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The Conservative Plot Against Green Investment

The American Legislative Exchange Council is pushing cookie-cutter laws that could lock pension funds and taxpayers into losing deals—while propping up coal and other fossil fuel firms.

George Frey/Getty Images

It all starts with an innocuous bit of jargon. “ESG pressures by national environmental groups [are] driving banks, insurance companies and investment managers to abandon fossil fuels,” argues a document sent via email from West Virginia Coal Association President Chris Hamilton to Republican West Virginia House of Delegates member Zack Maynard last February, outlining the group’s 2021 legislative priorities for the state. “ESG,” which stands for environmental, social, and governance, refers to some recently fashionable branding that vaguely defines a set of criteria by which investors might center their portfolios on firms with sustainable business practices, for which there is no formal taxonomy or regulations.

The email was co-signed by representatives from Arch Resources, Alliance Resource Partners, and American Consolidated Natural Resource, formerly known as Murray Energy. “West Virginia coal-based electric manufacturing facilities are also highly exposed targets of ESG activists. We believe West Virginia’s Legislature should develop legislation to make it an unlawful, discriminatory practice for financial institutions or insurance companies to assess higher premiums, surcharges or interest based on a company’s fossil energy holdings.” That’s according to correspondence obtained through a Freedom of Information Act, or FOIA, request by the nonprofit watchdog group InfluenceMap, and reviewed by The New Republic.

Fifteen days later, on February 23, 2021, this precise sort of “anti-ESG legislation” was sitting in Maynard’s inbox, from Hamilton. On March 13, Maynard became the lead sponsor of a virtually identical bill, H.B. 3084.

It’s one of several copycat measures being pitched in state legislatures around the country. Last month, the American Legislative Exchange Council’s Energy, Environment and Agriculture task force voted unanimously to back the Energy Discrimination Elimination Act at its States and Nation Policy Summit in San Diego. At some point later that month, the bill appears to have been stripped from ALEC’s website, though it can still be accessed through the Internet Archive. ALEC did not respond to a request for comment as to why the bill no longer appears on its site.

The act is the brainchild of the Texas Public Policy Foundation, which led the charge to pass that state’s version—Senate Bill 13. While language differs state by state, the bills direct state comptrollers to “sell, redeem, divest, or withdraw all publicly traded securities” of financial institutions that are found to “boycott energy companies,” per the model measure. Comptrollers are instructed to maintain a list of such companies, after reaching out to clarify if they are indeed boycotting energy companies. If they are, state officials are required to divest.

Though S.B. 13 went into effect last September, no such lists have been drafted nor divestments made. Asked several questions about the law’s implementation, Kevin Lyons, a spokesperson for Texas Comptroller Glenn Hagar, sent a statement over email about their progress: “We are still in the early stages of implementation and continue to work with our research partners and our in-house legal counsel on the process for identifying and notifying companies that may be suitable candidates for listing under SB 13.”

That major industries are so involved in bill drafting isn’t illegal or unusual, particularly in part-time legislatures with few staff. Ted Boettner, senior researcher at the Ohio River Valley Institute, emphasized just how common the kinds of sausage-making that crafted H.B. 3084 are. “The coal industry and other powerful industries in the state typically write legislation,” he told me over the phone. “Having a lobbyist write a bill is a feature of the system, not a bug.” And given the relatively low levels of spending involved in state-level races, modest campaign donations can pack a big punch. During his last election campaign in 2020, Maynard raked in $5,750 in donations from energy and natural resources companies, including Arch Coal and Murray Energy, now American Consolidated Natural Resources; in total, he raised just $32,700.

The bill didn’t pass before the session ended on April 10, but is likely to be reintroduced. Maynard did not respond to a request for comment both on the content of the bill and whether he planned to reintroduce it in the 2022 legislative session, which begins on January 12. “Most bills like this take several years to pass,” Boettner said. “The coal industry has a great batting average on bills they want passed.”

If it succeeds this time, West Virginia pension-holders and taxpayers could be on the hook. Tom Sanzillo, director of financial analysis for the Institute for Energy Economics and Financial Analysis, or IEEFA, and a former New York State comptroller, says such legislation presents several potential dangers. Energy discrimination–elimination bills, he says, “seem to have a premise that the purpose of divestment is to harm the fossil fuel sector. That’s not the purpose of divestment. The purpose of divestment is for a fund to protect itself against the risk of holding stocks.” The coal industry has been declining for some time, and fossil fuel stocks—while they’ve done well in the last year—have reliably underperformed the S&P 500 over the last decade. Per its disclosed domestic equity holdings, West Virginia’s state-controlled public pensions appear to underweight the energy sector relative to the rest of the market.

In an S&P assessment of the state’s General Obligation Bonds from last May—also obtained in InfluenceMap’s FOIA request—analysts noted that West Virginia had “higher environmental and social risks” compared to other U.S. states, given its “comparatively high penetration of energy-related sector activities related to coal, oil, and gas production, and potential for longer-term policy and regulatory challenges to the industry due to broader decarbonization efforts and the global economy’s transition to renewable energy.” Perhaps in response to such concerns, the state’s Board of Treasury Investments, or BTI, expressed an interest in ESG investing. The board’s 2021–24 strategic vision, included in the FOIA cache, notes that the BTI’s first “Strategic Direction” is to “perform a formal review of Environmental, Social, and Governance (“ESG”) Investing on the BTI Investment Pools.” The BTI’s chair is West Virginia State Treasurer Riley Moore, who has been rallying fellow state treasurers and comptrollers to oppose climate-related financial regulations so as to “protect our economies and our people from the harmful effects of the woke mob.”

“They’re saying that because of a perceived flight from the fossil fuel sector, they will take money out of perfectly profitable investments of a financial nature, and that would change the behavior of the banks,” Sanzillo told me. “In that respect, it’s fiduciarily unsound, to take money out of a sector of the economy” that makes up more than 10 percent of the market. “That’s a lot of money that would be moving out of those funds,” without a clear plan as to how those funds would be redirected. That could have an outsize effect in West Virginia, one of the poorest states in the country, with the second-highest percentage of residents employed by the state government. “It’s like taking poison and expecting someone else to die,” he added.

“I guess the divestment movement has been so effective that they feel the need to do something this fiduciarily unsound to counteract it. I guess we should be proud,” Sanzillo, who has been supportive of fossil fuel divestment efforts, deadpanned.

It’s one in a series of attempts by coal industry executives to prop up the declining industry by any means necessary, often at the direct expense of West Virginians. Last August, the West Virginia Public Service Commission—the state’s electric utility regulator—voted to keep three American Electric Power–owned coal-fired power plants operating until at least 2040, allowing the companies behind the facility to raise customer rates to fund upgrades to keep them online. Electricity prices in West Virginia have already ballooned by 150 percent in the last 15 years, thanks in large part to the state’s outsize reliance on coal. One of its three public service commissioners, William Raney, served as president of the West Virginia Coal Association for 28 years; he was appointed by Governor Jim Justice, who inherited the Bluestone Coal Corporation from his father.

West Virginia Senator Joe Manchin—who’s collected $5.2 million in dividends from his family’s coal business since being elected to the Senate—has been a key blocker of the Build Back Better Act and responsible for killing the Clean Electricity Payment Program. After Manchin said he wouldn’t vote for the package, the United Mine Workers of America urged him to reconsider. Among other reasons, they note that his decisive no vote would cut the rate mining firms pay for black lung disease benefits in half, “further shifting the burden of paying these benefits away from the coal companies and on to taxpayers.”

In the document on the coal industry’s 2021 legislative priorities, sent from Hamilton to Maynard in early February, the top two are to “preserve the state’s 8 coal-fired coal plants and the current level of coal consumed for electric generation” and to provide “incentives for instate coal plants for necessary plant upgrades and improvements for greater efficiencies and to extend plant life,” respectively. The fifth and final listed priority is to “develop a program to counter the ESG force which is adversely inflicting harm to every aspect of WVs fossil industry.” Its other major battle has been fighting an increase in a coal severance tax.

The irony of the fossil fuel industry’s ire against so-called “ESG activists” and the “woke mob” is that the major financial companies boasting about their commitments to sustainable investing are still generously financing fossil fuels, thanks in large part to the lack of any formal definition for what falls under the still impossibly broad ESG umbrella. However unhinged from reality their gripes about ESG are, it does genuinely seem to be getting under their skin.

“ESG has discriminated against a well-run coal company like ours,” Alliance Natural Resources Chairman, President, and CEO Joe Craft complained to investors on a quarterly earnings call last April. “If you took the name of coal off of our company, we would be able to borrow in the low-single digits. But because we’re a coal company, people want to charge us double digits just because [of] an ESG stigma or whatever … they want to call it.” Arch Resources—Alliance’s partner in anti-ESG efforts in West Virginia—had already done just that. In May 2020, the company launched a rebrand, changing its name from “Arch Coal” and heralding its “strong commitment to environmental, social and governance (ESG) principles.”