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Amy Scott: So how would you describe the smell?

Elizabeth Trovall: It is, we haven't even gotten to the worst of it.

Amy Scott: I'm on the bow of the Sam Houston, an elegant 95 foot boat with the breeze in my hair and the state flag of Texas flapping overhead. It's got the vibe of a pleasure cruise, if it weren't for the smell.

Elizabeth Trovall: Oh yeah, now it's really pungent.

Amy Scott: My colleague, Elizabeth Trovall, who covers energy for Marketplace, invited me on this boat tour, a ride along the Houston Ship Channel, the industrial waterway that connects the Port of Houston to the Gulf of Mexico.

Voice 1: As we leave the Turning Basin, off to the left you will see public grain elevator number one...

Amy Scott: Chugging along, we see big metal grain elevators and giant cargo ships from far away countries, which Elizabeth looks up on her phone.

Elizabeth Trovall: Her length overall is 179.98 meters, and her width is 32 meters. She's a hefty lass.

Amy Scott: Until we reach the source of that smell, the oil refineries.

Elizabeth Trovall: There's a bunch of white cylinders jutting up in the ground, and then, like hundreds of much smaller tubes.

Amy Scott: I can see flames or flaring coming out of some of those tubes and what looks like steam churning out of smoke stacks.

Whenever you see pictures on the news of climate change, they always show this, yeah. Some serious climate change B roll right here.

Refineries like the one we're floating by process hundreds of thousands of barrels of oil every day, barrels that help make the state of Texas the biggest exporter of petroleum products in the US, and are also fueling a planetary crisis.

Elizabeth Trovall: Oil and gas has been so important for the Texas economy, the US economy, the global economy, but also, like what climate are we leaving our children and our children's children?

Amy Scott: That tension between the power of oil and gas and the urgency of the climate crisis, that's at the heart of a mystery that we're here in Texas trying to unfold. We're floating on the Houston Ship Channel looking for some clues like Agatha Christie's famous detective Hercule Poirot interrogating suspects on the Nile. We're hoping to untangle a complicated plot, a plot to kill ESG.

This is How We Survive. I'm Amy Scott. ESG, that's the investing framework that looks at environmental, social and governance factors. In the last episode, we traced how it evolved from a niche concept embraced by faith based and other socially conscious investors to a mainstream strategy promoted by the biggest asset managers in the world. Cue the backlash. Over the past few years, financial firms have scrubbed the acronym from their websites, dropped out of net zero initiatives and stopped advertising their climate efforts. Some have proclaimed ESG dead and buried. But if so, who killed it and why? In this episode, we take out our magnifying glasses to peer a little more closely at a piece of legislation in Texas that would spark dozens of other anti-ESG bills across the country, the weapon that made the first of a thousand cuts, all in service of protecting the fossil fuel industry. This episode, the death of ESG and the dark money behind its demise.

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Okay? A little vertigo here. Oh, my God. We are in the, I guess this is the capitol rotunda, right? There's a star at the top of the dome that says, T, E, X, A, S, Texas.

We're going to start our investigation where this all started, the state capitol building in Austin, Texas.

And this is the heart of the Texas Legislature.

We're here to meet with our first suspect in the plot to kill ESG.

06, Isaac.

This is representative Carrie Isaac's office.

Jason Isaac: Good to see you. Thanks for meeting me here. I appreciate it. Hey, how are you? I'm Jason.

Amy Scott: But she's not who we're looking for.

There's a rose.

Jason Isaac: Yes, this is my wife's office, and apparently one of her colleagues gave her some sort of a rose for something.

Amy Scott: Nice.

We're here to meet this guy, her husband. That's our suspect. A proud one, I should say.

You know what we're up to? We're looking at the rise of ESG investing as a concept, and then the backlash against it, sort of telling the story, and I understand you have a big role in the backlash part of that story.

Jason Isaac: Yes, yeah.

Amy Scott: Can you start by just introducing yourself?

Jason Isaac: Sure. I'm Jason Isaac. I'm the founder and CEO of the American Energy Institute. We're a non profit trade organization and research organization that represents American energy producers that support free markets, primarily oil, gas, coal and nuclear.

Amy Scott: Jason Isaac has a bit of a reputation.

Jason Isaac: It was Congressman Raskin who called me the Carbon King when I was testifying in front of Congress, because I said, I'm Jason Isaac, and I live a high carbon lifestyle, and I think the rest of the world should too.

Amy Scott: So Jamie Raskin came up with that nickname?

Jason Isaac: Jamie Raskin. It was, it was not a kind nickname.

Amy Scott: But you've embraced it.

Jason Isaac: I have. I love it. It's my license plate. I've got it on my business cards and my wallet. And I remind myself, and yes, absolutely. And I wish everybody else could be the Carbon King, too.

Amy Scott: At the outset, you should know two things about Jason. Not only that he works on behalf of the oil and gas industry, but also he does not accept the overwhelming scientific consensus that human activity is causing catastrophic climate change.

Jason Isaac: I mean, if we're living in a catastrophic climate crisis, I want more of it, because people are prospering like never before because of energy.

Amy Scott: Before he became known as the Carbon King, Jason was working at a conservative think tank, the Texas Public Policy Foundation. He led an energy initiative there called Life Powered. He says it was around 2019 when he started to hear something that bothered him.

Jason Isaac: I had specific drilling companies, I had services companies that were telling me that their banks were denying them access to financial services because they were in the oil and gas industry.

Amy Scott: These energy companies suspected they were being denied because of the banks' ESG policies.

Jason Isaac: And I didn't know what ESG was at first, I just said they're discriminating against politically unfavored industries like oil and gas and forestry and guns and ammunition manufacturers.

Amy Scott: And so what did you decide to do about it?

Jason Isaac: Well, it was interesting, because one of them kind of challenged me. It's like, Jason, you've got to fix this. And so I thought, oh gosh.

Amy Scott: Jason says a light went off. He recalled a bill he'd worked on a few years earlier when he was serving in the Texas House of Representatives. It was aimed at preventing companies from boycotting Israel. So he thought, hey, why not just replace Israel with oil and gas?

Jason Isaac: I essentially just said, If you boycott fossil fuels, you can't do business with the state of Texas.

Amy Scott: The bill would prohibit any government entity in Texas, so pension funds or school districts, from doing business with financial firms found to be boycotting oil and gas, a sort of boycott uno reverse card.

So you boycotted companies that you saw as boycotting other companies?

Jason Isaac: Yeah, I just didn't want them using our tax dollars, our pension dollars from teachers, firefighters, other first responders that are entrusted with companies. I didn't want those dollars, and in some cases, our tax dollars, being weaponized against the best interest of Texas.

Amy Scott: So the sort of confusing thing here is that these companies that Jason sees as boycotting fossil fuels in Texas, these are financial firms and banks that, in some cases, invest billions of dollars in oil and gas in Texas, which seems like the opposite of a boycott. The problem, Jason says, is the way that some of these financial firms invest.

Jason Isaac: They're investing in them, forcing them to transition, forcing them to adopt political agendas which are contrary to popular opinion here in the legislature in Texas, and so I really felt like they were weaponizing their capital, trying to, using Larry Fink's terms, force behaviors.

Amy Scott: Remember Larry Fink, the CEO of BlackRock, whose now infamous 2020 letter to CEOs declared that climate risk is investment risk? Jason says, while it's true, BlackRock invests more than $100 billion in Texas oil and gas, the company has also used its shareholder power to push companies to address climate change. To Jason and his conservative allies in the legislature, that kind of activism had no place in Texas.

Voice 2: Senator Birdwell, you recognized committee substitute for Senate Bill 13 to suspend the regular order of business. 

Voice 3: Thank you, Mr...

Amy Scott: In the spring of 2021, on the green carpet of the baroque Senate chambers, a Republican state senator brought Jason's anti-ESG bill, now known as Senate Bill 13, to a vote.

Voice 3: On behalf of lucky number 13, Mr. President, I move final passage.

Amy Scott: It passed the first chamber, the Senate, with almost no opposition.

Voice 2: There being 26 ayes and four nays, the bill is finally passed.

Voice 3: Thank you, Mr. President for all your work on this.

 Amy Scott: But one person in the room felt something was not quite right.

Do you feel like you have a lonely position here?

Nathan Johnson: I think there's a matter of record of I have a lonely position here.

Amy Scott: This is state senator Nathan Johnson. He was one of the four nays on Senate Bill 13. He's a Democrat, a lawyer and a composer. Millennials may recognize his music from the TV anime show Dragon Ball Z.

Nathan Johnson: I did the music for 67 episodes and five of their movies.

Amy Scott: Do you still get royalties for that? 

Nathan Johnson: I don't get any royalties at all for that. I got into the business at the wrong time.

Amy Scott: In our murder mystery scenario, Senator Johnson is like the witness watching in horror as the scene unfolded.

Nathan Johnson: I think the whole notion of passing laws that interfere with the private flow of capital is anathema to the whole Texas ethos of being a business friendly state, and it smacked of big government interference with markets.

Amy Scott: Battling some of the biggest financial firms in the US, limiting market options, telling companies what they can and can't do, seemed like just a different form of the market interference the bill's supporters claim to oppose.

Nathan Johnson: The job of a financial services institution is to make money. They want to take capital and invest it and get it a return. And if they think they can do it with a wind farm or a pump jack, they're going to pick the one that gives a good return.

Amy Scott: Increasingly, it's the wind or solar farm investors are betting on. Texas is actually leading the country in renewable energy production, and Johnson says this anti-ESG legislation looks to him like a campaign to slow down the transition.

Nathan Johnson: Which I think is silly. The fossil fuel industry is well integrated with the renewable energy generation industry. Wind farms and solar farms are powering oil and gas operations. So it's unfortunate that we're having this silly conversation right now, because it's helping no one.

Amy Scott: After SB 13 passed, again saying Texas would boycott any financial firms that boycott oil and gas, the state had to figure out who was in compliance, so officials created a black list. It named 10 firms at first, including BlackRock, which again, invested more than $100 billion in Texas energy companies at the time. It also included nearly 350 individual funds. The firms on the black list were banned from any financial activity that used state money. That meant everything from managing public pensions to underwriting municipal bonds, and that might have been the end of it, the infliction of this first cut to ESG, but for this man, our second suspect.

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Would you mind just introducing yourself? Tell us who you are and what you do and where we are.

Brian Hughes: Thanks. I'm Brian Hughes, and so glad to be with you in the Texas capitol today.

Amy Scott: Senator Brian Hughes of district one in East Texas. Senator Hughes co-authored Senate Bill 13. But that bill, that first wound to ESG, wasn't enough for the Senator. He really wanted to twist the knife.

Brian Hughes: Good morning, everyone. For many of you, I'll say, Welcome to Marshall, and for Marshall folks I'll say, Thank you for letting us be here and enjoy this...

Amy Scott: He wanted to throw a harsher spotlight on what financial firms were up to with this ESG stuff, and make sure they knew Texas was serious about cracking down. So a couple months after the blacklist came out, in late 2022, Senator Hughes and the state affairs committee he chaired summoned a bunch of Wall Street firms to a remote corner of East Texas for questioning. Representatives from BlackRock, State Street, Global Advisors and institutional shareholder services, an advisory firm, made the trek out to the small city of Marshall, and were greeted with a show.

Brian Hughes: We had the hearing in December and so the Christmas lights are up. There's an ice skating rink set up on the town square. It's a beautiful Norman Rockwell feel. What we were looking for was to be in this environment of a Hallmark movie. Except for the firms we subpoenaed. We wanted a John Grisham movie for them.

Amy Scott: He gave them a six hour grilling, challenging them on all the ways they were trying to take down the fossil fuel industry, like offering ESG funds that screen out some energy companies, joining net zero initiatives aimed at drawing down emissions, voting to support some environmental and social shareholder resolutions like the board shake up at Exxon Mobil we talked about last episode.

Brian Hughes: When it comes to ESG investing, which interest is BlackRock trying to serve? The general welfare of your clients, the general welfare of humanity, or the sole financial interest of those clients.

Amy Scott: Again and again, Senators accused the companies of putting ideology ahead of their fiduciary duty to act in their clients' best interests, while company reps insisted that duty required them to consider ESG factors that could affect their investments. But Senator Hughes wasn't persuaded. BlackRock stayed on the black list.

Brian Hughes: And our response to them has been very, very simple. If you don't want to be on the list, then don't attack the Texas energy industry.

Amy Scott: Since then, the list has grown to a total of 16 companies and includes big global firms like BNP Paribas, HSBC and UBS. And the senator isn't done. He's now trying to pass other bills to prevent financial firms from considering non-financial factors in investing and lending decisions. In some ways, his tactics have worked. Before the hearing, Vanguard, another big asset manager, appeased Texas lawmakers by dropping out of a net zero initiative, and in the years since, BlackRock and others have followed suit and dialed back at least their public support for ESG initiatives. But if Hughes's aim was to hurt the companies on the black list, he doesn't appear to have been successful. Most of these firms have grown even bigger. Critics of the effort say the people who have been hurt by all of this are Texans.

Chris Hollins: So how has your trip to Houston slash Texas been?

Amy Scott: It's been good. Yeah, very friendly.

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This is Chris Hollins, the city controller of Houston, Texas. He's an elected official responsible for Houston's $7 billion budget. We met him in his corner office on the eighth floor of City Hall. He's got a Hakeem Olajuwon college jersey on the wall from when the legendary basketball player was at the University of Houston.

Chris Hollins: The jersey is Hakeem Olajuwon, but it's signed by the whole team.

Amy Scott: Wow. How'd you get that?

Chris Hollins: You know, I have my ways.

Amy Scott: That's cool.

That is cool. But we're here to talk about Senate Bill 13.

Has it had an impact on the economy of Texas?

Chris Hollins: I believe that it has.

Amy Scott: One of the most important things that financial companies like BlackRock do is help towns and cities like Houston borrow money to fix roads or upgrade schools using the bond market. The firms bid for that business, so when a bunch of them get blacklisted for their ESG policies, there's less competition, and that can mean the cities and school districts end up paying more.

Chris Hollins: You take economics 101, and you understand that if I'm the only, if I if I'm the only bidder, and I know that, then I can go in with a little bit higher of a price, and you're probably going to say, Yes, right? It lessens our negotiating power, which we know ultimately has that negative impact on on our bottom line.

Amy Scott: Economists from the Federal Reserve Bank of Chicago and the Wharton School studied the impact of anti-ESG legislation in Texas, including Jason Isaac's bill. They estimated that in the first eight months they were in effect, these laws cost the state between $300 and $500 million in higher borrowing costs.

Chris Hollins: A huge chunk of what we spend money on is debt service, right? It's paying interest on money that we borrowed and and so all the money that, the millions and millions of dollars that we're paying in interest, that's money that we're not spending on hiring more police officers. It's money that we're not spending on fixing potholes or beautifying our parks to make this a better city to live in and enjoy with your family. So there are real victims here.

Amy Scott: Controller Hollins, who's a Democrat, says it's disappointing to see politicians sitting in Austin, hours away, making policies that he feels are harmful to his city.

Chris Hollins: And it's even worse when you when you can put like a nice southern drawl on it and sound all, you know, I don't know hokey and kind and whatever, but all you're doing is is just really waking up and going to hurt people every day.

Amy Scott: Who have those policies hurt? Can you give some examples?

Chris Hollins: The the millions who are being impacted by changes in climate when there are disaster after disaster pummeling our state, especially in the coastal areas. We're the energy capital of the world and just you know, in recent past, we can't keep the lights on during certain natural disasters. Last year, climate related disasters cost Texas between $20 and $50 billion.

Amy Scott: When we visited Houston, the city had just been through a deep freeze.

Chris Hollins: And the recovery is is getting more and more costly. That little chicken scratch that y'all saw on the table when you came in, it was it was around our disaster recovery costs, which are estimated to be upwards of $200 million just for what happened this past year.

Amy Scott: To controller Hollins, the ESG backlash is just another form of climate denial that's delaying action to address the crisis and will cost Texas not just money, but lives in the future. But to conservative lawmakers, it's another front in the broader culture war, another acronym like DEI and CRT, to distort and demonize. After it passed in Texas, Senate Bill 13 became a blueprint for Republican legislators across the country. Dozens of bills in states like Oklahoma, Kentucky and West Virginia have used Jason Isaac's language as a template. It was a targeted coordinated attack that delivered a thousand cuts to the concept of ESG and left it bleeding out in the stairwell. But the lawmakers that wielded the knives weren't operating alone. Turns out, they were hired killers funded by a river of dark money.

Kelly Mitchell: We've seen a lot of alignment between the oil and gas industry and sort of the broader, sort of hard right movement.

Amy Scott: After the break, the tangled web of right wing think tanks and fossil fuel interest groups that funded the plot to kill ESG.

[BREAK]

Amy Scott: What are some of your favorite slurs that the right has given ESG?

Kelly Mitchell: Oh, that's a fun question.

Amy Scott: Like woke capital is one, woke capitalism.

Kelly Mitchell: Woke capitalism might be my favorite, just because it's so kind of absurd on the face. Like nothing BlackRock is doing is woke.

Amy Scott: This is Kelly Mitchell. We heard from her in episode one. She's executive director of the investigative watchdog group Fieldnotes, and she's been following the anti-ESG backlash since the very beginning. If Kelly was the lead investigator in our ESG murder mystery, she'd have an evidence board in her office with red yarn connecting pictures with suspects that would take up the entire wall, maybe even several rooms. But what Kelly's tracking isn't just the people and the organizations who delivered a thousand cuts to ESG, it's the money and power behind them. And there are really two main sources of money, the business folks and the culture warriors.

Kelly Mitchell: We've seen a lot of alignment between the oil and gas industry and sort of the broader, sort of hard right movement.

Amy Scott: These are the people and the groups in the shadows that paid for the knives that policy makers wielded against ESG.

Kelly Mitchell: Texas Public Policy Foundation has been a long time recipient of oil money, most notably from the Koch brothers and Koch Industries.

Amy Scott: The Texas Public Policy Foundation is the conservative think tank where Jason Isaac worked when he wrote Senate Bill 13. According to climate research firm Pleiades Strategy, over the last 10 years, the think tank has received about $13 million from foundations linked to Koch, Inc., the big conglomerate that's deeply involved in oil and gas. Another funder is oil and gas tycoon Bud Brigham.

Bud Brigham: I found the Texas Public Policy Foundation to be a very effective think tank for the principles that I believe in. So I have invested over the years with them quite a bit.

Amy Scott: We reached out to Bud because he's been gunning for ESG for years. Back in 2021 he published a white paper with the Texas Public Policy Foundation called "Energy discrimination: a threat to capitalism, prosperity and flourishing." In his paper, he questions accepted climate science and calls ESG a cancerous threat to our way of life.

Bud Brigham: The ESG movement, it became apparent that it was like DEI, a Trojan horse for these political movements, in this case, to co-opt companies away from oil and natural gas by those that view it as detrimental, and so I felt like I needed to stand up for capitalism.

Amy Scott: Bud Brigham's ideas influenced Jason Isaac, who wrote Senate Bill 13. Ideas that through that white paper and Jason's legislation began to spread across the country. Since 2021, legislators have introduced more than 470 anti-ESG bills in 40 states. That's again, according to Pleiades Strategy. 48 of those bills, so a little over 10%, became law, some modeled after Jason Isaac's bill. Others taking a different approach, but each one sliced away at ESG with the help of the people in the shadows.

Kelly Mitchell: As this fight has grown, there have been a number of other groups, other major dark money players, that have stepped in to take advantage of the momentum.

Amy Scott: Dark money is, by its nature, hard to track, but some familiar names are tacked up on Kelly's evidence board.

Kelly Mitchell: Some of those include groups that are backed by Leonard Leo, most famous for basically shaping Trump's Supreme Court. Through his various affiliates, he's poured millions of dollars into this anti-ESG movement with the goal of crushing liberal dominance and really taking on the quote woke left and woke capitalism.

Amy Scott: Groups backed by Leo, a conservative lawyer, include the nonprofit Consumers Research, which funds the State Financial Officers Foundation, an organization of Republican State Treasurers and auditors. Another big player in the backlash is the Heritage Foundation, whose fellow Andy Puzder, former fast food CEO, had this to say about ESG.

Andy Puzder: ESG investing is socialism in sheep's clothing, and this is, this is the challenge of your generation. My father's generation's challenge was the Nazis.

Amy Scott: Puzder was speaking at a workshop about ESG. The investigative watchdog Documented, where Kelly used to work, got hold of this recording, which was first verified and aired by the program Here and Now.

Andy Puzder: The challenge of your generation is ESG investing, and it's more insidious than communism or the Nazis.

Kelly Mitchell: I don't even know how to respond to that, but I think it does speak to the hyperbolic nature and the fear mongering that's come along with something as simple as like evaluating risk.

Amy Scott: This is just a fraction of the suspects on Kelly's board, which is actually a PDF put together by her and her colleagues. It's a tangled web of think tanks, advocacy groups, corporations and oil and gas trade associations, including the Heartland Institute, Heritage Action for America, American Petroleum, Independent Women's Forum, Capital Research Center, American Legislative Exchange Council, America First Policy Institute. And many, many more.

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Yes, it kind of makes your head spin, doesn't it?

Kelly Mitchell: It does make my head spin.

Amy Scott: We've got oil billionaires and Republican treasurers, anti-woke pundits and climate deniers. And what's even more baffling about all this is that the thing they're so afraid of, this so-called woke capitalist threat to fossil fuels, doesn't seem to be doing what its critics think it's doing. In fact, last year, the United States produced more oil and gas than any country ever has. Kelly says part of the problem with ESG is that it's so poorly defined. To critics on the right, it's part of an activist plot to bring down the fossil fuel industry, but to critics on the left, it's not doing nearly enough to actually address the climate crisis.

Kelly Mitchell: In part because we don't really have the tools to distinguish green washing and empty promises from real, long term commitments.

Amy Scott: And in some ways, that vagueness has left ESG open to attack.

Kelly Mitchell: The death of ESG, if we're going to call it that, is really complicated. It's morphed into this buzzword that can now mean anything to anybody, and so identifying a single culprit is quite difficult here.

Amy Scott: But the backlash has had a chilling effect. Big firms are leaving net zero initiatives in droves. Investment in ESG funds has fallen in each of the past three years. CEOs have scrubbed the letters ESG from their websites and public speeches, and maybe the final nail in the coffin, the SEC just dropped efforts to require companies to disclose climate related risks.

So is ESG dead?

Kelly Mitchell: The buzz word ESG may be dead. The movement has succeeded in, unfortunately, turning it into something quite politically charged and toxic. But the underlying principles are incredibly durable because they're based in reality. The truth is the world will decarbonize. The truth is that climate disasters are increasing in their frequency and their severity. Smart investors will continue to look at those risks. They will evaluate those risks, and they will price it into their investment decisions. They're probably just not going to do it under the banner of ESG.

Amy Scott: Okay, so maybe the body of ESG is buried six feet under but that doesn't mean its spirit doesn't live on.

Jason Isaac: These financial institutions are essentially now kind of like reverse virtue signaling. So they're virtue signaling to us, but in their statements, they're saying we're going to continue the policies that align with the energy transition. I wasn't using that term green hushing, but I may have to add that to my vocabulary.

Amy Scott: Next episode, the evolution, or maybe reincarnation, of ESG. Thanks for listening, and if you like what you hear, please do rate and review so more people can find us. I'm Amy Scott. Sophia Paliza-Carre produced this episode, with help from producers Katie Reuther and Hayley Hershman. Caitlin Esch is our Supervising Senior Producer. Editing by Paddy Hirsch. Scoring and sound design by Chris Julin, mixing by Brian Allison. Special thanks this week to John Gordon as well as Jesse Coleman, Connor Gibson, Colette Rosenberg, Francis Sawyer and Cleo Rank. Our theme music is by Wonderly. Bridget Bodnar is Director of Podcasts. Francesca Levy is the Executive Director, and Neal Scarbrough is the Vice President and General Manager of Marketplace.