The depthless stupidity of Republicans' anti-ESG campaign

In this episode, Kelly Mitchell of journalistic watchdog group
Documented discusses Republicans’ furious pushback against ESG
funds due to their ostensible greenness, and the ridiculousness
of said vehemence since ESG ratings are actually a poor
reflection of companies’ true environmental impact.


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transcript)


(Active
transcript)


Text transcript:


David Roberts


For the last few years, the fastest growing segment of the global
financial services industry has been ESG (environmental, social,
and governance) funds.


Here’s how it works: one of several ratings firms uses its own
proprietary formula to rate how well a company is responding to
environmental, social, and governance risks. An environmental
risk might be: will the county where you’re locating your data
centers have sufficient water supply in coming years? A
governance risk might be: have you filed all the proper
disclosures?


Fund managers like BlackRock then gather highly rated companies
into ESG funds, which are sold to investors as socially
responsible. Hundreds of billions of dollars flow into ESG funds
every year.


Note that there’s a bit of a shell game at the heart of the
enterprise. What customers and investors generally think is that
a company gets high ESG ratings because it goes above and beyond
in those areas, that it is trying to “do well by doing good.” But
in reality, high ESG ratings simply mean that a company is
responding to material risks — maximizing its profits, as public
companies are bound by law to do.


So Tesla gets no ESG credit for accelerating the electric vehicle
market, but it can pull a low ESG rating (and fall out of ESG
funds) over vulnerability to lawsuits over working conditions.
(This is why Elon calls ESG “the devil incarnate.”) McDonald’s
loses no ESG points for the enormous carbon impact of its supply
chain, but it gains points for reducing plastic in its packaging,
because regulations against plastic packaging are imminent in
Europe.


So investors get to feel like do-gooders and big companies are
rewarded for carrying out their legal obligation to assess risks
to their business. There’s not much social benefit to the whole
thing, but everyone feels good and green and happy.


Except now there’s a problem: Republicans bought it. The whole
sales pitch — they believe it. They believe that companies in ESG
funds are going out of their way to do social and environmental
good … and they’re furious about it.


Over the past year or two, an enormous, billionaire-funded
backlash against ESG has consumed the GOP, leading to multiple
congressional hearings, hundreds of proposed state bills, and
red-state treasurers vowing never to do business with woke lefty
activist funds like [checks notes] BlackRock.


It is stupid almost beyond reckoning. And I’m just brushing the
surface. To dig into the deep layers of dumb and where it all
might go, I called Kelly Mitchell. She’s a senior analyst at the
journalistic watchdog group Documented, which uncovered emails
and other communications between the architects of the anti-ESG
campaign that led to a New York Times exposé.


All right then, let's do this. With us, we have Kelly Mitchell
from Documented. Kelly, welcome. Thank you so much for coming to
Volts.


Kelly Mitchell


Thank you, David.


David Roberts


Kelly, when I first decided to do this episode, I started looking
into it, thinking, you know what, this all seems kind of stupid.
But what happened is as I dug in and explored it into the nooks
and crannies, some of the background, some of the work you've
done, some of the work Documented has done, what I discovered is
that it is actually so much stupider than I ever could have
imagined. The depth of stupidity here is remarkable. So I just
want to thank you. I feel like you should get hazard pay for what
you do. And I just want to thank you for immersing yourself in
this. It must be wearying.


Kelly Mitchell


It is. It's like the Thunderdome of stupidity. But I'm glad we
can talk about it.


David Roberts


Yes, let's talk about the levels. Okay, so let's bracket for the
moment what ESG actually is in reality. We'll get to that later.
Bracket for the moment the merits of the criticisms that
conservatives have of ESG and let's just talk about what's
happening. So I think probably normal news consumers are aware
that sort of ESG, or the sort of boogeyman of ESG, has come up
sort of out of nowhere and is everywhere now. So maybe just tell
us a little bit about what has happened here, who's doing what
and what are the bills? And tell us the phenomenon we're
discussing.


Kelly Mitchell


Well, the current iteration of this phenomenon really kicked into
high gear probably in about 2021. And there's been a long history
of folks who have opposed corporate social responsibility, who
have opposed any restriction on investment in things like coal or
natural gas. But a lot of gasoline was thrown on the fire in
2021, probably for two major reasons. So first is that Larry
Fink, the CEO of BlackRock, published two back-to-back letters to
his clients, to corporate CEOs, basically saying that BlackRock,
the largest investment firm in the world, was now going to
consider climate risk as a fundamental investment risk and wanted
CEOs to do the same.


And the second is that in May of 2021, an activist investor
company called Engine 21 or Engine No. 1 rather, bought a small
slice of ExxonMobil and used that slice to wage a battle to get
new board seats on Exxon's board that would take into account
climate risk and against a 100 million dollar campaign by Exxon.
They succeeded. And they succeeded with the help of large
institutional investors like BlackRock. And I think those two
moments sort of broke a lot of people's brains. Wall Street is
not supposed to be against the fossil fuel industry, it's not
supposed to be against the right-wing apparatus.


And it provided this galvanizing moment for a lot of dark money
groups to look for ways to mobilize state agencies and state
legislatures against ESG.


David Roberts


Brains then broken, what do they start doing?


Kelly Mitchell


There's two fronts that open up. So first you see a big infusion
of resources by groups like the Heritage Foundation by Leonard
Leo's, Consumers' Research into weaponizing state treasurers to
attack, quote, unquote, woke investing or ESG. And it's a smart
play because state treasurers are people that nobody pays any
attention to.


David Roberts


What are they? Maybe just take a minute and tell us. Like, I know
that such a thing exists, but I couldn't tell you in a million
years what they do.


Kelly Mitchell


Yeah. So basically they're in charge of managing large pools of
money that the state uses to pay its bills for the long time, to
receive tax money, to give tax money to folks who need it. And in
that role they get to decide who manages that money, how that
money is invested —


David Roberts


Pension funds and the like.


Kelly Mitchell


Exactly. And so there was this big opportunity to kind of utilize
these folks to start pulling money away from asset managers that
they believed were in some way boycotting fossil fuels or in
other ways, looking down on disfavored industries.


David Roberts


Being woke.


Kelly Mitchell


Being too woke, not wanting to put their money into investments
that were going to lose them lots of money. The worst woke sin of
all.


David Roberts


Yeah, we'll get to that later. So then the right-wing activists
get to the red state treasurers and what then? What happens?


Kelly Mitchell


So they start to do a number of things. They begin to organize
these treasurers onto big sign-on letters to do things like block
appointments to the Fed, to chastise members of the Biden
administration for speaking out against oil and gas. But then
they start to take more direct action. You see states like West
Virginia and Louisiana start to send letters to financial
institutions basically saying they're no longer going to do
business with them. West Virginia stops doing business with
JPMorgan Chase, they stop doing business with BlackRock because
they believe that these companies have been unfairly targeting
and blacklisting fossil fuel investments.


They also transform a lot of these treasurers into big
mouthpieces for the movement. You see treasurers going on Fox
News, writing letters in the Wall Street Journal, and they have
this kind of air of authority because they manage money. They're
going out and really criticizing woke investing from that role as
a state elected official.


David Roberts


Yeah, and as I read about this, I think traditionally, based on
our rapidly crumbling norms in this nation, state treasurers were
quite nonpartisan. They were quite distanced from the whole
politics fight. They were supposed to be sort of technocrats. But
the young generation of conservatives, they're all creatures of
Fox, they're all activists. And so now they're getting in those
positions as well.


Kelly Mitchell


Absolutely. And that's basically the deal that these treasurers
were offered. If you look at the State Financial Officers
Foundation, it's sort of a trade association of Republican
elected state treasurers and auditors. They basically said,
"Look, we're contracting with communications firms. We have
access to this whole web of right-wing organizations, you're a
nobody state treasurer who anyone's ever heard of. But if you
join this anti-ESG effort, we're going to get you on the news.
We're going to boost your op-ed, we're going to provide you
communications training," and suddenly people who no one would
have ever heard of are becoming household names because they've
dove into this culture war issue around ESG.


David Roberts


Yes, this is, I think, for young conservatives why you get into
politics in the first place, right? It's to get on Fox News. That
is the, you know, the sort of middle stage where you actually do
policy and affect people's lives has just kind of fallen out of
it. Now they're all just like, "What can I say? This outrageous
that will get me on Fox News." What about legislation?


Kelly Mitchell


Yeah, so we saw the first round of anti-ESG legislation launch in
2021. A think tank called the Texas Public Policy Foundation
basically drafted a bill. It was basically governed contracts in
the state. So it said that state governments, municipal
governments, can't contract with organizations that boycott the
fossil fuel industry. That went into effect in September 2021,
and it kind of became this great natural experiment for what the
impact of these bills are. And I know we might talk about it
later, but —


David Roberts


Yeah, we're going to get to that in a second.


Kelly Mitchell


We see this first bill come out in 2021. In 2022, we see another
16 states kind of dabble with these anti-ESG bills. But where it
really took off was this year where there were about 157 bills
introduced in 36 states. So a huge amount of legislation.


David Roberts


Is that every red state?


Kelly Mitchell


Just about, yeah.


David Roberts


I think that's almost all of them.


Kelly Mitchell


And plus yeah. So they absolutely flooded the legislative market
with bills this year, sometimes introducing multiple bills within
a single state to discover what approach might have the best
chance of success.


David Roberts


People familiar with the operation of the right wing these days
will not be surprised to hear that. ALEC, The American
Legislative — what is it?


Kelly Mitchell


Exchange Council.


David Roberts


Thank you. The American Legislative Exchange Council is known, I
think, at this point, for having these sort of template bills
where you just fill in the name of your state. They have those
bills for this, right? I mean, that's how they proliferate so
quickly.


Kelly Mitchell


That's right. And this year, there are about five different
buckets of template bills, model bills that were introduced
throughout the country. Some, yeah, came through ALEC, the
American Legislative Exchange Council. Others came from the
Heritage Foundation. Others came from the Foundation for
Government Accountability. It's been a really instrumental bill
on rolling back abortion access and voting rights in this
country. So bills were everything from the style that the Texas
bill introduced, which was restricting contracting within the
state. We saw a number of bills that specifically went after
pension funds, either putting restrictions on what asset managers
pension funds could work with or even more insidious, introducing
language — this is what we saw in Florida, for example, this year
— that said that pension managers can only consider what they
call pecuniary issues, sort of fiduciary,
financial-return-focused issues when making decisions. And the
best case scenario, the bill is effectively worthless because
pension managers are already required by law to only look out for
the best financial interest of the state's pensioners.


David Roberts


Indeed.


Kelly Mitchell


But what it actually did was sort of redefine what it means to
hold that pecuniary interest in heart and said that if you're
looking at systemic risks that violates pecuniary interests, if
you look at risks with some margin, of uncertainty that violates
pecuniary interests. And if you look at just a broad suite of
kind of environmental or social criteria that potentially could
violate your pecuniary interest. So it's basically rewriting the
rules of what risks an asset manager can evaluate or not. And
that's the stuff that really, I think, scared a lot of folks in
the state because hamstringing investors like that could have
some really big consequences down the line.


David Roberts


This, I think, gets to a key feature of all this, which is that
the sort of rhetoric is like you need to just be focusing on
money but in reality it's saying you cannot consider certain
risks.


Kelly Mitchell


Absolutely.


David Roberts


Like there are certain threats to the money that you're not
allowed to listen to, which is very different, the sort of
contradiction there. So this is very much something that was sort
of born and germinated in big money, right-wing circles. Right.
It sort of starts with these big money groups which then sort of
they just push out into the states.


They have this machine basically if all the big money people get
worried about X, they just push it out and suddenly it's like in
every state government it's on Fox all the time. But this is
clearly a sort of big money originated thing, right? There's no
popular outcry here.


Kelly Mitchell


Absolutely. This is not a grassroots movement. I mean, I think if
you polled any person on the street they would have no idea what
ESG even was, let alone have an opinion about it. Yeah, this has
absolutely come from you have Texas Public Policy Foundation
which has been a longtime recipient of Koch money, of oil and gas
industry money. Leading this you have the Heritage Foundation
super deep pockets and then within all of this you have groups
like Consumers' Research which have been propped up by Leonard
Leo, most famous for buying a Supreme Court justice or two.


David Roberts


Buying a couple? Yeah, he's completing a set.


And what do you give a man who already owns half the Supreme
Court? You get him onto some new culture war issue and you know,
we know his organizations have been pouring millions of dollars
specifically into this anti-ESG woke capitalism fight. So very,
very deep pockets. A lot of dark money on the right launching
this effort.


Yeah. Even more top-down than usual, I think.


Kelly Mitchell


Absolutely.


David Roberts


And it's interesting, they are pretty explicitly trying to
replicate what they did with CRT. The whole critical race theory
thing. They realize, like, CRT means nothing to anyone, but that
means it's just an empty vessel that we can fill with all sorts
of bizarre, paranoid crap. They're trying to do the same thing to
ESG, make it sort of another one of these kind of right-wing
buzzwords that means just anything bad you can think of.


Kelly Mitchell


Yeah, absolutely. And they've been in the situation where in
recent years it's sort of fallen out of favor to be an outright
climate denier. But now with ESG, they found this vehicle to sort
of drag climate denial kicking and screaming into the culture
war.


David Roberts


Same thing. You can't be anti-racist in public anymore, but you
can be against CRT. You can't be sort of just outright
anti-climate anymore, but you can be anti-ESG.


Kelly Mitchell


But you can certainly believe that ESG is part of a globalist
cabal that's forcing climate action on all of us.


David Roberts


Yeah, but one thing I wanted to get clarity on before we move on
is just this is something I don't think I really got a sense of
reading around is are the amounts of money that red states manage
material to a giant firm like BlackRock? Like I get there are
sort of PR issues here and sort of like public — how things look.
But just in terms of the quantity of money, is this something
that's going to materially affect the financial industry?


Kelly Mitchell


The short answer is probably no. So in general, blue states, even
though there are fewer of them, typically have much larger pools
of money in their pension system than red states. And when you
talk about a company like BlackRock, I mean, BlackRock has $9
trillion. That's an amount of money I don't understand. So one of
the biggest pieces of action we've seen this year is that the
state of Florida pulled $2 billion out of BlackRock and that was
sort of the single largest withdrawal of funds that we saw from
states in the last couple of years.


And $2 billion is a rounding error to BlackRock. But I think to
your point where the real issue has been is that it has kind of
created this chilling effect where now you see Larry Fink and
BlackRock not wanting to use the words ESG. And now you have this
completely bizarre phenomenon that the New York Times has dubbed
"green hushing," where you see insurance companies, financial
actors continuing the practices they had before of evaluating
climate risk, of looking into environmental considerations, but
just not talking about it anymore because they're afraid of the
political attention that's going to get directed their way. So,
yes, on a dollar for dollar basis, BlackRock has more money under
management today than it did when this campaign began, and it'll
probably have even more next year.


But I think folks just don't want the ire and they don't want the
spotlight.


David Roberts


Yeah, this is just a classic example of a very small group of
people with extremely unrepresentative views and interests just
having the raw money to make a lot of noise and just look bigger
than they are. Right, you see this over and over again. They make
so much noise that somebody in BlackRock is like, well, I just
don't want to deal with it. You just would, like, at some point,
they just run this same scam over and over again. At some point,
you'd like some leader of a big institution like Larry Fink to
just say, you know what?


There aren't that many of these people. They don't represent
anyone. Screw them. I don't care. But no one ever does. They're
so easy to intimidate.


Kelly Mitchell


Absolutely.


David Roberts


These big leaders are —


Kelly Mitchell


If I was in charge of $9 trillion, I think I would feel a little
more confident.


David Roberts


Like, I own you people. I could crush you. Yeah, I don't get it.
So I want to go through a couple of amusing aspects of this whole
thing. There are several. One is it seems like it's mostly been a
flop so far, both with the public and even with red state
business communities. So maybe tell us a little bit about what we
know about polling and what we know about how the actual
financial institutions in these red states are taking this.


Kelly Mitchell


It's been a deeply unpopular effort, I think, for its attempts to
copy CRT. It hasn't hit in the same way. So first off, if you
poll folks about should the government be intervening to limit
investment decisions based on ESG? It's a pretty unpopular thing.
I mean, even among Republicans, I think about 70% of polled
Republicans oppose it when they're asked about it, and polling
can be what it is. But I think in this case, the proof is in the
pudding in terms of how this stuff played out in the state. So
165 bills, 83 of them dead as a doornail.


Some that are sort of lingering on to maybe continue into the
next legislative session, a few that are pending and haven't
quite had committee hearings. But overall, this hasn't been a
slam dunk. And as much as I wish it was because maybe
environmental advocates were showing up in these state houses, a
lot of the opposition has come from the banking community, from
chambers of commerce, and from pension managers in these deep red
states. And they have been coming out hearing after hearing after
hearing with strong language to oppose what's happening in these
bills. The bankers are worried about compliance risks and costs.


The Chamber of Commerce see this as a huge assault on the free
market. Pension managers are worried about how this is going to
reduce returns for teachers and firefighters over the next ten
years. Even in the state of Wyoming, we saw the Wyoming Petroleum
Association come out to oppose the bill because they even thought
it went too far because some of their members have some methane
emissions plans and work, and it's helped them to attract some
financing and they don't want to put that at risk.


David Roberts


Right.


Kelly Mitchell


We're talking about states where Trump won by huge margins and
they're coming out in force to oppose these bills.


David Roberts


You're threatening the money. It's like one thing when you're
like, waving bloody flags and causing parents to go yell at
school boards, but you're starting to step on the money here. And
that's —


Kelly Mitchell


I mean, a lot of money. So in some of the states that had bills
specifically around pension funds, like I was talking about
earlier, those often came with the highest price tags. So in the
state of Indiana, their pension board system said it would reduce
pension incomes by over $6 billion. In the state of Kansas, they
said $3.6 billion in reduced pension returns.


David Roberts


You mean if these laws are passed.


Kelly Mitchell


If these laws are passed, yeah, because it's going to restrict
who they can do business with, and it can restrict the amount of
risk that they can continue to evaluate when making investment
decisions.


David Roberts


There was a study maybe that's what you're referring to, was it
in Texas, where they sort of because Texas passed this bill and
then they measured the increase in borrowing costs. It's not
theoretical. It's been detected.


Kelly Mitchell


The effects yeah, that was the benefit of Texas going first is we
got to see what the real life impact of these bills are that
restrict contracting. And University of Pennsylvania Wharton
School did a study on the municipal bond market in Texas before
and after this bill, and they found that within the first eight
months of implementation, it cost those municipal governments
almost half a billion dollars.


David Roberts


Good grief.


Kelly Mitchell


And if you're talking about small towns in Texas, like an extra
million or $2 million you're paying to service a bond, I don't
understand how these legislators go to these folks and say, "Oh,
you're not going to build your library this year, but guess what?
We really stuck it to the globalist cabal." So it's all good
guys.


David Roberts


Yes. It's amazing. It's such a punching yourself in the face
phenomenon, right? That's just one of the levels of stupidity
here, is like, even if the bills passed, none of the hated
targets will be inconvenienced in the slightest. Like no one is
going to be hurt by this that they're trying to hurt. They're
literally just hurting themselves.


Kelly Mitchell


Right. They're literally just like reducing the amount of money a
firefighter can retire on, having a little less money for roads
in a small town somewhere. And all just to make a political point
in the culture war.


David Roberts


So the business community hates it, the banking community hates
it, the public hates it. The attempt to replicate CRT is not
working. Another amusing aspect of this, I thought, is that if
you could go back five years, ten years, and make your index fund
hyper woke by taking all the oil companies and gas companies out
of it, you would have performed like gangbusters these past five
to ten years. Like energy stocks have been for s**t these last
five to ten years.


Kelly Mitchell


Absolutely. I mean, oil and gas was the worst performing sector
of the entire market in the 2010s. Like, you would have been
better off, yeah. Just taking your money and putting in a pile
and lighting half of it on a fire than investing in a lot of
energy companies during that period. We saw hundreds of
bankruptcies during that time. So, yes, it would have been a much
sounder investment philosophy in 2010 to pull oil out of the
equation.


David Roberts


Yeah. If you had gone woke, you wouldn't be so broke.


Kelly Mitchell


Absolutely.


David Roberts


Which is hilarious to me. Another amusing aspect: Our favorite
presidential candidate, Vivek Ramaswamy.


Kelly Mitchell


Oh, yes.


David Roberts


People might sort of know him peripherally. He's one of these
Republicans running for president, and he's sort of made his name
by being kind of the lead anti-ESG guy, the lead critic of "woke
capital," upon which he allegedly has some credibility because
he's a finance guy, he's a money guy. So it turns out, I couldn't
believe this, it turns out he runs a fund that he wants states to
do business with. Like, he's literally a competitor in this space
trying to work up this hysteria to hurt his competitors. It could
not be more like it's not even hidden.


Kelly Mitchell


Yeah. To his credit, he's the most transparent grifter in this
entire fight. His whole story is amazing. Right. So he founds
this pharma company, and then after BLM takes off, he has to quit
because it's so hard to, I don't know, say true things. After BLM
—


David Roberts


He's one of these guys who cancels themselves because he just
knew he was going to get canceled.


Kelly Mitchell


Right. He pre-canceled himself to go become an anti-woke
crusader, and then he really immerses himself in the dark money.
Right. So he's a frequent guest at Heritage Foundation. He's part
of Teneo, which is another Leo Leonard sort of vehicle for young,
up and coming culture warriors on the right. He embeds himself
with the State Financial Officers Foundation and starts making
all these connections with state treasurers, and then he decides
to, I'm sure by coincidence, launch his own investment firm,
Strive Asset Management. And then we see in case after case, how
he uses the relationships he formed through the State Financial
Officers Foundation with treasurers through Heritage to gain kind
of special access to pension fund managers.


So you can look at all these emails with pension fund managers
where he's getting a special introduction from the treasurer and
they're talking about how fun it was that they all had that steak
dinner together. And then he goes before these pension fund
managers to pitch either his proxy advising services. So he'll
help you kind of vote your shareholder resolutions or he'll hold
on to your money and directly invest it. So he's playing both
ends, sort of churning up the anti-woke sentiment and then trying
to find a way to profit off of it.


David Roberts


Yes. And the state of Indiana went for it.


Kelly Mitchell


Yeah.


David Roberts


Their pension fund is now signed up with what is it? Strive.


Kelly Mitchell


Strive Asset Management. Yeah, they signed up for the proxy
advising firm and a reporter out there was able to get a leaked
copy of the contract and it included a $4,000 per hour fee for
Vivek Ramaswamy's personal consulting services. Good work if you
can get it.


David Roberts


I know. So he's out on Fox stirring up anti-ESG sentiment, then
going with his own fund to hoover up that business and
subsequently making $4,000 an hour advising Indiana. Even by our
degraded standards these days, such a transparent grift. And
nobody says "boo". Like, he's on the team. So boggling.


Kelly Mitchell


Absolutely.


David Roberts


Okay, so you've got this massive anti-ESG movement that's sort of
stirred up by the right-wing money people through the right-wing
money groups, through these treasurers in red states, opposed by
the public, opposed by the red state business and banking
community, a failure. Where it succeeds, where it is passed, it
just causes states to lose money without hurting the woke targets
at all. And it's just sort of the site of an amazing amount of
grift. So just like all that together just makes it such a
perfect crystalline example of conservative politics circa 2023.
So let's talk about then, just briefly, because this is, I think,
the real mind blower and something that a lot of listeners
probably don't know. A lot of —


I think a lot of people even involved in this argument don't
know, which is what is ESG really doing? What is it really?
Because I think people have the impression that you take your
company to these ESG ratings firms, right? There are these firms
out there that will assess your company and give you an ESG
rating. And if they give you a high rating, then you can be part
of an ESG fund. And there's tons and tons and tons of money
flooding into these funds. So there's reason to want to be highly
rated on ESG. These ratings firms, the sort of intuitive
understanding that people on the street have is the rating firm
goes and looks and tries to find out, are you a do-gooder? Do you
have sort of like charitable initiatives? Like, are you doing
good things on race? Are you doing good things on climate because
of the goodness of your heart? And if you are, then we'll give
you some points, right, so that the people who rate high on ESG
do so because they are do-gooders, that are doing good in the
world. That, I think, is people's intuitive understanding of what
ESG is, but that is, in fact, not at all what ESG is.


In fact, ESG is how you react to risks to your business posed by
environmental, social, and governance issues. So, for instance,
I'm sorry I'm ranting here, but this blew my mind as it sank in.
Like, McDonald's, for instance, is highly rated in ESG funds.
Why? Because they're doing something on plastic packaging. Why
does that get them a good rating? Not because they're doing it
out of the goodness of their heart, but because a bunch of
European countries are contemplating regulations on plastic
packaging. So McDonald's is reacting to a business risk by paying
attention to its packaging, whereas McDonald's is an enormous
source of climate pollution throughout its supply chain.


But according to the ESG ratings firms, there's no imminent
threat of regulations on that stuff that might affect McDonald's.
So the fact that McDonald's isn't doing anything on climate is
neither here nor there. It just doesn't affect their rating at
all. The climate is immaterial to their rating because it's not
currently posing the business a risk. So it's literally the
opposite of what people think. These are not out of the goodness
of your heart, do something good for the world. It's literally
assessing businesses based on whether they are responding to
risks. But do people who are following this fight get this, even
like the pro ESG people?


How well understood do you think this is?


Kelly Mitchell


I mean, I think this is the layer where the entire ESG story
jumps into absolute brain melting territory.


David Roberts


That's just why I'm ranting. I can't even —


Kelly Mitchell


I will give a shout out to Kate Aronoff at the New Republic, who
I think has probably done the best piece so far on this. Just
this whole idea of the right coming after this "woke investor
class" when obviously no such thing exists. To the extent
BlackRock or any of these guys are talking about climate risk, it
is recognizing with eyes open that the world is decarbonizing. So
depending on what industry you are in, how is that going to
affect your bottom line? It's recognizing that the climate is
changing in different ways. And if you have operations perhaps
near a coastline or in a floodplain or in an area where wildfires
are sparking up every five minutes, that's going to have a real
impact on your business.


It recognizes that there's an incredible amount of public
political pressure for new regulations. The plastic stuff you
mentioned that is eventually going to change and that the
companies that are aware of these risks and can adapt to these
risks and are taking the proactive steps now are the companies
that are going to be successful in the long run. This is all in
service of people continuing to make more money. And ESG overall,
I think has been a pretty great thing for the oil industry
because there are these rating agencies and each of them kind of
have their own sort of standards and metrics that they use.


David Roberts


Yeah, we should just pause to say people take these ESG ratings
for granted. But these are mysterious black boxes. They're just,
private firms, who do not even tell you, who do not even
necessarily have to tell you what criteria they're using.


Kelly Mitchell


And they all use different criteria. So I think in this
muddiness, right, in the muddiness of having different rating
agencies, in the muddiness of no one understanding what ESG even
means, oil companies are kind of in the sweet spot right now
where they get to put out their methane reduction plan. They get
to put out their 2050 net zero plan. They get to kind of speak
the language of risk and responsiveness, but they don't really
have to do anything because at the end of the day, as of today,
this moment, there is no government agency that's going to come
and round you up and put you in cuffs if you're lying about your
ESG plan.


And so oil companies have kind of had the best of both worlds in
some ways, where they can speak the language of sustainability
via ESG without really having to do anything. And banks get to do
the smart bank thing, which is evaluate risk, but they still get
to pour billions and billions of dollars into oil and gas
companies because they can make the claim that there's no
existing regulation that makes that too risky of an investment
for them.


David Roberts


Right. And then when there are regulations, which are a bunch
happening on methane, right, methane is subject to furious
regulation all over the place. Of course, oil companies have to
do something about it. They have to. They literally have to. And
yet they all get brownie points on these ESG funds for doing the
thing that they have to do. So it's not like the ESG funds are
saying you are going above and beyond on methane. You oil
companies, so you get extra points. It's just like you're
responding to this obvious looming risk, here are some brownie
points.


And they're all doing it. So they're all getting the points for
it, right. So it's not you're even distinguishing among and
between oil and gas companies on this?


Kelly Mitchell


No. And it's like when I ask my kids to clean their room or take
the trash and they're like, well, what are we going to get out of
it? I'm like, that's just the rule of living here. You don't get
points for it. The stuff we reward these guys, we're just basic
compliance with the law. We're like, wow, you're really stepping
up.


David Roberts


You get points for not breaking the laws.


Kelly Mitchell


Right? But I think it speaks to sort of another fear that has
animated the ESG stuff. So I spoke to the Larry Fink letter and
the Engine No. 1 letter. But the other kind of looming threat
that is driving a lot of this anti-ESG work is the threat that
the Securities and Exchange Commission is actually going to throw
a wrench in this plan and put in place some requirements that
will force companies to disclose their emissions in a much more
rigorous way and to actually have some teeth and enforcement
behind ESG claims as we started to see in Europe. I mean in
Europe, if you lie about your ESG goals, they do come and lock
you in bank jail or whatever you do.


But I think the fear of our government through the SEC actually
starting to take some action and move ESG out of this black box
amorphous "We're just just making sure companies evaluate risk"
and actually force companies to put plans on the table that
they're going to comply with and to really disclose the emissions
impact of their products when used as directed. That stuff is
scary and it's probably the place where for all the hilarity of
the anti-ESG movement, what a disaster this has been in the
states, what a disaster it's been in congress when they've tried
to hold hearings. The one place where potentially it has had some
impact is that it has given the illusion that there is enough
resistance to climate action in the financial sector that maybe
the SEC should be a little more cautious in implementing rules or
maybe congress, because this is a hip new culture war thing,
maybe congress should pitch back.


David Roberts


There are sides and if the SEC does something it's taking a side
exactly.


Kelly Mitchell


It moves it out of that risk management, let's keep our financial
system in working order space. And now suddenly the SEC having a
disclosure requirement becomes a culture war issue. And that's
where potentially things get a little less hilarious than the
bulk of the anti-ESG movement.


David Roberts


Well, one background question that I think occurs to a lot of
people right around at this point in the discussion, which is if
in reality ESG is just businesses responding to material risks to
their bottom line, why is it a special thing? Why isn't it just
part of the natural operation of business?


Kelly Mitchell


Yeah, it should be part of the natural operation of business. I
think the biggest issue is that it's really easy for businesses
to do that when there are these immediate, time-bound, practical,
tangible risks. Like if you know that a road is going to be built
near your factory, you can have a plan for that. I don't know why
that's the best example I can think of a tangible material risk.
But when it comes to some issues like climate change, or if you
have some issues like addressing some really big disparities
around race or gender in the workplace, they're so big.


And the time horizon is so long, that I just don't think
companies are very well built to figure out how to integrate that
into their business decision. So in the best case of ESG, if
you're steelmanning ESG, it actually provides a framework for
companies to try to evaluate some of those really kind of
long-term risks in a way they're not typically suited to do.


David Roberts


And I think you could fairly say that just the way public opinion
is moving and the way sort of advanced democracies are moving.
There's just more attention to these issues.


Kelly Mitchell


Absolutely.


David Roberts


More regulations, more laws, more action. And so it's just, I
think, areas that corporations traditionally were just not that
cognizant of, didn't have to be that cognizant of. So I think
that's why it sort of has this sort of air of novelty to it,
because it is a little bit new for them to be caring about this.


Kelly Mitchell


Definitely. And they have to, for better or for worse. Yeah.


David Roberts


And they have to, which is the most cosmically, stupid — oh, and
this is also a good time to — I opened this up on Twitter and the
one question a ton of people have because this is sort of one of
the times when ESG broke the surface of the news cycle and kind
of poked itself into everyone's attention. Which is why Tesla
lost its ESG rating. And then Elon Musk subsequently comes out —
what I forget his exact words.


Kelly Mitchell


Like ESG is the devil, I think is literally a tweet.


David Roberts


Yeah, the devil incarnate. That was it. There you go. So people
were confused by that, because people have it in their heads that
ESG ratings are just a rating of how good a company is for the
environment and society. Right. Which is not, again, not what
these ratings are. So, like, if there are no imminent regulations
forcing people to switch to EVs, then there's no brownie points
for making EVs. Right. Whereas what they got dinged for was the
race stuff. Right. Which is a material threat that they are not
responding to.


Kelly Mitchell


Yeah, I think that too. And then there's the G, which I think is
the piece of ESG that no one really likes to remember is there,
which is governance. And that covers really basic issues like, do
you have an independent board of directors or is it all your
dad's golf buddies? And Tesla has suffered from some very serious
governance issues.


David Roberts


Yes. Are you making massive decisions on the fly on Twitter,
half-joking might be like a governance issue. For instance, as
you say, these dumb critiques of ESG tend to occlude the
reasonable critiques of ESG, of which there are many. One of
which is just, why is this a basket? Why are these three things
in a basket together? It just muddies everything for them to be
mushed together like this.


Kelly Mitchell


Yeah, it's really wild, actually. So the whole reason we got
started looking at this anti-ESG work back in 2020, 2021 —


David Roberts


Say briefly what Documented is doing and how you ... I forgot to
ask that early on, but sort of how did you dig up stuff on this?


Kelly Mitchell


So, Documented is an investigative watchdog group. We cover oil
and gas issues, but also sort of democracy issues, things like
voting rights and just the large influence of the dark money
right. Increasingly creeping over our politics. And with this
issue in particular, the way we came about the anti-ESG movement
is for a while, we were attending industry conferences for the
oil and gas industry, and we were noticing this trend that at
every conference there would be some presentation from an ESG
consultant that was actually there to talk to the oil industry
basically about how to boost its ESG scores.


And they would say things like, ESG doesn't have to mean green.
It's just about saying this in your document and saying this in
your document. And say —


David Roberts


It hardly has to mean anything, really.


Kelly Mitchell


Exactly. It was all about how the oil industry effectively could
kind of game the murkiness of ESG to attract more investments.
And so we were following that for a while and about to
potentially do a little write up exposé on some of those
consultants that were making big money from this. And then, yeah,
it was kind of around that time, that 2021, 2022 space, where
suddenly the script flipped. And it wasn't really necessarily
about how to game ESG anymore. It was about how ESG is sort of a
threat to democracy and low energy prices and the stability of
America.


And it got politicized just really quickly. And so that's kind of
where we started, just filing thousands of public records
requests and tracking how this was playing out in different
states.


David Roberts


I don't know if this is like a function of me paying more
attention these days than I used to, but it seems like the
scheming of the evil empire has just gotten less and less hidden.
These emails you have uncovered are just like, I don't know,
they're all in a bubble together, so I guess they just don't no
longer feel any need at all to kind of, like, use euphemisms or
to disguise what they're doing. It's all very straightforward. So
let's talk about these hearings, because nothing really came of
them. But I feel like we just need to at least spend a minute on
how dumb these hearings are, even, again, relative to our
degraded baseline standards for how dumb a congressional hearing
can be, these were some spectacularly dumb hearings.


Some of the accusations in these hearings. Are just —


Kelly Mitchell


Yeah, so the house oversight committee held two hearings in the
last month or so on ESG, and, oh, man, they were a mess. So to
start off, the star witness in the first hearing was the attorney
general of Alabama, Steve Marshall. If for some reason the
attorney general of Alabama is familiar to you, it's because he's
been sort of a longtime leader in the Republican Attorneys
General Association, including heading up the org that sent
robocalls directing people to the January 6 insurrection. So he
has a couple of questions about the election, but he's here to
tell us the facts on ESG.


David Roberts


He's just asking questions. Yeah, he's an attorney general. Not,
we should just point out, say, pension manager or no, someone in
the financial industry. Someone who knows anything about the
financial industry.


Kelly Mitchell


No, but he has some feelings about cabals. Basically, the
testimony from the attorneys general, who were their star
witnesses and the members of the Republican caucus was like a
bingo card of culture war catchphrases. Like, we had to talk
about Bud Light and Dylan Muvaney. We had to talk about a cabal
of global elites.


David Roberts


Oh, the SVB. The bank.


Kelly Mitchell


We had to talk about that bank.


David Roberts


That only went under, as we all know, only went under because of
wokeness.


Kelly Mitchell


We had Representative Grothman worried that ESG meant that
certain men of, quote, European descent would no longer be able
to get jobs in this country.


David Roberts


This is what we all know ESG is moving toward, not allowing
corporations to hire white people anymore.


Kelly Mitchell


Exactly. My favorite, though, was Lauren Boebert. She described
with a complete straight face, BlackRock, not as the world's
largest asset manager, not as the world's second largest investor
in fossil fuels. She described them as a left-wing activist fund.


David Roberts


$9 trillion. Imagine if lefty activists had a $9 trillion fund on
their side. Just imagine the possibilities.


Kelly Mitchell


Oh, man. So, yeah, they basically brought out all the hits. I
think they probably had to pinch themselves under the table to
not say, like, the Jews and just talk about global elites and
their secretive cabals instead. I mean, the anti-Semitism was
certainly dialed up to ten on this one.


David Roberts


So there's the cabal, and they're saying insofar as they're
making any tangible accusations, they're trying to say to their
base that these companies like BlackRock are boycotting fossil
fuel companies, gun companies, agriculture companies, all the
companies that are crucial to the heartland, et cetera, et
cetera, et cetera. And just, you know, they're not.


Kelly Mitchell


They're definitely not at all. Yeah. I mean, look at any major
oil company in this country, and look at who the top investors
are, and it's all the companies that are supposedly boycotting
them.


David Roberts


This is a hearing that Katie Porter, who has been to her share of
hearings, called the stupidest hearing I've ever been a part of,
which is, if you can get that out of Katie Porter, who's sat
through a lot of dumb hearings, that's very impressive. So I just
hardly know what to say about it. So is anyone in charge over
there? And if so, what do they want out of this? As we've seen,
insofar as they succeed in any of the things they're trying to
do, it does literally nothing but hurt their own states. It just
makes borrowing more expensive.


It just makes running the pension fund more expensive. It
increases the bills for municipal budgets. Is there a discernible
goal here?


Kelly Mitchell


Any goal would be a little bit of speculation on my part, but
that's why you come on a podcast. So you can just wildly
speculate —


David Roberts


Wildly speculate here that's what we do.


Kelly Mitchell


I think for a lot of the individuals involved, to them it's like
a ticket to higher office, quite frankly. We talked about how the
treasurers have gotten communication support through doing
anti-ESG work. So Riley Moore of West Virginia is riding his
recent anti-ESG fame to make a congressional bid. There's a
number of places where you're seeing state reps and treasurers
who have been on the forefront of this anti-ESG movement seek
higher office, governor's offices, AG's offices. So I think for
them it's really a personal branding issue. It gives them a stake
in the culture war for their base.


And then I think for the folks with really deep money, like the
Leonard Leos of the world, the folks who are running some of the
bigger dark money groups like Heritage, it potentially
accomplishes a couple of things. Like Leonard Leo has talked
about how he basically wants to build a Federalist Society for
everything. It's not enough that he built an organization —


David Roberts


What a nightmare phrase that is.


Kelly Mitchell


It's terrifying, right? And he sees himself saying "Okay, I was
able to do this for the courts. I was able to cultivate young
lawyers, young judges through the Federalist Society and then
eventually" —


David Roberts


Widly successfully.


Kelly Mitchell


Wildly successful. And now he's saying, okay, well how do we do
that in entertainment, how do we do that in finance? How do we do
that in other areas of government? And so I think this is
potentially a bit of a little salvo for him to see how he can
sort of cultivate and deploy his own network.


David Roberts


Get some drones into the financial industry.


Kelly Mitchell


Or boost the profile of actors like Vivek Ramaswamy or these are
sort of state treasurers that he wants to have a long term stake
in. And then I think from the perspective of the oil and gas
industry, they've had a really interesting role in this. They're
not the folks who are on the ground lobbying for these bills.
They are not the folks testifying in Congress. They've actually
been quite quiet on the anti-ESG stuff, I think, because they
want to have their cake and eat it too. Like they like the ESG
apparatus for what it's able to get them in the near term and
muddy —


David Roberts


They're pulling in all kinds of investment through it.


Kelly Mitchell


Exactly. So they're not going to cut off that gravy train just
yet.


David Roberts


Just literally the opposite of what Boebert et al. are saying.
They're saying ESG channels investment away from oil and gas and
ESG literally does the opposite by doing these notional mild
steps, many of which are required by regulation anyway. Oil and
gas companies get more investment, extra investment.


Kelly Mitchell


But what I think they do like is people in state houses, people
in Congress falling on a sword to talk about how the worst thing
we could ever do as a society is cut off financing to the fossil
fuel sector, whether or not that's what ESG is doing at all. You
have these champions of investing in industry now in all of these
states and you have a lot of resistance within Congress to SEC
regulations around climate disclosure. And so what I think that
the fossil fuel industry has gained in this process is just
creating potentially some new champions and potentially creating
a little bit of doubt among the Biden administration and other
regulators about how —


David Roberts


Spooking people.


Kelly Mitchell


how aggressively, exactly, they can move on this front. And so I
think that will be something that's paid dividend. We haven't
talked about it quite as much, but it's like we know that
American Petroleum Institute has been in the mix with the
treasurers a bit. We know they're coming out now publicly in
favor of a bill that's going to be marked up this July in
Congress around these issues. So they are starting to creep into
the mix a little bit here through the trades. But I think the
world is better for them when there are more people who want to
block action on climate change.


David Roberts


Yeah, I wonder that's the calculation for them, the sort of
tangible benefits of ESG as currently operating for them versus
the sort of more difficult to quantify, but possibly quite larger
benefits of just kind of shifting society away, spooking society
away from taking climate seriously.


Kelly Mitchell


Exactly.


David Roberts


A real devil's bargain there. So I just want to pause to say,
like, yes, there are some of those potential benefits attenuated
benefits, but really even more than the usual right-wing kind of
moral panic, two-minute hate or whatever they call it, even more
than usual, this is like almost entirely self-contained and
without consequence. You know what I mean? It's just a show for
the show's sake. There's not even things in the world that are
hinging on it anymore. It's just they are just performing for one
another now.


Kelly Mitchell


Absolutely. I mean, it's your best audience but no, I'll give you
just one example. So, I was at a petrochemical conference earlier
this year and not the greatest champions of the environment
historically, but the whole conference was a love note to ESG.
And you had guys come to the stage and they say, "Look, you might
hear a little bit about the political pushback, but in reality no
serious investor is going to stop looking at ESG criteria." And
that's how folks are opening their speeches. And I was able to
talk with a pretty high up exec in a global petrochem conference
and I asked her that, I said, "Look, with all this political
pushback, are you going to be changing your practices?


Are you going to be abandoning your DEI initiative? Are you going
to abandon your ESG initiative if you're given political cover to
not have to do it?" And what she told me was "No, because we'll
never be able to hire anyone again." And so I think this stuff is
so baked into the system where investors can't look away from
these risks anymore, companies can't look away from these risks
anymore. There's a real question of how much anyone here is
really going above and beyond. But yeah, the fighting from the
movement on the edges is super performative.


David Roberts


Yeah, just like dealing with risk. That's the thing, the big
companies will do a lot of things in service of right-wing
culture wars, but they won't risk money. They won't risk their
bottom line. That's where they draw the line. It's like, "Wait a
minute, we're actually making money off this hold up. We'll take
down pride displays, but we're not going to risk money." I guess,
insofar as it's almost entirely performative. How do you
anticipate it playing out? Is anything going to come out of this?
Is there a next step? Is it going to go anywhere or is this just
going to sort of fade and they'll be hysterical about something
else next month?


Kelly Mitchell


I think there are two places where we see it heading and they're
both around legal issues. So they've kind of played the
legislative card for the time being. I think what we'll see next
is we've had a number of attorneys general, similarly organized
through the Republican Attorneys General Association, who have
threatened to bring antitrust cases against companies that are
part of any partnerships.


David Roberts


What is the European group? Zero —


Kelly Mitchell


Yeah, there's a G fans and an N fans and a Glasgow.


David Roberts


Yeah, I forget what all the acronyms are for, but there's lots of
these associations of companies who are about taking these risks
seriously and trying to alter their portfolios in response. Is
that I mean, with legal issues these days, it's almost immaterial
to ask if there's any merit to it since if it gets to the Supreme
Court, who gives a crap with it?


Kelly Mitchell


Leonard Leo stacked the deck for us.


David Roberts


Exactly, because Leonard Leo finished his job there. But is there
any merit to the antitrust angle here?


Kelly Mitchell


My understanding is if there is, it's slim and it's probably if
there's any place where there may be some merit to it, it's with
insurance companies. Now, I won't explain why because I'll say a
bunch of things that aren't probably true, but that's sort of the
legal read I've been given. And I think that's why we've seen a
number of insurance companies who have dropped their membership
in some of these alliances. And interestingly enough, none of
them have rolled back any of their climate-related policies.
Like, they're all still taking into account climate risk. They're
just not going to do it through these global alliances because
their lawyers have informed them that potentially there is some
amount of risk involved.


David Roberts


Right. Why take on the hassle? That's the thing to intimidate
these people. It's like a little bit of hassle, why bother?


Kelly Mitchell


So I think we'll see the antitrust stuff continue to rev up and
again, it's like, yeah, when you have people like Ken Paxton,
when you have some of these AGs that are just really aggressive
and really political, like you said, they'll bring a suit whether
the merits are there or not. And so I think that could create a
bit of a chilling effect.


David Roberts


If there's anything goofier than Republicans suddenly pretending
to care about high school girls sports, it's Republicans suddenly
worrying about trust.


Kelly Mitchell


Real champions of antitrust —


David Roberts


Antitrust champions. There's one thing they worry about. It's
corporate concentration of power.


Kelly Mitchell


So we may see that, and I think it will follow the same path of
being mostly very stupid and nonsensical, but then having these
little moments of real-world impact along the way because people
get spooked. And then the other area where we could see some
evolution is we've now seen two class action-esque lawsuits
filed. So one in New York State against the New York State
pension system, and one in Texas, but actually against the
American Airlines pension board, whoever manages the board, and
basically their lawsuits against those two pension bodies for
either divesting from fossil fuels or for offering ESG options in
their pension fund.


David Roberts


Jesus.


Kelly Mitchell


My sense again is neither of them have an incredible amount of
standing. I mean, the American Airlines one is wild to me because
it's not even that they took this guy's pension money, the guy
who's suing and invested it in some vehicle he didn't like. It's
just that they offered ESG funds in the menu of funds that
pensioners can self-select. So it was a complete opt-in
environment, but just the existence of that opt-in checkbox is
sort of prompting his lawsuit.


David Roberts


Good lord.


Kelly Mitchell


So what I could see happening potentially is that similar to the
legislative strategy where they just threw nearly 200 bills
across a number of states to these hearings where they're testing
out every conspiracy theory. Maybe we enter this phase with
antitrust action from AGs and or these private citizen suits
where they're again, just sort of trying to test the water and
see if there's any ground here to stand on.


David Roberts


Well, pushing it into the legal realm is that's where Leonard Leo
has already done his work. So the merits are going to matter a
lot less in that territory than when you're talking to actual
money people who actually care about actual money. Super dumb.
But I think it's fair to say, just by way of kind of summarizing
and tell me if you agree, the broad global trend of big money
taking climate risk into account is unstoppable. You're not going
to turn the clock back on that?


Kelly Mitchell


No, it's left the station and you can't not take it into account.
There's too much actual change happening in the world for any
sound money manager to ignore it at this pace. So in the long
run, I think this is where the investment community is headed. I
think a lot of executives will take this stuff and integrate it
into their company's decision making.


David Roberts


And young people, one of the reasons all this started is that
whether you like it or not, old guy on the board, young people
care about this stuff and you need to be able to hire young
people.


Kelly Mitchell


Absolutely, yeah. I think for the oil industry in particular, it
is a huge problem for them. They offer very good salaries, like,
they pay their workers very well. Now, sometimes they're not
always doing the most desirable work, but they pay well. They've
been a great ticket to opportunity in a lot of communities and
they are struggling to hire given their current reputation. And
so, yeah, this type of action is what makes it palpable for a
young engineer to come work for ExxonMobile.


David Roberts


Yeah, and I forgot to actually mention, even though it's in the
headline of this pod, but the reason we're doing this now is that
July is, according to Republicans, ESG month. This means at least
for the next month, it's going to be an absolute festival of
dumbassery and further ridiculous hearings.


Kelly Mitchell


I think they're doing two a day on some days this month. They're
doing double-header ESG hearings in the middle of July, which is
a real way to know an issue.


David Roberts


How many conspiracies are there? Like, how do they fill up the
time? I'm not going to hurt myself by watching, but I honestly
wonder sometimes, once you've run through the top-ten, Fox News —
What do you talk about after that?


Kelly Mitchell


I think you just rinse and repeat.


David Roberts


All right, thank you so much, Kelly. Thank you for digging into
this and documenting what's going on and thank you for walking us
through it. And again, I commend you for maintaining your
psychological health throughout this process.


Kelly Mitchell


Thanks, David. No, it's been fun and, yeah, thanks for having me
on. I really appreciate it.


David Roberts


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