Liberal ESG rules distort markets, hurt Utah and gas prices | Opinion

Why is gas so expensive?

The answer is complicated, but one factor has received little attention: ESG. That could change before the November election.

ESG stands for environment, social and governance, three factors that many on the left, including the Biden administration, are pushing as new signals to guide investors.

To put it in simple terms, this is a movement to move capital away from the production of fossil fuels and other things considered bad for the environment and towards low carbon and environmentally friendly options. climate.

While that’s not necessarily a bad thing – renewable energy and electric cars are in our future, after all – the world isn’t there yet. “So at the end of the day,” Forbes energy contributor Jude Clemente wrote this week, “this Western anti-oil push just gives an ever-growing market of oil demand to OPEC and Russia. “

Just because fossil fuels are unpopular doesn’t mean we no longer need them to live. The Department for Transport says that less than 3% of cars on the road today are electric. But ESG prevents US oil producers from receiving the investments they need to increase production.

Citing a figure from Pensions & Investments magazine, Utah Treasurer Marlo Oaks told the Deseret News/KSL editorial board that the number of oil and gas funds has grown from 59 funds in 2015, worth from $46.6 billion, to 11 funds in 2021, worth $4.6 billion.

However, concerns about ESG run much deeper, according to top Utah politicians. It’s a threat to the credit ratings of booming and healthy states that might not have the “right” political views.

Last month, virtually every top Utah official, from Governor Spencer Cox to State Treasurer Oaks and the state’s entire congressional delegation signed a letter to the Chairman and CEO of Standard & Poor’s. Global Ratings, Douglas L. Peterson, protesting S&P’s decision to use ESG credit indicators to rate states and their subdivisions.

Utah ranks well in many rankings that judge states based on their economic performance, the American Legislative Exchange Council has ranked it as the state with the #1 economic outlook for 15 consecutive years, the rate of unemployment is 2% and Utah was cited as the state with the smallest wealth gap, but its ESG shortcomings, according to S&P, earned it a moderately negative score.

Oaks said such ratings could one day affect Utah’s triple-A bond rating, making it more expensive for the state, and ultimately its taxpayers, to borrow money.

This, he said, is “very important to us as a state”.

“Once you introduce ESG, you draw attention to factors that aren’t really financially relevant,” Oaks said. In the letter to S&P, Utah executives said, “Investors or organizations like S&P Global may decide that we’re extracting ‘too much’ oil, or that our gun laws are ‘too loose.’ , or that we are “too resistant” to sexual instruction in kindergarten.

Factors such as these, Oaks said, “destroy free market capitalism.” Investors traditionally send money to areas where the needs are evident. If the nation needs more oil production, for example, investors profit by helping oil companies drill more, which lowers costs for consumers. Forcing the markets elsewhere causes money to be misallocated and leads to higher prices.

Utah leaders are not fighting alone. The New York Times DealBook newsletter reports that Republicans on the House Financial Services Committee in Washington have opposed new rules proposed by the Securities and Exchange Commission to include climate change disclosure requirements for publicly traded companies.

DealBook said conservative investors were fighting back, forming a financial firm called “Strive”, to “urge companies not to get involved in social, political or environmental issues”.

In the meantime, however, the Department of Labor has proposed rules that it says would remove barriers to ESG considerations in pension plan funds.

If someone manages to condense all of this into a sticker slogan, it could become a volatile campaign issue.

Proponents of ESG investing argue that the impact of companies on the environment is indeed an important economic factor. “Businesses today increasingly realize that these ‘costs’ – typically damage to the environment, society, or both – are integral to the survival of the business itself,” wrote Michael Chavez of Duke University for Forbes.

Oaks would counter that the production of fossil fuels in the United States is much cleaner than that of other countries, so the planet is not helped by forcing capital to invest abroad.

“I don’t know anybody who wants dirty air,” Oaks said. “It’s not necessarily about that.”

Certainly, the world needs cleaner and more sustainable sources of energy. Governments can do a lot, from incentivizing companies to build the infrastructure needed to maintain and charge electric vehicles, to granting credits to those who buy cleaner vehicles. However, artificially distancing investors from current market needs will not do the job.

Nobel Prize-winning economist Milton Friedman once said, “The business of business is business,” or in other words, companies exist to maximize profits. This does not mean that investors cannot apply their own sense of ethics. Many people avoid funds that include tobacco companies or gambling businesses, for example.

But when governments, rating agencies and powerful investment managers start imposing ideological standards on investors, that’s a whole other thing, especially when vibrant and successful states are downgraded and gas prices are pushed on the rise.

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