STUMP » Articles » Kentucky Asset Manager Warning: the ESG Brou-Ha-Ha Continues » 4 January 2023, 20:17

FoxBusiness: Kentucky warns BlackRock, JPMorgan Chase over ‘energy boycotts’

The state of Kentucky is warning a number of financial institutions, including BlackRock and JPMorgan Chase, to stop boycotting energy companies or the state may divest its funds in the months ahead.

Kentucky’s legislature enacted a law in 2022 that required the state’s treasurer’s office to publish an annual list of financial firms found to be engaging in a boycott of energy companies. Under the law, state entities have 30 days to notify the treasurer’s office if they have any direct or indirect holdings of listed firms, and must inform those firms. A listed financial institution has 90 days after receiving the notice to end the boycott or face divestment.

“When companies boycott fossil fuels, they intentionally choke off the lifeblood of capital to Kentucky’s signature industries,” Kentucky Treasurer Allison Ball said in a statement. “Traditional energy sources fuel our Kentucky economy, provide much needed jobs, and warm our homes. Kentucky must not allow our signature industries to be irreparably damaged based upon the ideological whims of a select few.”

Fossil fuel production and use are vital to the state’s economy. Ball’s office noted there are 143,994 energy sector jobs in the state of Kentucky representing about 7.8% of the state’s workforce.

Kentucky has the third-most operating coal mines in the country, trailing only West Virginia and Pennsylvania, making the Bluegrass State the seventh-largest coal-producing state in 2021. Kentucky’s mines yielded over 26 million tons of coal, according to data from the Energy Information Administration (EIA).

In the article itself, only two specific companies are named, I suppose because they responded.

But the list was longer than that.

I won’t list the companies, as you can go to the link to see them for yourself.

Kentucky’s definition for “energy company boycott”

Here’s the thing – the two companies named in the article say they’re not boycotting energy companies, but the page says “‘energy company boycott,’ as defined in Kentucky Revised Statute § 41.472(1)(c)”, so let’s see if we can find that definition.

This looks to be the language:

“Energy company boycott” means, without an ordinary business purpose,
refusing to deal with, terminating business activities with, or otherwise taking
any action that is intended to penalize, inflict economic harm on, or limit
commercial relations with a company because the company:

1. Engages in the exploration, production, utilization, transportation, sale,
or manufacturing of fossil fuel-based energy and does not commit or
pledge to meet environmental standards beyond applicable federal and
state law; or

2. Does business with a company described in subparagraph 1. of this
paragraph;

The term “energy company boycott”, which looks very generic, really means “fossil fuel company boycott” and they definitely mean “coal company boycott”.

The responses of the two named companies are saying “Sure, we do business with energy companies.” They are not necessarily being specific about the energy sources.

The companies named in the article, and named on the list, probably do business with some fossil fuel companies.

But they may ban business with coal-based companies, or have requirements “beyond applicable federal and state law” for coal-based companies, and thus fall afoul of the Kentucky law.

In any case, it’s not like Kentucky started this fire.

And no, I’m not talking about coal fire.

I’m talking ESG-related asset manager firings.

Prior Public Pension Asset Manager Blacklists

What’s grimly amusing to me is that this got started a while back, and it is difficult to escape a matter of political blacklists for public pensions.

I have commented before that, given the inherently political nature of public pensions, and such a large pot of money that accrues with defined benefit pensions, perhaps it’s not appropriate for these to exist at all, as it attracts not only these politics but also corruption….

but let us look back at older blacklist stories I’ve followed.

December 2016: NCPERS and its Public Pensions Blacklist

It’s that time of year again! Time for the National Conference On Public Employee Retirement Systems to update its Scrooge list to show who are verboten to have anything to do with public pensions! Shame! Shame!

Let’s go to the press release: NCPERS Expands List of Think Tanks that Undercut Pensions

Hmmm, I must have missed their announcement this year. The current list is here, labeled Schedule A — these are foundations, think tanks, and other nonprofit entities that NCPERS thinks “engage in ideologically, politically, or donor driven activities to undermine public pensions:”

Here is their PDF, with items linking to examples of what they object to:

• Advocates/advances the claim that public DB plans are unsustainable
• Advocates for a DC plan to replace the public DB plan
• Advocates for a poorly designed cash balance plan to replace the DB plan [so I guess a well-designed one would be welcome]
• Advocates for a poorly designed combination plan to replace the public DB plan [see above]
• Links school performance evaluation to whether it sponsors a DB plan to its teachers/employees
• Misc

In the case of some of the groups they link, perhaps they should be more circumspect, such as the Illinois Policy Institute. I think that facts will bear out that Illinois and especially Chicago pensions are unsustainable, given how they’ve been run.

Back in 2016, John Bury investigated NCPERS’s own employee benefits, and it turns out that most of the employees took the 401(k) benefit and that the orgs on the blacklist have benefits very similar to NCPERS’s own. Fancy that!

In 2018, I saw this: Divestment Follies: An Actual Cogent Case…Kind Of , which involved an activist group targeting private prisons, and the private equity groups that funded them.

These names may sound familiar:

Wells Fargo
JPMorgan Chase
Blackrock

They provided financing to the private equity groups running the prisons. You can read the old post about that situation. I don’t know how that has worked itself out, and it would be interesting to see if Blackrock has divested itself of any of its private prison involvement.

This was the divestment list I had in 2018:

• energy companies
• anything to do with guns
• private prisons
• soda/fast food companies
• pharmaceutical companies making painkillers

What is the list now?

This never stops. That’s why I loved Portland, Oregon’s decision in 2017 that all corporations are de facto evil, so we’re keeping our money in cash and government bonds.

Of course, the government is evil, too….

Related recent STUMP posts:

Nov 2022: ESG and ERISA: Pity the Poor Tort Lawyers Their Lost Business as Biden Gives a Safe Harbor For Now

Oct 2022 Podcast: Political Risk and Public Pension Investments

Aug 2022 Podcast: Public Pensions, ESG, DeSantis, and The Catholic Church