Environmental Social Governance (ESG) is a sneaky way for far-left activists to browbeat corporations into supporting far-left social justice warrior causes with company money. Texas passed a law requiring ESG advisors to disclose such fiduciary conflicts of interest, and the SJW set is so mad that they’re suing Texas Attorney General Ken Paxton over it.
Several nonprofit organizations have filed a federal lawsuit against Texas Attorney General Ken Paxton in the U.S. District Court in Austin, challenging the constitutionality of Senate Bill (SB) 2337 by state Sen. Bryan Hughes (R-Mineola) because they say it chills their speech about “value-based investing.”
SB 2337, passed during the 89th Legislative Session, requires a proxy advisory firm to disclose when its recommendations are based on “non-financial factors” or “conflict with other proxy advisory services.”
The lawsuit claims that the Texas Legislature passed the law “to suppress growing shareholder demands that companies consider important issues that can affect long-term performance.”
The three plaintiffs are the Interfaith Center on Corporate Responsibility (ICCR), United Church Funds (UCF), and Ceres.
ICCR is a “coalition of investors” that believes their faith and values should guide their investing decisions. They value advancing causes such as social justice and environmental sustainability, according to the ICCR website.
So they’re social justice warriors who feel corporations should support far-left causes rather than earn shareholders financial returns. No wonder they’re mad.
UCF provides investment services to the mainline denomination United Churches of Christ and partners with ICCR in similar values.
My parents were raised Church of Christ before drifting away. When granny dragged me there as a wee lad, I never got the impression that they were leftwing activists. Perhaps things have changed.
But anything with “Interfaith” in their title you have to assume are guilty of leftist capture until proven innocent. They’re always willing to render unto Caesar, as long as Caesar is wearing a Che Guevara t-shirt.
Ceres describes itself as “a nonprofit advocacy organization working to accelerate the transition to a cleaner, more just, and resilient world.”
Translation: “Do the will of the far left, or else.”
In their lawsuit, the plaintiffs argue that the State of Texas, through SB 2337, compels them to speak in only one acceptable way about these investment-related positions.
They can speak however they want, they just have to disclose that they’re lefty tools.
They claim that SB 2337 divides proxy advising into two categories: the financial interests and non-financial interests of the investors. However, the law doesn’t define what the “financial interest” of a shareholder is, the lawsuit argues.
The plaintiffs also argue that, while the law defines non-financial factors to include “environmental, social, or governance (ESG)” goals and “diversity, equity, or inclusion (DEI),” it doesn’t recognize that those terms often have different meanings and applications within the investment community.
They really don’t. If you pursue either, you value radical leftwing activism over the interests of shareholders.
SB 2337, according to the lawsuit, imposes “burdensome disclosure requirements” on the plaintiffs because they base their proxy voting advice on “nonfinancial factors.” These disclosure requirements “mandate that [the plaintiffs] disclose detailed financial analyses and force them to report nonpublic communications with their clients to the companies being evaluated.”
If the firms are deemed to have violated SB 2337, they can be subject to penalties of $10,000 for each violation of the law.
While compelled speech is indeed illegal under the First Amendment, commercial disclosures tend to receive the lowest level of scrutiny for violating free speech rights. “The Court has applied less stringent standards of scrutiny when evaluating disclosures involving commercial speech. In the commercial context, courts generally apply a level of intermediate scrutiny that requires the regulation to directly advance a substantial interest. Certain commercial disclosure requirements are subject to an even more lenient standard that requires only a reasonable relationship between the means and ends.”
Americans for Prosperity Foundation v. Bonta was a case where disclosure laws were found unconstitutional, but that case was over revealing donor names to the government. Given SB 2337’s requirements are far less sweeping, and require no donor disclosure, it seems far more likely that the State of Texas will prevail.
Time and time again we see that wokeness infecting a company destroys profits, no matter the source of the infection. Shareholders need all the information they can get to inoculate against such infections.
Only you can prevent Bud Light.
Tags: Americans for Prosperity Foundation v. Bonta, Bryan Hughes, Ceres, Church of Christ, DEI, Democrats, Environmental Social Governance (ESG), Interfaith Center on Corporate Responsibility (ICCR), Ken Paxton, Lawsuit, Social Justice Warriors, Supreme Court, Texas, United Church Funds (UCF)
Bravo! ESG is worse than I thought. I thought it was merely poorly performing (compared to broad comparable investment funds) choices to make the investor feel warm and virtuous, having sacrificed to save the planet.
In many 401, etc. plans you will see “ESG” type choices. Look at the performance relative to index funds and WHOA! They predictably usually trail behind.
What your post contributed is a peek into the predictable sausage-making. ‘Just do these things and we could then include your company’s stock in our ESG fund!’ Or be a nasty old fuddy-duddy and watch your company’s stock price languish as we stock our funds with other companies and market them heavily to pension funds and 401 providers!’
Not “in the business” and not investment advice. Just common sense.
I’m fascinated by the idea that requiring speech (that is, certain disclosures) by some people (proxy advisory firms) chills the speech of other people. How exactly does that work? It’s not obvious to me.
This lawsuit will go down in flames. Disclosure of material facts and financial conditions is the bedrock of modern securities law, and is no more compelled speech than is a tax return.
While SB 2337 puts some additional heft in the law, to my mind any corporate director (especially of a publicly traded company) or benefits plan manager who votes for ESG over shareholder / beneficiary value is presumptively breaching his fiduciary duties.
The threat of lawsuits from shareholders (and especially from ERISA plan beneficiaries) is what has really caused the ESG ship to sink with boards and benefit plan managers Virtue signaling like this ceases to be fun and cool when it comes at a real cost to the virtue signaler.
FYI, there is a difference between churches of Christ and the United Churches of Christ. The former are independent congratulations, and tend toward conservative values, with wide variation. The latter is an organization with a formal hierarchy, and they tend liberal / left.
Company boards have fiduciary responsibility, i.e., financial returns, and not political, i.e., social justice, ESG, DEI, responsibilities.
The social justice advocates always, always claim their agenda addresses financial returns. It doesn’t. If it did, it would be easily, readily, blatantly obvious. It isn’t. Mostly, their agenda is a guilt-trip dressed up with PR happy talk. IOW, complete BS.
“My parents were raised Church of Christ before drifting away. When granny dragged me there as a wee lad, I never got the impression that they were leftwing activists. Perhaps things have changed.”
United Church of Christ is the denomination to which Barack Obama belonged when elected President. It seems as though things may have indeed changed.
My understanding is that the Church of Christ has migrated from far right to far left. This is not a deeply informed opinion since I haven’t been near a church except for weddings and funerals in almost 60 years. I do recall very specifically that it was the most disagreeably intolerant “conservative” sect of them all. It would take out full-page ads in the local Bellaire newspaper explaining why adherents of all the other Christian denominations were going to hell. That followers of the Whore of Babylon were damned was obvious, but they gave detailed reasons for the damnation of all the other Protestant sects also. I remember that the Methodists were going to hell because they sang hymns. I can’t remember why the Baptists and all the others were damned, but they didn’t miss a single one of the majors. My mother, who was a follower of the Whore of Babylon, was so angry she canceled her subscription to the newspaper when it kept running the Church of Christ ad. About 15 years later I had a summer internship with the Dallas D.A. and got to sit in while the prosecutors picked jurors after the voir dire. They had a ratings system based on race (still allowed then), religion, and occupation. The ideal State’s juror was a white insurance claims adjuster who was a member of the Church of Christ. Everything I’ve read about them in the last few decades, however, puts the Church of Christ on the far left. Maybe it was just another victim of the left’s long march through the institutions.