Republican Treas. John Schroder – also a 2023 gubernatorial candidate – should extend his efforts to remove wokeism from the financial services industry, emulating some of his compatriots in this quest, and enticing the Louisiana Legislature to join in.
Already, with many other chief financial officers, Schroder has guided state investment policy to avoid as best possible placing idle state dollars in the hands of entities that practice viewpoint discrimination in their investment and lending choices. The Legislature also looks set to pass laws to do the same for contracting, although it will have to get by the ideology of Democrat Gov. John Bel Edwards to enact this into law.
Recently, another matter along these lines has popped up and drew Schroder’s attention. S&P Global, one of the three major credit rating firms, has begun to rate government debt on the basis of ESG factors – environmental, social, and governance. Despite the fact that investing on the basis of things such as degree of “green” or “woke” brings no extra return to shareholders and the reality of the speciousness of this due to high subjectivity of ratings on that basis, under pressure from leftist politicians and cultural elites a growing number of corporations and governments are incorporating ESG considerations into their policy preferences.
This week, Schroder wisely sent a letter to S&P questioning its adoption of this component into rating governments. In it, he notes how it degrades the true picture of the state’s financial health – most states received a grade of “neutral” on this, some even lower, which is lower than they receive on the financial component – introduces politicization into grading, and closes by inviting the firm to discuss the matter further.
However, he should go further, using as a model the letter sent by both state and federal officials in Utah. Led by its treasurer but remarkably signed by every single statewide elected official, member of Congress, and the leaders of each chamber of its legislature – a show of unity undoubtedly Democrats Edwards and Louisiana Second District Rep. Troy Carter would wreck – it goes into great detail outlining the shortcomings, inconsistencies, and potential illegality of using ESG as part of an evaluation of the financial strength of the state government. It also put S&P to shame by inconveniently pointing out the last time S&P allowed extraneous factors to count towards assigning rating that produced the debt market slump that precipitated the 2007-08 recession – malpractice so egregious that S&P paid out a $1.375 billion settlement for its misdeeds.
Attached to it the signatories asked for about two dozen pieces of data concerning the ratings process “so that they can be evaluated for undue political bias and conflicts of interest.” While this presents a far more specific and targeted approach than Schroder’s request for discussion, it doesn’t mean Schroder couldn’t use these in his own vetting.
But, most significantly, Utah officials hinted that they would withhold information from S&P if they discovered anything unsatisfactory stemming from this information (which would include refusal to supply it). This would strike at the heart of S&P’s business model, because without this it could not compute a credible credit rating or explain this for the state or its political subdivisions, which would be of no use to its subscribers.
That’s an approach Schroder needs to take, along with other states’ chief financial officers. And while it may be too late this session, the Legislature as soon as practicable could take up a measure establishing a state body to emulate Utah’s vetting, where an unsatisfactory review triggers the withholding of that information. This also would have the salutary impact of discouraging the other two major ratings agencies, Fitch Ratings and Moody’s Investor Services, from pursuing the same nonsense.
Taxpayers are under no obligation to supply information into a garbage-in, garbage-out model that could increase illegitimately their debt payments. Schroder has got the ball rolling on this account, and he can act to accelerate that further.