Daily on Energy: The latest skirmish in the war over ESG

In the committee’s first hearing on ESG investing since Republicans took over the House, GOP members and a number of witnesses today took the stand to rail against the investment method, contending the framework politicizes financial decisions and does not prioritize yielding the highest returns for consumers. During his opening remarks, Committee Chair Jason Smith of Missouri attacked the Biden administration’s actions related to ESG – including a Department of Labor rule that would allow retirement fiduciaries to consider ESG factors when selecting investments and exercising shareholder rights.

“Over the last couple of years, we’ve seen the ESG agenda turn into a pressure campaign that allows – in some cases, forces – investment advisors to gamble with retirees’ nest eggs,” Smith said.

If you’ll recall: Republicans and some Democrats voted to overturn the DOL rule, but President Joe Biden vetoed the measure – keeping the policy in place.

Many of the witnesses argued ESG investing limits clients to invest according to a bounded political ideology while placing burdens on small businesses. Mason Bolay – the senior Vice President of First Bank & Trust Company who came to testify on behalf of the American Bankers Association – argued that, while his bank has not taken a stance for or against ESG, further regulations could burden smaller banks that lack the financial support to implement federal policies.

“Americans are best served when banks can pursue a free-market approach to make the lending and investment decisions that are responsive to the needs of their customers, communities, and business plan,” Bolsay said. “Efforts to define and steer lending and investment for, or against, ESG factors are also destined to be economically harmful.”

Other witnesses include: Jason Isaac, a former member of the Texas State House of Representatives and director of energy group Life: Powered, Utah State Treasurer Marlo Oaks, AFL-CIO Office of Investment Deputy Director Brandon Rees, and Principal and Founder of Rutledge Policy Group LLC Preston Rutledge. 

Democrats on the committee pushed back, arguing that Republican efforts to discourage ESG investing are infringing on financial players’ right to invest freely, and deflected attention toward Republicans who have proposed changes to Social Security.

“Congress has not enhanced Social Security in more than 52 years,” said Democratic Rep. John Larson of Connecticut. “We have our plan. We want to extend the solvency, we want to extend benefits.”

Democratic members then diverted attention to the impending government shutdown, and the efforts of Republicans to stall the lower chamber’s legislative proceedings over finding a new speaker.

Certain Democratic lawmakers also pushed back on the narrative that ESG investing is a negative for seniors, arguing they care about climate change as well.

“I believe that this hearing is based on an entirely false premise,” said Rep. Bill Pascrell. “Do you want me to believe that the retiree … is not concerned as much about whether he’s going to wake up to have his house under him tomorrow morning, when he sees the glaciers melting, that that has nothing to do with retirement?”

At the time of writing, the Ways and Means hearing is still ongoing. Watch that here. 

Why this is important: The hearing is the latest effort from Republicans to ramp up their campaign against the investment framework, as states have spearheaded policies punishing firms that continue to consider ESG. Last year, Texas blacklisted firms like Blackrock because of their investment portfolio, arguing that they were punishing the energy industry through ESG.

Some firms are responding to the criticisms. BlackRock, the world’s largest asset manager, voted against the majority of shareholder proposals related to climate and social issues during the 2022-2023 proxy voting season. In June, CEO Larry Fink distanced himself from the ESG term, arguing that the word has been “entirely weaponized” by both the “far left” and the “far right.”

Welcome to Daily on Energy, written by Washington Examiner Energy and Environment Writers Breanne Deppisch (@breanne_dep) and Nancy Vu (@NancyVu99). Email [email protected] or [email protected] for tips, suggestions, calendar items, and anything else. If a friend sent this to you and you’d like to sign up, click here. If signing up doesn’t work, shoot us an email, and we’ll add you to our list.

IN NEW JERSEY ELECTIONS, OFFSHORE WIND AND ORSTED CANCELLATIONS LOOM LARGE: New Jersey Democrats hoping to defend their narrow majorities in the state Assembly and Senate have been forced to go on the defensive in the eleventh hour of their campaigns after Danish wind giant Orsted announced it will halt development on two planned offshore projects in the state.

Combined, the Ocean 1 and Ocean 2 projects would have brought 2,248 megawatts of offshore wind energy to the Garden State, and were seen as crucial to helping New Jersey Gov. Phil Murphy, a Democrat, deliver on his goal of reaching 100% clean power by 2035.

But the timing of Orsted’s cancellation all but guarantees the topic will be fresh in voters’ heads as they head to the ballot boxes and decide the fate of all 120 seats in the state legislature. New Jersey Republicans are hoping to use the news to their advantage, characterizing offshore wind as an expensive source of energy that threatens the state’s marine life, as well as its fishing and tourism industries.

Assembly Republicans mocked the cancellations on Twitter, sharing a video titled “In Memoriam: Ocean Wind 1 & 2,” which featured a mashup of news from the offshore projects against a botched flute rendition of the theme song from the Titanic.

Others at the federal level also praised the news: Republican U.S. Rep. Chris Smith, whose district includes parts of the Jersey Shore, told Breanne yesterday: “Instead of using the coercive power of the state to advance these projects, [Murphy] and the Democrats in Trenton should be listening to the serious concerns that I and others have raised regarding the deleterious impacts these projects will have on our local economy,” including commercial and recreational fishing, tourism, marine life, and navigational safety, among other things.

The view from Trenton: “We’re close enough to the target,” Alexandra Wilkes, a spokeswoman for the New Jersey GOP, told the New York Times about winning a majority in tomorrow’s elections, but noted, “We have to hit the darts right every time.” Read more on the state elections here.

EUROPEAN MULTINATIONALS LOOKING TO ‘FRIEND-SHORE’ PRODUCTION: More than 40% of multinational companies in Europe are planning to shift production away from China and pursue a “friend-shoring” strategy in more politically friendly nations, according to a new survey published yesterday by the European Central Bank.

The report suggests a major shift in global trade in the coming years, as European countries look to build out supply chains for clean energy and EV batteries in more welcoming locations.

In fact, 42% of firms surveyed told the ECB they are hoping to friend-shore operations—a sharp uptick from five years ago, when just 11% said they were pursuing such a strategy. Among the report’s key takeaways:

It’s a trend driven by rising global instability: Companies primarily cited elevated geopolitical risk as the reason for their desire to relocate operations, including Russia’s invasion in Ukraine, rising U.S.-China tensions, and Israel’s war with Hamas.

Re-working supply chains is difficult and will take time: ECB said that these shifts “may take time to unfold, given the challenges and costs involved in modifying business models, supply chains and contracts,” especially when it comes to EV batteries and other materials.

And it’s not without financial risk: The IMF warned earlier this year that “friendshoring” poses a risk to growth and financial stability and could cut global economic output by 2%. Read the report in full here.

KINDER MORGAN TO BUY NEXT ERA TEXAS PIPELINES: U.S. pipeline operator Kinder Morgan said it will buy NextEra Energy’s South Texas gas pipelines for $1.82 billion, acquiring a total of seven pipelines with a combined transport capacity of 4.9 billion cubic feet per day.

The lines are part of STX Midstream, and provide natural gas to Mexico and parts of South Texas, Reuters reports.

New pipelines in the U.S. continue to face ongoing permitting problems and delays, making already operational projects more desirable to purchase. Kinder Morgan said the deal is slated to close early next year.

KING’S SPEECH FEATURES OIL AND GAS: King Charles III appeared before members of parliament today to deliver the first King’s Speech in more than seven decades and outline the legislative agenda that members will pursue in the upcoming session.

In total, Charles presented 21 bills and draft bills to mark the opening of the parliamentary session—which is the final before the United Kingdom’s next election. Among the most controversial measures presented was the Offshore Petroleum Licensing Bill, which will offer up annual licensing rounds for oil and gas projects in the North Sea in a politically divisive effort to reduce Britain’s reliance on imported fossil fuels.

The legislation will “[help] reduce reliance on volatile international energy markets and hostile foreign regimes,” Charles, a lifelong environmentalist, said during the prepared remarks.

To help assuage concerns from environmental groups, Prime Minister Rishi Sunak, whose Conservative government drafted the bill, has said a “key test” for drilling will be the carbon emissions from any production of UK gas, which must be lower than that of imported LNG.

Still, some in the UK’s Labour party have dismissed that test as a “gimmick,” and described the test as “impossible to fail,” according to reports from the Financial Times.

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