The Texas Public Policy Foundation’s Life:Powered project and Boyden Gray Associates have released a new white paper showing that Environmental, Social and Governance (ESG) divestment strategies may violate the law.
As investing based on social values becomes more popular, progressive organizations and others are engaging in coordinated campaigns to defund and constrain industries deemed politically incorrect while directing more money to politically favored environmental and social causes.
Activists and lenders who steer money away from politically disfavored industries—such as fossil fuel exploration and production—may be colluding on group boycotts of energy producers in violation of antitrust laws.
Normally, banks and investment managers compete with each other, explains C. Boyden Gray of Boyden Gray Associates.
“That competition ensures that worthwhile projects can access capital and use it to bring products to as many consumers as possible through affordable prices,” he says. “But these ostensible competitor lenders have started moving in parallel to cut off liquidity and capital for America’s energy sector. For example many have announced promises to stop loaning money for Arctic oil drilling and coal mining.
“The FTC has maintained that such invitations to boycott, on their own—even if the invitations go unheeded—can violate federal antitrust law. As the FTC and the DOJ reiterated last year in a joint statement, ‘[e]ven absent a collusive agreement,’ antitrust enforcers may ‘pursue a civil enforcement action against companies and individuals that invite others to collude.’ If made with an intent to invite or signal competitors to join a group boycott, these announcements could violate the law.”
American investors and pensioners—anyone who has a 401(k) retirement account — are hurt by this.
“There’s a growing trend in the financial community, driven by boisterous public shaming campaigns, towards environmental, social, and governance (ESG) investing — meaning giving more funds to companies who talk the right talk on issues like climate change, instead of to companies that offer the highest return on investment,” says Life:Powered’s Jason Isaac. “The ESG movement wrongly bullies corporations into ignoring their duty to provide profitability for shareholders, in order to appease a vocal minority of progressive activists. And some major firms, like BlackRock, are capitulating.”
Federal and state antitrust litigators as well as private parties could pursue legal avenues to prevent collusion against politically targeted businesses, the paper finds. States should also follow the examples of Texas, which now requires divestment from companies that engage in such collusion and Georgia, which has forbidden banks from denying financial services to firearms firms solely because they conduct business in that industry.