How liberal politicians maneuver trillions via ESG

It’s no surprise that liberal politicians have been some of environmental, social, and governance (ESG) policies’ strongest proponents.

ESG-friendly politicians often co-opt pension fund money for political ends.

However, that’s not the only power they have.

Elected officials can also wield influence through executive orders, agency directives, and letter writing to pave the way for ESG asset managers to access the back door of corporate America and sometimes even shove those managers through.

That’s exactly what President Biden has done.

The first thing he did when he took office was pick up his executive order pen.

He used it to direct his federal agencies to revisit their rules with an eye toward making them more ESG-friendly.

There was no need for messy bipartisanship, congressional compromises, or involving the legislative branch at all.

Why bother with the tedious, constitutionally approved method of making new laws when there is an army of federal bureaucrats at your disposal?

On day one of his presidency, he lamented “the unbearable human costs of systemic racism” and mandated an “ambitious whole-of-government equity agenda.”

To that end, he instructed every federal agency to “assess whether, and to what extent, its programs and policies perpetuate systemic barriers to opportunities and benefits for people of color,” among other things.

He gave the agencies 200 days to do so and report back.

The same day, he rejoined the Paris Agreement, and simultaneously issued another order directing that all federal agencies “immediately commence work to confront the climate crisis.”

This time, the agencies had 30 days to respond.

Within a week, he issued yet another order, promising “bold, progressive action that combines the full capacity of the Federal Government with efforts from every corner of our Nation, every level of government, and every sector of our economy.”  

He charged every federal agency with appointing an “Agency Chief Sustainability Officer” and announced that the United States would be “promoting the flow of capital toward climate-aligned investments and away from high-carbon investments.”  

By May, his executive orders became even more specific, focusing federal climate efforts on the financial sector in particular.

Through strokes of the executive pen, a Green New Deal that would never be approved by Congress would be pushed on corporate America through Wall Street, guided by the heavy hand of federal agencies at every turn.

Following the orders of the new climate commander-in-chief, the government joined the ESG battle. For the most part, federal agencies were pleased to be conscripted into service.

The Department of Labor was one of the first agencies to respond.

At the time Biden took office, the department had regulations that made it harder for retirement fund managers to do ESG investing.

The existing Trump-era rule memorialized the DOL’s long-standing requirement that private pension fund managers consider only pecuniary factors when making investment, engagement, and proxy voting decisions.

Less than two months after President Biden took office, the department announced that it would not enforce the rule.

As a department representative explained at the time, the DOL sought to replace the existing financially focused rules with ones that “better recognize the important role that environmental, social and governance integration can play in the evaluation and management of plan investments.” 

And replace the rules it did. In October 2021, the Biden administration proposed a new regulation that repealed the Trump-era rules and replaced them with one that encouraged ESG investing with retirement and pension fund money.

The proposed rule pushed retirement fund managers to consider ESG factors such as “climate change” and “collateral benefits other than investment returns” when investing employees’ money. Indeed, it said that consideration of ESG factors was “often require[d].”  

The enacted version was slightly less radical; it says that investment managers “may” consider ESG factors, rather than requiring them.

The overall message is still pro-ESG.

It still represented a departure from the strict financial focus of the Trump-era rules.

The Department of Labor, of course, is not supposed to be in the business of making environmental policy; it’s supposed to be protecting workers — their working conditions, their safety, their wages, and, in this instance, their retirement funds.

The very reason Congress had asked the Department of Labor to oversee pension and retirement accounts was to ensure that the funds would have as much money as possible — not just because American workers are depending on it but because taxpayers will end up on the short end of the funds fall short.

The statute that gives the Department of Labor the power to regulate private retirement funds, the Employee Retirement Income Security Act (ERISA) of 1974, was passed because when the carmaker Studebaker had gone belly up in the 1960s, its pension had gone bust.

Assembly-line workers who had spent 40 years at the company ended up penniless in retirement. 

Now, if a company’s pensions are underfunded or a company goes bankrupt, taxpayers will make up the shortfall.

But in return, companies providing retirement benefits are required to fund their pensions and invest the assets “solely in the interest of the participants and beneficiaries.”  

Allowing plan managers to invest for “collateral benefits” doesn’t just run afoul of this statutory language; it runs counter to the justification for allowing the Department of Labor to regulate pension funds in the first place.

That’s not just my opinion, but the opinion of 25 state attorneys general.

In January, a coalition of 25 states and a handful of private businesses sued the Department of Labor.

They alleged that the rule change allows large asset managers to “leverage ERISA plans assets for nonpecuniary ESG purposes,” which violates ERISA and exceeds the department’s authority.

In this case, the rule change isn’t just bad, but likely illegal.

Only time will tell if the Texas court decides to use the Wite-Out on the presidential pen.

There’s another little-known federal agency that is playing a big role in allowing ESG to go unchecked: the Office of the Comptroller of the Currency (OCC).

The agency is tucked inside the Department of the Treasury and is tasked with regulating US banks.

Per the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, the OCC’s mission is, among other things, to ensure “fair access to financial services.”

Like many other laws, it lets the agency concerned make specific rules and takes enforcement actions to carry out its mission.

In the waning days of the Trump administration, the OCC did just that.

The agency passed a rule preventing banks from refusing to serve entire categories of customers they found politically or morally unsavory. 

It said that “fair access” means that banks have to evaluate customers individually, not make blanket refusals to serve, say, coal-mining companies, gun manufacturers, or whatever the socially unfashionable cause du jour may be.

It was meant to end what the Electronic Frontier Foundation has called “financial censorship,” which is the ability of behemoth banks to use their financial power to impose their social mores on US businesses. 

The regulation, it should be noted, applied only to banks with $100 billion or more in assets.

These are the banks with a major power in financial markets.

As ESG proponents know, access to banking services from major financial institutions is a critical part of any business—if a business can’t open a bank account, process credit card payments, or get lines of credit, it can’t exist.

Cutting off banking services is a death blow and one that can be delivered without political or market accountability.

Indeed, to the extent that there is accountability, it is pressuring banks to act in the other direction—to deny fair access to banking services through politicized banking policies.

This was not a hypothetical concern.

As the rule makers noted, both for-profit and nonprofit activists had been pressuring banks to cut off disfavored businesses on both sides of the political divide.

Abortion-clinic operators, adult entertainers, and condom-manufacturing startups, for instance, had reportedly been refused banking services due to the nature of their businesses.

On the other side, ESG activists pressured banks to de-bank rifle makers, private-prison operators, large agricultural businesses, and, of course, the US fossil-fuel industry.

In many instances, the banks complied.

The rule makers were particularly concerned because the banks didn’t just cut off lending — which could theoretically be justified as a concern about mitigating financial “risk”— but all banking services, including advisory services.

The goal was to punish certain businesses, to deprive them of the banking services their businesses needed.

And so ESG activists have continued to pressure big banks to censor and discriminate, and censor and discriminate they have.

The impact has been felt. In 2021, for example, the website OnlyFans announced that it would start banning sexually explicit content in response to pressure from “banking partners” and “payout processors,” only to reverse the decision days later following a massive backlash.

Of course, bank censorship hasn’t been limited to the adult industry.

In September 2022, The Wall Street Journal reported that the Black Rifle Coffee Company had been prevented from opening an account at Chase because of its controversial pro-veteran, pro–Second Amendment messaging and that several major banks had refused to help it arrange an initial public offering—despite its $233 million in annual revenue.

The following month, PayPal made headlines after it updated its terms of service to prohibit transactions that involved the “sending, posting, or publication of any messages, content, or materials” that PayPal, at its sole discretion, finds objectionable.

The penalty was a $2,500 fine, which PayPal could take directly from users’ accounts.

After public backlash, it backtracked on the fine when it came to “misinformation” but stood by its policy of fining users for speech it deems intolerant. 

So through the OCC’s somewhat obscure rule-making and guidance-issuing process, the Biden administration has handed ESG activists their sledgehammer back.

Banks, like asset managers, are simply one more tool that politicians can manipulate to further political agendas that Congress would never enact.

From the book “Capitalist Punishment: How Wall Street is Using Your Money to Create a Country You Didn’t Vote For” by Vivek Ramaswamy. Copyright © 2023 by Vivek Ramaswamy. Reprinted by permission of Broadside Books, an imprint of HarperCollins Publishers.