Legislation in the Alabama Senate (SB 261) 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 Alabama’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 and reduced access to credit and capital.
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. Essentially, any business seeking to contract with the state cannot, “without an ordinary business purpose,” refuse to deal with, terminate business activities with, or take any commercial action that is “intended to penalize, inflict economic harm on, limit commercial relations with, or change or limit the activities of a company because the company” because the company engages in certain activities.
These activities include “the exploration, production, utilization, transportation, sale, or manufacturing of fossil fuel-based energy, timber, mining, or agriculture,” or the “manufacture, import, distribution, marketing or advertising, sale, or lawful use of firearms, ammunition, or component parts and accessories of firearms or ammunition.”
Further, boycotts cannot be made of companies that “[do] not meet, [are] not expected to meet, or [do] not commit to meet environmental standards or disclosure criteria, in particular to eliminate, reduce, offset, or disclose greenhouse gas emissions,” or “employment or board composition, compensation, or disclosure criteria,” or don’t facilitate “access to abortion or sex or gender change surgery, medications, treatment, or therapies.”
The bill also prohibits any government entity in Alabama (“state agency, department, regulatory body, board, bureau, or commission, or any county, municipality, incorporated or unincorporated local government, or other political subdivision of the state”) from engaging in the same boycott and divestment strategies.
Critics of anti-ESG legislation have charged that bills such as Alabama’s SB 261 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 de facto governmental regulators. By allowing ESG to gain a foothold in Alabama, Yellowhammer State legislators would be perpetuating this distorted marketplace, and nothing in the bill forces Alabama fiduciaries to use uneconomical investment options.
The collusion of corporations and institutions to boycott, divest from, or sanction any industry only hurts Alabama consumers and shareholders and could affect the long-term economic health of the state’s economy. By clarifying the fiduciary duties of Alabama’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, Alabama legislators can help ensure the long-term fiscal health of both the Heart of Dixie’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.
Tim Benson (tbenson@heartland.org) is a policy analyst with Heartland Impact.
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