Sustainable Finance Newsletter - A surprise ESG boost for Biden in Texas
27/09/2023 17:00
By Ross Kerber
Sept 27 (Reuters) - U.S. politicians may fight until the
end of time over the rules for the use of environmental, social
or governance (ESG) investment considerations in retirement
plans, given how guidance has shifted with each recent U.S.
presidential administration.
But a striking Sept. 21 ruling by a Texas judge dealt a
setback to a group of anti-ESG Republican attorneys general and
could give plan sponsors more confidence in the status quo.
You can read about that matter below, plus links to other
stories with ESG considerations including an SEC probe of Wall
Street's private messaging and a look at the CEO-to-worker pay
ratios of top automakers facing strikes.
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This week's most-read
* SEC collects Wall Street's private messages as
WhatsApp probe escalates -sources
* Inside Vietnam's plans to dent China's rare earths
dominance
* EU's bid to save bees stings sugar beet farmers
Biden's ESG investing rule gets a big boost in Texas
U.S. District Judge Matthew Kacsmaryk on Sept. 21 surprised
some lawyers when he sided with President Joe Biden's
administration and tossed out a lawsuit by Republican attorneys
general who claimed a new rule on ESG investing would jeopardize
trillions of dollars of U.S. retirement savings.
Kacsmaryk, an appointee of former Republican President
Donald Trump in the Northern District of Texas, is known for
siding with conservative positions such as an April ruling
suspending approval of the abortion pill mifepristone.
This time he went in the other direction, in a ruling that
is in line with how other Republican anti-ESG efforts have run
aground. The case began in January when Utah Attorney General
Sean Reyes and 24 other Republican AGs sued to undo a 2022 rule
from Biden's Labor Department.
Among other things the rule, "Prudence and Loyalty in
Selecting Plan Investments and Exercising Shareholder Rights,"
clarified that ESG considerations like the economic effects of
climate change could be factored into a risk and return analysis
by plan sponsors.
But the rule maintained the principle that fiduciaries could
not accept lower returns in order to secure collateral benefits
like lowering emissions, according to the Labor Department.
Republicans have tried to overturn the rule in Washington,
forcing Biden to issue his first veto, and their legislative
efforts continue.
In the suit, the attorneys general had argued the rule
"undermines key protections" for some $12 trillion in retirement
savings in the name of promoting ESG considerations.
But Kacsmaryk granted a Labor Department motion to
dismiss, writing the rule does not violate the Employee
Retirement Income Security Act or procedural law.
Kacsmaryk added that "While the Court is not unsympathetic
to Plaintiffs' concerns over ESG investing trends, it need not
condone ESG investing generally or ultimately agree with the
Rule to reach this conclusion."
Ropes & Gray Partner Joshua Lichtenstein said people on both
sides had expected Kacsmaryk to side with the plaintiffs, and
that plan sponsors and fund firms now can have more confidence
in the current rules.
"This lawsuit was viewed as the best chance the anti-ESG
interests had in getting the rules struck down, and this is a
big setback," he said.
K&L Gates Partner Lance Dial said he was less surprised but
said the ruling showed how the Labor Department properly
balanced concerns in constructing the new rule. For instance the
Department did not require climate considerations to be deemed
"presumptively material" in investment decisions, a possibility
it asked about during the rulemaking process.
The Labor Department "showed restraint and hewed to the
statute. That's why it can survive the challenge, even in a
conservative leaning court," Dial said.
The plaintiffs have 30 days from the ruling to appeal.
A spokesman for Reyes told me "We are evaluating next steps,
including potential appeal." A Labor Department spokesman said
it was "pleased with the judge’s decision."
Company News
* Strikes ended at Chevron's big liquefied natural gas
projects in Australia after a union alliance agreed to resolve
disputes that had threatened to disrupt 7% of global supplies.
* Anti-obesity drugs have boosted the valuations of Novo
Nordisk and Eli Lilly, but our columnists point out the same
drugs could cut demand for products from McDonald's, Burger
King, Nestle and Mondelez.
* In the biggest tech deal of the year, Cisco is buying
cybersecurity firm Splunk for about $28 billion, underscoring
the importance of subscription software revenue.
Automaker CEO pay ratios tick down
The huge ratio of CEO pay to workers' pay has been an issue
in the ongoing strikes against U.S. automakers. FWIW company
securities filings show that while the gap remains big, it came
down at bit last year at Ford and GM as their median employees
made more money after the pandemic and total CEO pay fell
somewhat. But factors like changes in workers' pension value
make this only a rough measure.
On my radar
* Law firm Allen & Overy calculates huge investments will be
needed to meet the goals of the Paris Agreement, up to $7.3
trillion a year by 2050. But the money could also be a huge
boost to global economic output.
* Potentially next week, Exxon Mobil is expected to provide
a glimpse of its third quarter results in a filing with SEC. The
prior quarter fell below analysts' expectations due to low
natural gas prices and weak oil refining margins.
* The first U.S. Republican presidential debate featured
hardly any discussion of the anti-ESG arguments that have been
staples from several candidates, suggesting being "anti-woke"
won't have much political traction. Let's see if the topic comes
up more during tonight's second round.
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(Reporting by Ross Kerber; Editing by David Gregorio)
((ross.kerber@thomsonreuters.com; (617) 412 0093;))