Legislation in the Missouri House of Representatives would combat environmental, social and governance (ESG) scoring regimes by ensuring that taxpayer dollars do not fund commercial boycotts that reduce economic growth, cause job losses, and shrink Missouri’s tax base.
ESG scores are essentially a risk assessment mechanism increasingly being used by investment firms and financial institutions that forces large and small companies to focus upon politically motivated, subjective goals which often run counter to their financial interests and the interests of their customers. Companies are graded on these mandated commitments to promote, for example, climate or social justice objectives. Those that score poorly are punished by divestment, reduced access to credit and capital, and a refusal from state and municipal governments to contract with them.
To combat this, the bill requires companies that contract with the state to certify that they do not boycott or discriminate against companies to achieve a radically progressive political agenda. In practice, this means “when a company, without an ordinary business purpose, refuses to deal with, terminates business activities with, or otherwise takes any commercial action that is intended to penalize, inflict economic harm on, limit commercial relations with, or change or limit the activities of another company because the company, without violating controlling federal or state law…engages in the exploration, production, utilization, transportation, sale, or manufacturing of, fossil fuel-based energy, timber, mining, or agriculture,” or “engages in facilitates, or supports the manufacture, import, distribution, sale, or lawful use of firearms, ammunition, or component parts and accessories of 16 firearms and ammunition.”
The same would go for companies that do not meet, or commit to meet, “environmental standards or disclosure criteria, in particular to eliminate, reduce, offset, or disclose greenhouse gas emissions,” or does not facilitate, or commit to facilitate, “access to abortion, sex or gender change, or transgender surgery.”
The bill would set up a list of “scrutinized companies,” which engage in “nonpecuniary social investment on behalf of a public entity or a boycott of certain companies on behalf of a public entity.” Further, the bill states that by March 2024, “a public fund shall make its best efforts to identify or have identified any scrutinized company that the public fund has entered into a contract with to provide investment or management of securities services for the public fund” and ensure these companies are not “engaged in nonpecuniary social investment or a boycott of certain companies.”
If a company does engage in economic boycotts during its contracted term with the state, it will open itself up to financial penalties “in an amount equal to three times all moneys paid to the company under the contract.”
Show Me State lawmakers would be well advised to understand the impact that ESG investing has not only on its pensioners but on the very industries that are central to Missouri’s economy. As Heritage Action for America notes, these institutions are targeting key Missouri industries like food production and agriculture, by “pushing companies to go green by promoting lower-carbon alternatives to meat and dairy products, targeting fertilizer use, and electrifying farm machinery.” Recent reports are showing with greater clarity the effect such principles and guided investments will have on key sectors such as agriculture. Missouri—which ranks in the top-ten nationally for the production of beef, hogs, and corn, and whose agriculture and timber industries produce $34.9 billion in added value to the state—would disproportionately bear the high costs of this agenda.
Critics of anti-ESG legislation have charged that bills such as this distort the free market and could possibly lower a state’s credit rating. However, the true distortion is being perpetrated by those seeking to use the financial agencies as a de facto governmental regulator. By allowing ESG to gain a foothold in Missouri, Show Me State legislators would be perpetuating this distorted marketplace, and nothing in the bill forces Missouri fiduciaries to use uneconomical investment options.
The collusion of corporations and institutions to boycott, divest from, or sanction any industry only hurts Missouri consumers and shareholders and could affect the long-term economic health of the state’s economy. By clarifying the fiduciary duties of Missouri’s pension fund managers by ensuring state funds don’t go to entities participating in and funding commercial boycotts, and by insisting that maximizing the return on investment for clients be their only guiding principle, Missouri legislators can help ensure the long-term fiscal health of both the Show Me State’s pension systems and economy as a whole.
The following documents provide more information about ESG.
Environmental, Social, and Governance (ESG) Scores: A Threat to Individual Liberty, Free Markets, and the U.S. Economy
This policy paper by Heartland Institute research fellow Jack McPherrin provides a comprehensive overview of ESG and proposes specific policy recommendations to counteract ESG’s insidious influence.
ESG: A Simple Breakdown of its Components
This Heartland Institute Policy Tip Sheet provides a brief description of each of the three categories comprising a company’s risk assessment based upon ESG metrics, using one of the most commonly used ESG frameworks developed by the International Business Council.
ESG: Financial Discrimination
This Heartland Institute Policy Tip Sheet discusses financial institutions’ discriminatory practices against consumers, and explains proposed solutions to the problem.
ESG: The Banking Industry
This Heartland Institute Policy Tip Sheet briefly summarizes how the banking industry has used its coercive market power to weaponize ESG compliance.
ESG: Central Bank Digital Currencies
This Heartland Institute Policy Tip Sheet provides a brief summary of central bank digital currencies (CBDCs) and how they can be wielded against society to enforce ESG compliance.
ESG: Negative Effects on Food Supply and Agriculture
This Heartland Institute Policy Tip Sheet provides a brief summary of how ESG is being weaponized against farmers, food production, and the agricultural industry as a whole.
ESG: The Effects Upon Free Markets
This Heartland Institute Policy Tip Sheet offers a brief description of how ESG systems fundamentally alter free markets and the natural equilibrium of supply and demand.
ESG: The Role of the U.S. Securities and Exchange Commission
This Heartland Institute Policy Tip Sheet offers a brief description of the role of the U.S. Securities and Exchange Commission (SEC) in coercing companies into ESG compliance.
Nothing in this Research & Commentary is intended to influence the passage of legislation, and it does not necessarily represent the views of The Heartland Institute. For further information on this subject, visit Environment & Climate News, The Heartland Institute’s website, and PolicyBot, Heartland’s free online research database.
The Heartland Institute can send an expert to your state to testify or brief your caucus; host an event in your state; or send you further information on a topic. Please don’t hesitate to contact us if we can be of assistance! If you have any questions or comments, contact Heartland’s Government Relations department, at [email protected] or 312/377-4000