An Open Letter To Five Republican Senators (Which I Hope Will Be Helpful)

Sustainability An Open Letter To Five Republican Senators (Which I Hope Will Be Helpful) Robert G. Eccles Contributor Opinions expressed by Forbes Contributors are their own. Tenured Harvard Business School professor, now at Oxford University.

Following New! Follow this author to stay notified about their latest stories. Got it! Nov 8, 2022, 03:30am EST | New! Click on the conversation bubble to join the conversation Got it! Share to Facebook Share to Twitter Share to Linkedin Dear Senators Marsha Blackburn (R-TN), Tom Cotton (R-AR), Chuck Grassley (R-IA), Mike Lee (R-UT), and Marco Rubio (R-FL) Cc: (Retiring) Senator Pat Toomey (R-PA) It’s election day! I know all of you are very busy and hoping very much that you take control of the Senate. I must admit that the polls are looking pretty good for you.

I expect you’re lickin’ your chops at the prospects of being back in charge. If you do, it will give you the opportunity to follow through on the letter you sent to 51 law firms, putting them on notice regarding the advice they are providing to their corporate clients regarded the dreaded “ESG. ” You point out that “Although businesses would certainly be wise to lawyer up before undertaking ESG initiatives, your firm has a duty to fully inform clients of the risks they incur by participating in climate cartels and other ill-advised ESG schemes.

” I’m sure this letter has certainly gotten their attention. No doubt you benefited by the fact that Senator Cotton is a graduate of Harvard Law School. Full disclosure: I got my Ph.

D. in Sociology from Harvard and was a tenured professor at Harvard Business School. Nice to see that the Senator and I have something in common! (Original Caption) Massachusetts: The Harvard University seal.

Bettmann Archive Senator Toomey and I also have Harvard in common since he did his undergraduate work there. (I did my undergraduate work just down The Charles River at MIT. ) While the focus of my letter to you is your letter to 51 law firms (which cover a wide range in how Democratic or Republican they are), I am copying him as a courtesy.

This is to acknowledge the equally strong letter he sent to 12 ESG rating agencies. The Senator rightly states that “Notably, ESG ratings take into consideration information about companies that go beyond the extensive public disclosures firms are required to make under federal securities laws. ” He then claims that “In determining a company’s ESG rating, however, many ESG ratings firms consider information that is not material or financially relevant under federal securities laws.

” In hopes of being helpful to Senator Toomey as well, in my most recent piece I address some of his more fundamental concerns about the work of these firms. Do get in touch, Senator, if you’d like to have a chat about this. This issue of financial materiality is indeed at the heart of the question of ESG, and it is good of Senator Toomey to frame his concerns in this context.

The question then becomes how relevant these ESG ratings are to investors. There is much to discuss here. The Republican view appears to be that ESG is detrimental to company profitability and investor returns.

Somewhat ironically, there are those on the left who object to ESG because it is only about company profitability and investor returns. You can learn more about this conundrum here . MORE FOR YOU Why The Rock’s Social Media Muscle Made Him Hollywood’s Highest-Paid Actor Samsung Galaxy Watch 4 Update “Bricking” Smartwatches Lily-Rose Depp And Pharrell Williams Were Amongst Those Who Attended Chanel’s Miami Cruise Show What I don’t have in common with Senator Toomey and the rest of you distinguished elected officials is your interpretation of ESG.

With respect, I have been studying this concept for far longer than any of you. I was the Founding Chairman of the Sustainability Accounting Standards Board (SASB) in 2011. As a result of my work here and in other ways over the past 30 years, there are some people that regard me as a bit of an expert on this topic.

You can get a sense of my interpretation of ESG, and how it differs from impact and sustainability, in this recent piece . I am not a Senator and you folks are so you have powers far beyond those of an aging (71) American academic. But since we are fellow Americans we need to work together for what’s best for our country, while respecting different political views.

It is in that spirit— and being a practical man about the likely outcome of today’s elections—that I am writing you today. On the off chance any of your staffers ever read this letter, I hope you will consider it in an equally magnanimous spirit. Happy to chat with any of them as well.

The Financial Times has written about how much attention your letter has received. It appears that law firms and other advisors will be preparing their corporate clients should they have the “pleasure” to appear before you. You certainly have the right to request these interviews.

I’m just hoping you’re even handed about this and don’t focus on Democratic executives and industries you disapprove of for whatever personal reasons. In truth, it will be hard to simply focus on Democratic executives. Especially given the fact that, as Professors Vyacheslav Fos of Boston College, Elisabeth Kempf of Harvard Business School, and Margarita Tsoutsoura of Washington University in St.

Louis have pointed out in “ The Political Polarization in Corporate America ,” 69 percent of the highest paid executives in the companies covered by the S&P 1500 index are Republicans and 31 percent are Democrats. This is a general observation so I want to be more specifically helpful. I think it is very important that you invite the CEOs of the oil and gas companies which are in the top 10 holdings (Table 1) of Strive Asset Management ’s “ U.

S. Energy ETF ” (DRLL). It currently has around $285 million in assets under management and a relatively high management fee for an ETF of 0.

41 percent (vs. the more typical 0. 05-0.

10 percent). I have studied the fund’s top 10 holdings (nine of which are American companies) and want to make you aware of my findings. I believe they will be of grave concern to you.

Thus, if you call in CEOs from tech and financial service firms, I trust that your sense of American fair play and concern about the perils of ESG in whatever industry it has taken root will mean you call in these oil and gas CEOs and, well, drill them too. The Top 10 Holdings in Strive Asset Management’s DRLL ETF Fianna Rezuano The central thesis of Strive Asset Management is to invest in companies practicing “Excellence Capitalism” who are eschewing the dreaded Woke practices of ESG. In that spirit, I analyzed all 10 of these firms’ ESG and sustainability disclosures earlier this year.

Disclosures which, as noted by Senator Toomey, are not required by regulation. Let’s ease our way into this analysis by looking at the high level findings as shown below in Table 2. Every single one of these companies has sustainability featured on the home page of its corporate website, discusses ESG, and even discusses the (trigger word alert!) the UN’s 17 Sustainable Development Goals (SDGs) which are about making the world a better place.

YIKES! I urge the Senators to ask some very pointed and penetrating questions of these oil and gas company executives on the SDGs as well as ESG. Happy to give you some tips if you’d like since I know this domain pretty well too. Sustainability Overview of the Top 10 Holdings in the DRLL ETF Fianna Rezuano It gets even more disturbing in light of your concerns about “climate cartels.

” Table 3 shows that every single one of these firms acknowledges climate change to be a phenomenon that must be addressed, reports on its Scope 1 and 2 carbon emissions, discusses net-zero and voluntarily provides carbon reduction targets, and uses the framework developed by the Task Force on Climate-related Financial Disclosures (TCFD) in its external reporting. Good grief, Senator Cotton! I defer to you on matters of antitrust law, but this looks suspiciously like a climate cartel to me. Analysis of How the Top 10 Holdings of the DRLL ETF are Addressing Climate Change Fianna Rezuano Finally (and another trigger word warning!), I analyzed each one of these companies in terms of the controversial “DE&I” (Diversity, Equity & Inclusion) topic (Table 4).

To some even more terrifying than ESG itself. Once again, all 10 firms scored very well. Every single one discusses DE&I.

All of the American companies in this group puts its EEO-1 report in the public domain. Not a requirement, Senators. (Every company in the U.

S. with 100 or more employees must file this annually with the U. S.

Equal Employment Opportunity Commission. Chevron’s EEO-1 Report is in the standard format of all of them. It shows the breakdown of the workforce by job category [e.

g. , professionals, sales workers, and service workers] by gender and within that by race. ) Finally, every firm except for Chevron and Exelon reports on progress for women and minorities.

But Chevron has strong diversity action plans and Exelon simply can’t do so given that it only separated from Constellation Energy on February 2, 2022. Constellation is also one of the top 10 holdings of the Point Bridge Put America First ETF (MAGA) which has a barely noticeable $14 million in AUM but an eye-popping management fee of 0. 72 percent.

MAGA is a Socially Responsible Investment Fund based on Republican values. Thus I’m pleased to note that on the home page of its corporate website Constellation proudly proclaims that “We’re the nation’s leading provider of carbon-free energy and are committed to being 100% carbon-free by 2040. ” Hey, now that’s a Republican value even this Democrat can support! Analysis of the DRLL ETF Top 10 Holdings in Terms of How they are Addressing Diversity, Equity & .

. . [+] Inclusion Fianna Rezuano I used all of this careful analysis to calculate the Woke Score for each of these companies.

I can’t tell you how pleased I am—but I’m sure you aren’t— to announce that each company got a Perfect 10! This is shown in Table 5 below, along with a selected Woke Quote. Space limitations required me to pick only one short one. Very challenging since there were so many good ones to choose from.

Work Score and Selected Woke Quote from the DRLL ETFs Top 10 Holdings Fianna Rezuano So where does this leave us? In a rather awkward spot Senators, I’m afraid. At the core of your complaints about ESG are climate change and DE&I. I’m all for materiality in ESG.

When (and, again, as a fellow American I’m trusting in your sense of fair play) you haul these oil and gas executives in for hearings, I think you need to politely but rigorously question them whether they think their ESG efforts are material to shareholder value creation or not. These executives can respond in two ways. The first is, “Yes, Senator, it is and here’s why.

” In which case you either have alter you views (admittedly rather difficult to do and save face) or accuse these companies of lying to them. This would be a very serious thing for them to do. As you well know, they could land in jail even if not under oath.

I’m sure Senator Cotton will know the legal procedures to follow to put these oil and gas executives in the hoosegow. The second is that these executives will agree that ESG isn’t material and they’ve just been saying this stuff to appease the Dems and those pesky NGOs. In which case these hearings and Republican support will give them the air cover they need to quit acting and reporting on ESG and sustainability.

But admit it, if this is the case, aren’t you a little disappointed that what must be a largely Republican group of CEOs have so little spine and have been caving in to pressure from the Libs? I have my own views about how these oil and gas execs would respond and how likely it is they will quit voluntarily acting and reporting on ESG and sustainability. But I will keep them to myself. I don’t want to interfere with the important work you distinguished Senators are doing.

Respectfully yours, Robert G. Eccles Follow me on Twitter or LinkedIn . Check out my website .

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