West Virginia treasurer stands athwart ESG, yelling 'stop'

When it comes to investing along environmental, social and governance principles, West Virginia’s Treasurer Riley Moore has two words for it — “coercive capitalism.”

Moore said he has been standing behind the state's coal, oil and natural gas industries, which play a major role in the state's economy, since the day he's been elected.

Moore, a Republican, was elected in 2020, unseating six-term Democratic incumbent John Perdue. The treasurer is responsible primarily for overseeing the cash management of West Virginia’s government.

“My goal in doing this is to protect our industries and our jobs and our economy and our way of life here,” said West Virginia State Treasurer Riley Moore.

"Last year in May, I started a 15-state coalition and we sent a letter out to the Biden administration, which we believe was using coercive tactics to pressure financial institutions into cutting off capital into the fossil fuel industry or redirecting capital away from it in terms of investment,” he said in an interview Friday.

“That was a warning shot and we followed that up with action. In November 2021, we sent a letter from that 15-state coalition stating that we were going to reform our banking contracts — the essence of which says that if [financial institutions] cannot certify you are not boycotting the fossil fuel industry, then you are going to have an issue in being able to contract with the various states that signed onto that letter.”

What Moore calls "coercive capitalism" is what financial firms say is a consideration of ESG issues driven by both a market-driven response to investor demand and their fiduciary duty to weigh risks from factors like climate change in handling investors' money.

Moore promises to do his utmost to keep such trends from impacting West Virginia.

He said his office sent notices to six financial institutions earlier this month informing them they could be placed on the state’s "Restricted Financial Institution List" after his office made an initial determination that the institutions appear to be engaged in boycotts of fossil fuel companies. The firms, which were not named, have a 30-day grace period to respond to an action that echoes recent efforts in Texas.

Senate Bill 262 authorized the State Treasury to create the list, which will consist of financial institutions that have publicly stated they will refuse, terminate or limit doing business with coal, oil or natural gas companies without a reasonable business purpose.

The treasurer may exclude banks on the list from eligibility for contracts for state banking services.

As part of the initial evaluation, the Treasurer's office reviewed public statements from financial companies that could do business with the state through existing banking contract authority. The law also authorizes the Treasurer to require financial institutions to certify they will not engage in a boycott of energy companies in order to bid on or secure a future banking contract. The treasurer has the authority to exclude banks on the list from contracts for state banking services.

“At the beginning of this year, I dropped BlackRock from the West Virginia Treasury,” Moore said. “We no longer do business with them."

It's part of a larger goal, he said.

“My goal in doing this is to protect our industries and our jobs and our economy — our way of life here,” he said. “We see a very clear conflict of interest in handing money over to a financial institution that is trying to, at the same time, diminish our funds. For instance, we receive hundreds of millions of dollars from severance taxes from the coal as gas industries. To hand those dollars over to a financial institution that is trying at the same time to diminish those funds through activities where they’re moving capital away from them or they have a prohibition on lending to those institutions — we’re not going to pay them to destroy us. That just doesn’t make any sense.”

The resource extraction industries Moore is fighting for represent 3% of employment in the state, according to a West Virginia University report.

The number of jobs in the state is barely treading water in the long run; from the beginning of 2010 to the end of the last pre-pandemic year of 2019, West Virginia's state’s nonfarm employment numbers rose by less than six-tenths of a percent, according to West Virginia Department of Commerce data, during a time when national nonfarm employment rose more than 17%, according to the Bureau of Labor Statistics.

ESG & bond ratings
Moore has also taken issue with S&P Global Ratings' ESG policies. The agency has rated West Virginia AA-minus since 2016, a rating that incorporates ESG factors.

S&P's ESG credit indicator report card paints a mixed picture of West Virginia. It assigns West Virginia an E-3, or “moderately negative” environmental indicator, in line with 14 other states, including the four most populous. Thirty-three states received an E-2 “neutral” indicator and Alaska and Wyoming received an E-4 “negative.”

The rating agency, in a report affirming the AA-minus rating, cited West Virginia’s relatively high dependence on energy-sector businesses, “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 that could have longer-term implications on the state's economic base and finances.”

West Virginia was the only state to receive an S-4 “negative” mark for social capital, with other states all higher at S-2 or S-3. The rating agency cites a shrinking, and aging, population. West Virginia lost a larger share of its population than any other state between the 2010 and 2020 Census. "We expect the state's demographics to remain a challenge to economic development," the rating agency said.

The governance score is G-2 or neutral, the same as 44 other states, with five states getting a lower G-3 score.

Moore doesn’t believe S&P should offer such analysis to investors weighing an up to 25-year commitment to West Virginia paper.

“The state of West Virginia is in a tremendously sound fiscal state right now — we are doing excellent here. I mean we have over a $1 billion surplus in our budget, we have a Rainy Day Fund of $1 billion — we are cooking with gas, or coal for that matter,” he said. “We are doing great, but now we’ve had this ESG score that comes in from S&P, which is going to in the future affect our credit score, which is going to affect our bond rating. So now it’s going to be more expensive for us to build schools, roads and hospitals and things of that nature. And all of those issues they are talking about — flooding and rain, environmental factors that have nothing to do with the finances of the state of West Virginia.”

The state is not rated by Kroll Bond Rating Agency, but that could change.

The agency has publicly stated that it won't issue distinct ESG scores, though it doesn't ignore such factors in its rating analyses.

“Based on extensive issuer and investor feedback, KBRA believes that merging the concept of ESG scoring systems into a credit rating is confusing to market participants. Therefore, KBRA focuses on ESG factors that are relevant to credit,” Karen Daly, senior managing director and head of the public finance arm at Kroll, told The Bond Buyer. “Our bespoke analysis of an issuer’s exposure to ESG risks and opportunities in the context of credit analysis helps guard against the subjectivity and potential greenwashing of ESG issues.”

Moore lauded Kroll for its take on ESG and hinted there may be changes afoot in how rating agencies are chosen to rate the state’s bonds.

A miner near Wylo, West Virginia, in 2017. State Treasurer Riley Moore wants to use his powers to support the fossil-fuel extraction business, which represents about 3% of the jobs in West Virginia.

"I'd like to say my hat is off to them and appreciate them looking at things in a manner that is financially responsible," he said. "At the end of the day, rating agencies, asset managers and banks — all we want them to do is maximize returns. We want banks to act like banks, asset managers to act like asset managers — and stay out of politics, which is what they've decided to get into with this ESG nonsense."

When asked if the state was thinking about replacing S&P with Kroll or just adding Kroll to the mix, the Treasurer said he was looking at the state’s options.

“That is certainly something that we are having a discussion about here in the state of West Virginia,” Moore said. “So for us, that certainly is an attractive option that we’re certainly going to have a discussion about. I have already talked with the Governor [Jim Justice] about this and we’re going to continue to discuss that.”

Moore portrays ESG investing as a political activity as opposed to an economic or financial choice.

"I’d say ‘this is coercive capitalism.’ They’re coercing capital away from disfavored industries, which they find are not politically correct or don’t fit their environmental standards — and this doesn’t necessarily have anything do with their finances,” he said. “But in reality, when you’re talking about bond ratings, that's economic extortion — that’s what’s happening here — if you don’t comply with their standards then they are going to punish us by making us pay more for these critical projects here in the state of West Virginia until we come into compliance with them. And we are not going to take that.”

A coal mound sits beside a conveyor belt and elevator lift in Charleston, West Virginia.
Adobe Stock

West Virginia isn’t the only GOP-run state to push back against what they call ESG overreach by rating agencies and corporate entities.

In a May 18 letter to S&P, Idaho officials called on the rating agency to drop its current ESG policies. Idaho is rated triple-A by Moody’s and Fitch and AA-plus by S&P.

“We join with our sister states, especially Utah’s thorough letter in objection, in opposing S&P’s use of ESG credit indicators and object to any attempts at subjective quantification beyond the conservative and careful management of a state’s finances, repayment of debt, and a state’s ongoing creditworthiness,” said the letter, which was signed by Gov. Brad Little, Treasurer Julie Ellsworth and other elected state and Congressional officials.

This action came in the wake of Utah’s complaint in April.

A letter to S&P signed by Gov. Spencer Cox and Treasurer Marlo Oaks along with other state officials and its Congressional delegation, stated their objection “to any ESG ratings, ESG credit indicators, or any other ESG scoring system that calls out ESG factors separate from, in addition to, or apart from traditional credit ratings.”

Utah is rated triple-A by Moody’s, S&P and Fitch.

In a May 16 reply to the Utah officials, Eden Perry, head of S&P’s U.S. Public Finance practice, said the agency’s opinions were intended to provide investors and market participants with information about the relative credit risk of the issuers and individual debt issues.

“Our ESG credit indicators simply provide additional transparency on those ESG credit factors that are already incorporated into our credit rating analysis,” she said. “The only thing that has changed, with the publishing of our ESG indicators, is that we are now providing both a description and a numerical representation of how relevant ESG factors influence our credit rating opinions.”

In a March 29 podcast, Nora Wittstruck, an S&P senior director and its ESG sector leader, told The Bond Buyer that the rating agency incorporates ESG risks and opportunities into its sector specific criteria, and that includes elements of climate risks, social risks and governance risks.

“We released an ESG Principles Criteria last year that looks at how ESG risks can evolve and change depending upon the sector in which the entity sits or dependent upon the region where an entity is located, etc.,” she said. “So in combination with both of those criteria, we are able to look at ESG risks and opportunities and how they affect an entity's credit profile.”

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