal strongly overreaches standard climate plans, in that it precludes, rather than just reduces, investment in certain energy sources. In addition, the inclusion of the indigenous peoples element seems tangential to the main issues. Per comments made live at the shareholder’s meeting for Royal Bank of Canada, this is not about situations in which indigenous people actually own the property and therefore can legally block the projects. The rhetoric has instead invoked situations in which indigenous peoples opposed development on land they did not own, and were arrested for protesting on the property of others. It can reasonably be postulated that this is an attempt to bolster the anti-fossil fuels agenda by tapping into the indigenous people’s cause which is currently quite prominent in Canadian politics.

It seems plausible that the politicization of corporate governance in and around climate change may well have gone farther than corporate managers, in this case, Canadian banks, are willing to go in terms of sacrificing profit for the protection of alleged “reputational risk”. Even more interesting is the fact that a largely Canadian investor base also seem unenthusiastic about such proposals.

Jerry Bowyer is the President of Bowyer Research, an economic and financial research and consulting firm.

Supply Chains Doomed by Carbon Accounting

Vince Bielski explains how proposed SEC accounting for CO2 emissions will grind product supply chains to a halt.  His Real Clear Investigations article is The Green U.S. Supply-Chain Rules Set to Unspool and Rattle the Global Economy. Excerpts in italics with my bolds and added images.

Making a box of Cocoa Puffs is a complicated global affair. It could start with cocoa farms in Africa, corn fields in the U.S. or sugar plantations in Latin America. Then thousands of processors, transporters, packagers, distributors, office workers and retailers join the supply chain before a kid in Minnesota, where General Mills is based, pours the cereal into a bowl.

Now imagine the challenge that General Mills faces in counting the greenhouse gas emissions from all of these people, machines, vehicles, buildings and other products involved in this Cocoa Puff supply chain – then multiply that by the 100-plus brands belonging to the food giant.

Thousands of public companies may soon have such a daunting task to comply with a new set of climate rules proposed by the Securities and Exchange Commission.

Hailed by prominent environmental groups as a long sought victory, the sweeping plan released in late March would force companies to grapple with the unpredictable impact of climate change by disclosing reams of new information to investors. What are your company’s climate risks, such as severe weather, and the possible financial impacts? How have the threats affected your business strategies and what’s the plan to avoid the dangers? The most consequential and controversial piece of the SEC’s proposed regulations would require corporations to calculate their total greenhouse gas footprint, including from the supply chain.

The regulations also carry political weight for Democrats in the runup to the midterms in November. The Biden administration and centrist Sen. Joe Manchin of West Virginia are trying once again to breathe life into clean energy legislation that died earlier this year amid a feud between them. If this latest effort at compromise fails – with Manchin reportedly looking for federal support for fossil fuels as well as renewable energy – then much of President Biden’s ambitious climate agenda will be left riding on the SEC proposal.

SEC head Gary Gensler says shareholders are demanding climate risk disclosures to make smarter investment decisions and hold companies accountable for “greenwashing” their operations. The regulations will also provide investors in the Environmental, Social, Governance (ESG) movement more leverage in their ongoing campaigns to pressure companies to reduce their carbon footprints.

While many companies like Walmart and business groups like the Chamber of Commerce generally support the idea of required climate disclosures, they object to what they see as the SEC’s heavy-handedness in standardizing rules across the economy. The Chamber is calling for flexibility so companies can customize their climate disclosures based on what’s relevant to their businesses and investors.

Measuring the global supply chain is a tall order — “mind-boggling and certainly unprecedented.” Pixabay

The biggest beef from companies is the rule that would require them to calculate and disclose supply chain emissions, called Scope 3.

Big companies have thousands of suppliers operating in hundreds of countries, making the task of coming up with a reasonable accounting enormously complicated. First of all, many suppliers of products and services are private companies not under the control of the SEC. They may refuse to cooperate in a count because of the costs and the implications that they might have to change their business practices to reduce emissions, said Professor Gerald Patchell, who has analyzed the problems of supply chain reporting.

Another obstacle is that many smaller suppliers, like General Mills’ cocoa farmers in Africa, don’t have the capacity to measure the emissions from their own fertilizers, tractors and farming practices. So companies will have to rely on broad country or industry averages that likely don’t reflect the actual emissions created by the suppliers, according to researchers.

“The data that companies will be asked to collect from thousands of suppliers is mind-boggling and certainly unprecedented,” said Patchell, who researches environmental policy and business. “It’s an idealized concept of what can actually be done by a company.”

The upshot is that regulations meant to bring clarity to investors on climate risk may end up providing highly unreliable emissions disclosures, leaving them “worse off,” wrote SEC Commissioner Hester Peirce, a Trump appointee who voted against the 500-page proposal. It “forces investors to view companies through the eyes of a vocal set of stakeholders, for whom a company’s climate reputation is of equal or greater importance than a company’s financial performance.”

“Government’s view of the economy could be summed up in a few short phrases: If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it.” — Ronald Reagan

Resources

SEC Agency Aims to Legislate US Climate Policy

SEC Warned Off Climate Disclosures Rule

 

 

ESG Funds Buy Russian Over Canadian Oil

More evidence that ESG investing is poppycock is revealed in Jeff Lagerquist’s Yahoo Finance article Why ESG funds ‘shockingly’ buy Russian oil instead of Canadian crude.  Excerpts in italics with my bolds.

Russia’s war on Ukraine continues to expose uncomfortable realities for environmental, social and governance-focused (ESG) investments, prompting calls for the asset management industry to rethink the loosely-defined term as analysts point to “shocking” holdings within some funds.

A new report from CIBC Capital Markets shows many of the 10 largest energy holdings across ESG funds have pared down or exited investments in Canada’s oil sands, while half stayed invested in Russia. At the end of 2021, the bank found ESG funds owned twice as much Russian oil and gas as Canadian oil and gas.

“Perhaps most shockingly, the ratio of dollars held in Gazprom (a Russian state-owned energy firm) was six times that of Suncor,” the CIBC analysts wrote in research published on Monday.

According to the report, the big four Russian energy companies, NK Lukoil, Novatek, Gazprom and NK Rosneft, accounted for about 0.2 per cent of the global ESG holdings. That’s double the size of investments in Canada’s TC Energy (TRP.TO)(TRP), Suncor Energy (SU.TO)(SU) and Canadian Natural Resources (CNQ.TO)(CNQ), the bank said.

“Russia and Saudi Arabia may well emit less CO2 per produced barrel of oil equivalent than some North American firms, but they also invariably have less robust social and governance oversight,” the CIBC analysts wrote.

“This says nothing of the reality many of their energy entities are de-facto state controlled and often aligned (read: weaponized) with foreign policy objectives – many of which will be an affront to mainstream ESG investors.”

Several of the world’s largest companies and institutional investors have moved to cut ties to Russia in recent weeks, amid increasingly violent attacks on Ukraine’s population. ESG funds held at least US$8.3 billion in Russian assets before Russia invaded Ukraine, according to data compiled by Bloomberg.

Those include the country’s financial firms. Bloomberg News recently reported that Vanguard Group and Northern Trust upped their stakes in Russia’s leading bank through their respective index-based ESG funds in January, as Vladimir Putin’s forces amassed on Ukraine’s borders.

Vlad Tasevski, chief operating officer and head of product at Purpose Investments, says these examples show the need to rebalance the trio of ESG priorities. He says the environmental “E” in ESG is being over-emphasized, likely due to the greater challenge of measuring the social and governance variables, compared to hard carbon emissions data.

Tasevski isn’t overly surprised by the lack of enthusiasm for Canadian fossil fuel producers across ESG funds. He says Canadian producers have been “overwhelmingly negatively impacted by the ESG movement,” even as the industry has worked to shrink its carbon footprint, and invested in technology like carbon capture and storage.

CIBC says global flows into ESG funds were down more than 50 per cent through the first two months of this year, after setting records in 2020 and 2021. The bank says flows out of ESG funds have outpaced net outflows from other asset classes.

 

SEC Agency Aims to Legislate US Climate Policy

Jay Clayton and Patrick McHenry explain in their Wall Street Journal article The SEC’s Climate-Change Overreach.  Excerpts in italics with my bolds and added images.

Congress shouldn’t palm off its responsibility for social and economic policy
on financial regulators.

The Securities and Exchange Commission will propose sweeping new rules this week requiring publicly traded, and perhaps even private, companies to disclose extensive climate-related data and additional “climate risks.”

Setting climate policy is the job of lawmakers, not the SEC, whose role is to facilitate the investment decision-making process.

Companies choose how best to comply and thrive under those polices, and investors decide which business strategies to back. That approach addresses many societal issues—think vaccines—and enhances global welfare. Taking a new, activist approach to climate policy—an area far outside the SEC’s authority, jurisdiction and expertise—will deservedly draw legal challenges.

What’s worse, it puts our time-tested approach to capital allocation, as well as the agency’s independence and credibility, at risk.

Understanding and addressing global climate change is one of the most complex and significant issues of our time. Some predict we face inevitable catastrophe, while others say the costs of the transition to a “net-zero world” outweigh the benefits  We know four things for sure.

♦  First, implementing an economywide emissions-reduction policy will have a profound impact on the domestic energy, labor, transportation and housing markets, among others. Many jobs will be destroyed while others are created. Some businesses will close while others will flourish. Even if the long-term benefits outweigh the costs, near-term stresses on working Americans are inevitable and will be distributed unequally.

♦  Second, leaving policy decisions this significant to a single regulator—or even a patchwork of regulators—has failed time and again. Tellingly, there is no indication that the SEC has meaningfully coordinated with any of the other relevant federal agencies and departments on the policy choices embedded in its proposed rules.

♦  Third, Russia’s war against Ukraine demonstrates again the clear and longstanding links between energy policy, global stability and competing national interests. America’s ability to lead on the global stage depends on our economic and military strength, and energy policy is a key to both. These issues are far outside a financial regulator’s depth and mandate.

♦  Fourth, the body that the Constitution prescribes for weighing the relevant trade-offs in this area is Congress. Congress, duly elected by and responsible to the people, is precisely where climate policy, in all its complexities and consequences, should be resolved. Yet over decades, elected leaders have pushed hard policy questions to federal agencies staffed by unelected bureaucrats, whose decisions are reviewed only by unelected judges.

This is at best bad for democracy and at worst unconstitutional.

Demanding that the SEC “act on climate change” allows politicians to say that they are working on their constituents’ behalf without accepting responsibility for the hard choices involved in crafting policy.

Executive branch and independent agencies, including the Environmental Protection Agency; the Transportation, Labor, State and Treasury departments; and other financial regulators, have a role to play. They should work to inform Congress during the policy-making process and then implement legislative mandates in their respective areas of expertise.

Unfortunately, because the SEC has decided to move forward unilaterally, the debate will shift not to Congress, where it belongs, but to the courts. The commission’s chosen path will allow the political buck-passing to continue and delay thoughtful, appropriate and democratically accountable policy.

If and until Congress acts on climate policy, the message to regulators must be clear: Stay in your lane.

Mr. Clayton served as SEC chairman, 2017-20. Mr. McHenry, a North Carolina Republican, is ranking member of the House Financial Services Committee.

See Background Post SEC Warned Off Climate Disclosures