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Of all the nonsense spouted during the House Oversight Committee’s “ Examination of Environmental, Social, and Governance Practices with Attorneys General: Part One” on Wednesday, perhaps the most patently false comment came from Arizona Republican Rep. Andy Biggs. “Always interesting to hear people say things,” the congressman mused.
It is not, in fact, always interesting to hear people say things, something that the GOP-controlled House’s ESG hearing illustrated time and time again. In the three-and-a-half hours that Utah’s Attorney General Sean Reyes, Alabama’s Attorney General Steve Marshall, and minority witness Michael Frerichs, the Illinois state treasurer, were grilled by House members, it became obvious that “there were two different hearings occurring,” as Chairman James Comer, Republican of Kentucky, noticed in his closing remarks.
Comer’s comment was intended as a dig at Democrats, who certainly shopped their own agendas during the event, but his party was guilty of the same offense. ESG stands for “environmental, social, and governance” and refers to a mainstream financial investing philosophy that considers factors beyond pure earnings numbers, such as a company’s diverse board, which has been shown to improve performance, or the momentum behind the transition to renewable energy, which might make investing in an oil company a bad long-term bet.
For one half of the committee room, ESG investments are also “an attack on capitalism” and a grave violation of fiduciary duty in pursuit of a “left-wing agenda”; for the other half, ESG investments are prudent and beneficial, informed by a greater reach of “data,” and in observation of the basic principles of the free market. Ne’er the twain arguments did meet, or even especially engage with one another.
The hearing began with Ranking Member Jamie Raskin, Democrat of Maryland, tracing the Indo-European roots of the word “woke” and went downhill from there. Republicans played all their hits: They got emotional talking about their big, beautiful pickup trucks; cited China’s ambitions to “rule the planet”; and if you had “socialist utopia,” “radical left,” “pronouns,” “the Bible says…,” and “get woke, go broke” on your bingo card, you’d have won a cash prize.
There were “anti-Semetic overtones up to 11,” as The New Republic’s Kate Aronoff pointed out, and Rep. Glenn Grothman, Republican of Wisconsin, complained that “there are certain disfavored groups in our society” who might be disadvantaged by ESG principles because “people don’t like men, people of European backgrounds, that sort of thing.” The University of Alabama vs. University of Tennessee football rivalry was, for some reason, relitigated. There was a requisite dig at tofu. Godwin’s law — that all lengthy debates bend toward an eventual Nazi reference — was proven.
As incredibly dumb as the hearing was, though, it was also incredibly important. Republican state treasurers and right-wing think tanks and donors have moved to punish companies, banks, and investors that have seen the writing on the wall — that “natural disasters and warming temperatures can lead to declines in asset values that could cascade through the financial system,” as Treasury Secretary Janet Yellen warned earlier this year, and that “the industries of the future,” like renewables, “are winning,” as Rep. Seth Magaziner, Democrat of Rhode Island, who is not on the Oversight Committee but spoke in a guest appearance at the hearing on Wednesday, said.
Already, though, some 15 states have introduced legislation to effectively penalize businesses that have aimed for more climate-friendly policies, with West Virginia’s state treasurer pulling $20 million out of a fund managed by Blackrock over the firm’s push for companies to reduce emissions and Texas passing a law barring the “energy discrimination” of firms that choose not to do business with fossil fuel companies. It’s a trend that has many in the climate space deeply concerned.
“Using ESG principles to help inform investing is not a breach of fiduciary duty. On the contrary, not taking all factors related to risk and opportunity into account can be seen as a breach of fiduciary duty,” Cathy Cowan Becker, the responsible finance campaign director for Green America, said in a statement. “Individual, institutional, and public asset investors should be free to consider all information when making critical investment decisions. This is how the free market works.”
The choice of Republican witnesses was telling, too. Both Marshall and Reyes were among 13 attorneys general who filed a protest with the Federal Energy Regulatory Commission last winter over the investment firm Vanguard’s attempt to buy electric-power utility company shares in what the AGs alleged was “contrary to the public interest” and an instance of “environmental activism.” The pair of AGs also signed on to sue the Biden administration over the Department of Labor’s new rule allowing for fiduciaries to make ESG considerations; additionally, Marshall and Reyes added their names to a letter sent to banks and asset management companies threatening legal action if ESG-informed investment strategies were pursued. Reyes, Utah’s attorney general, has also sued the National Association of Attorneys General “over their investment of public money into ESG funds,” The Center Square reports.
And as Rep. Magaziner, the Democrat from Rhode Island, pointed out, “The two Republican witnesses who are here, who may be very credentialed in other ways, between the two of them have zero degrees in investments or economics or finance, are not CPAs, are not chartered financial analysts.” Rather, “Our Republican witnesses have experience trying to overturn elections that were freely and fairly won.” The Democrats’ minority witness, Illinois Treasurer Michael Frerichs, meanwhile, looked wearier and wearier as the day wore on and he remained the lone voice defending ESG investing as inherently being in the best interest of clients.
The outwardly strange battle lines of the ESG fight have resulted in some real moments of cognitive dissonance, and that held true at Wednesday’s hearing. “I just watched @GOPoversight’s hearing on #ESG and you might be surprised to hear how much the @GOP favors securities disclosures these days ... what is even going on here,” Brad Kutner of the National Law Journal tweeted after Republican congressmen bemoaned the lack of transparency around ESG investments. And Rep. Lauren Boebert, the MAGA provocateur from Colorado, used her time to slam Blackrock as a “primarily left-wing activist fund that uses its status as the fiduciary for several investment funds to coerce companies into introducing ESG politics into their retirement account savings.” Writer and analyst Kelly Mitchell, in a must-read Twitter thread chronicling the hearing, pointed out that irony:
\u201cBlackrock, like all great left wing activists, is the second largest investor in fossil fuels in the world. I'm obviously the first, because I will not be outdone in my left wing activism.\u201d— Kelly Mitchell (@Kelly Mitchell) 1683730579
Democrats weren’t exempt from cringe-worthy moments, either. “If you don’t have a
woke capitalism you’re going to have a broke capitalism,” Raskin said, and then unfortunately repeated. And in one of the hearing’s oddest moments, freshman Rep. Jared Moskowitz, Democrat of Florida, used his time to veer off topic and advocate for gun reform, leading to a brief verbal spat with the chairman.
But Moskowitz’s tangent also produced perhaps the most relatable statement of the whole hearing. “I don’t know what we’re doing here, Mr. Chairman,” Moskowitz said, his frustration finally boiling over. “This is part one; there’s going to be a part two? I mean, part one was just so fascinating. I can’t wait for part two.”
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And more of the week’s top news about renewable energy conflicts.
1. Nassau County, New York – Opponents of Equinor’s offshore Empire Wind project are now suing to stop construction after the Trump administration quietly lifted its stop-work order.
2. Somerset County, Maryland – A referendum campaign in rural Maryland seeks to restrict solar development on farmland.
3. Tazewell County, Virginia – An Energix solar project is still in the works in this rural county bordering West Virginia, despite a restrictive ordinance.
4. Allan County, Indiana – This county, which includes portions of Fort Wayne, will be holding a hearing next week on changing its current solar zoning rules.
5. Madison County, Indiana – Elsewhere in Indiana, Invenergy has abandoned the Lone Oak solar project amidst fervent opposition and mounting legal hurdles.
6. Adair County, Missouri – This county may soon be home to the largest solar farm in Missouri and is in talks for another project, despite having a high opposition intensity index in the Heatmap Pro database.
7. Newtown County, Arkansas – A fifth county in Arkansas has now banned wind projects.
8. Oklahoma County, Oklahoma – A data center fight is gaining steam as activists on the ground push to block the center on grounds it would result in new renewable energy projects.
9. Bell County, Texas – Fox News is back in our newsletter, this time for platforming the campaign against solar on land suitable for agriculture.
10. Monterey County, California – The Moss Landing battery fire story continues to develop, as PG&E struggles to restart the remaining battery storage facility remaining on site.
A conversation with Biao Gong of Morningstar
This week’s conversation is with Biao Gong, an analyst with Morningstar who this week published an analysis looking at the credit risks associated with offshore wind projects. Obviously I wanted to talk to him about the situation in the U.S., whether it’s still a place investors consider open for business, and if our country’s actions impact the behavior of others.
The following conversation has been lightly edited for clarity.
What led you to write this analysis?
What prompted me was our experience in assigning [private] ratings to offshore wind projects in Europe and wanted to figure out what was different [for rating] with onshore and offshore wind. It was the result of our recent work, which is private, but we’ve seen the trend – a lot of the big players in the offshore wind space are kind of trying to partner up with private equity firms to sell their interests, their operating offshore wind assets. But to raise that they’ll need credit ratings and we’ve seen those transactions. This is a growing area in Europe, because Europe has to rely on offshore wind to achieve its climate goals and secure their energy independence.
The report goes through risks in many ways, including challenging conditions for construction. Tell me about the challenges that offshore wind faces specifically as an investment risk.
The principle behind offshore wind is so different than onshore wind. You’re converting wind energy to electricity but obviously there are a bunch of areas where we believe it is riskier. That doesn’t mean you can’t fund those projects but you need additional mitigants.
This includes construction risk. It can take three to five years to complete an offshore wind project. The marine condition, the climate condition, you can’t do that [work] throughout the year and you need specialized vehicles, helicopters, crews that are so labor intensive. That’s versus onshore, which is pre-fabricated where you have a foundation and assemble it. Once you have an idea of the geotechnical conditions, the risk is just less.
There’s also the permitting process, which can be very challenging. How do you not interrupt the marine ecosystem? That’s something the regulators pay attention to. It’s definitely more than an onshore project, which means you need other mitigants for the lender to feel comfortable.
With respect to the permitting risk, how much of that is the risk of opposition from vacation towns, environmentalists, fisheries?
To be honest, we usually come in after all the critical permitting is in place, before money is given by a lender, but I also think that on the government’s side, in Europe at least, they probably have to encourage the development. And to put out an auction for an area you can build an offshore wind project, they must’ve gone through their own assessment, right? They can’t put out something that they also think may hurt an ecosystem, but that’s my speculation.
A country that did examine the impacts and offer lots of ocean floor for offshore is the U.S. What’s your take on offshore wind development in our country?
Once again, because we’re a rating agency, we don’t have much insight into early stage projects. But with that, our view is pretty gloomy. It’s like, if you haven’t started a project in the U.S., no one is going to buy it. There’s a bunch of projects already under construction, and there was the Empire Wind stop order that was lifted. I think that’s positive, but only to a degree, right? It just means this project under construction can probably go ahead. Those things will go ahead and have really strong developers with strong balance sheets. But they’re going to face additional headwinds, too, because of tariffs – that’s a different story.
We don’t see anything else going ahead.
Does the U.S. behaving this way impact the view you have for offshore wind in other countries, or is this an isolated thing?
It’s very isolated. Europe is just going full-steam ahead because the advantage here is you can build a wind farm that provides 2 or 3 gigawatts – that’s just massive. China, too. The U.S. is very different – and not just offshore. The entire renewables sector. We could revisit the U.S. four or five years from today, but [the U.S.] is going to be pretty difficult for the renewables sector.
What I’m hearing from developers and CEOs about the renewable energy industry after the Inflation Reduction Act
As the Senate deliberates gutting the Inflation Reduction Act’s clean electricity tax credits, renewable energy developers and industry insiders are split about how bad things might get for the sector. But the consensus is that things will undoubtedly get worse.
Almost everyone I talked to insisted that solar and wind projects further along in construction would be insulated from an IRA repeal. Some even argued that spiking energy demand and other macro tailwinds might buffer the wind and solar industries from the demolition of the law.
But between the lines, and beneath the talking points and hopium, executives are fretting that lots of future investments are in jeopardy. And the most pessimistic take: almost all projects will have their balance sheets and time-tables impacted in some way that’ll at minimum increase their budget costs.
“It’s hard to imagine, if the legislation passes in its current form, that it wouldn’t impact all projects,” said Rob Collier, CEO of renewable energy transaction platform LevelTen.
Even industry analysts with the gloomiest views of the repeal say there’s plenty of projects that will keep chugging along and might even become more valuable to investors if they’re close enough to construction or operation. This aligns with recent analysis from BloombergNEF, which found the House bill would diminish our nation’s renewables build-out – but not entirely end its pace.
“The more useful way to break down which project may be hit the hardest is where the projects are going to fall in their development life-cycle,” Collier said. “Projects that have either started construction or have the ability to start construction … are going to very likely rise in terms of their appeal and attractiveness and those projects will be at a premium, if they’re able to skate through the legislative risk and qualify for tax credits.”
There is a more optimistic industry view that believes increased project costs will just be passed along to consumers via higher electricity prices. The American people will in essence have to pick up the tab where the federal tax code left it. Optimists also cite the increased use of power purchase agreements, or PPAs, between renewables developers and entities who need a lot of electricity, like big tech companies. By signing these PPAs, buyers are subsidizing the construction of projects but also insulating themselves from the risk of rising electricity prices.
The most bullish perspective I heard was from Nick Cohen, the CEO of Doral Renewables, who told me deals like these combined with rising premiums for quick energy on the grid may obviate lost credits in a “zero-incentive environment.”
“It’s not the end of the world,” Cohen told me. “If you’re in construction or you’re going to be in construction very soon, you’re fine.”
But Collier called Cohen’s prediction an “experiment” in customers’ willingness to pay for new energy: “If we’re talking about 40%, 50%, 60% of a project’s capital stack now being at risk because of tax credits, those are pretty large price increases.”
I spoke to multiple companies that have been inking massive deals as this legislation has progressed — although many were not nearly as sanguine about the industry’s future prospects as Doral. Like rPlus Energies, which disclosed last week that it closed a commitment for more than $500 million in tax equity investments for a solar and storage project in Utah. rPlus CEO Luigi Resta told me that the legislation “certainly has posed concern from our investors and from the organization” but the project was so far along that the tax equity investment market wasn’t phased by the bill.
“Many people in my company, myself included, have been doing this for more than 20 years. We’ve seen the starts and stops related to ITC and PTC in solar and wind, in multiple cycles, and this feels like another cycle,” Resta told me. “When the IRA passed, everybody was exuberant. And now the runway looks like it may have a cliff. But for us, our mantra since the beginning of the year has been ‘proceed with caution, preserve and protect.’”
However, crucially, it is important to focus on how that caution looks: Resta told me the company has completely paused new contracting while the company is completing the projects it is currently developing.
One government affairs representative for a large and prominent U.S. renewables developer, who spoke on the condition of anonymity to preserve relationships, told me that “whatever rollback occurs will just result in higher electricity prices over time.” In the near term, the only language that would truly gut projects in progress today would be “foreign entity of concern” restrictions that would broadly impact any component even remotely connected to Chinese industries. Similar language all but kneecapped the entire IRA electric vehicle consumer credit.
“It included definitions of what it means to be a foreign company that were really vague,” the government affairs representative said. “Anyone who does any business with China essentially can’t benefit from the credit. That was a really challenging outcome from the House that hopefully the Senate is going to fix.” If this definition became law, this source said, it would be the final straw that “freezes investment” in renewable energy projects.
Ultimately, after speaking to CEO after CEO this week, I’ve been left with an impression that business activity in renewables hasn’t really subsided after the House bill passed, and that it’ll be the Senate bill that undoubtedly defines the future of renewable energy for years to come.
Whether that chamber remains the “cooling saucer” it once was will be the decider.