In recent years, Environmental, Social, and Governance (ESG) standards have become increasingly popular in the investment world. While these were supposed to encourage investments in companies that prioritize environmental sustainability, social responsibility, and good governance practices, as with anything, when you impose specific standards on society some necessary segments suffer.
Agriculture and energy are the pillars of North Dakota's economy. But ESG requirements target those very pillars. Are we being socially responsible when this feel-good framework causes people to lose their jobs?
In this episode, your host, Emmery Mehlhoff visits with District 33 Representative Anna Novak (R), Hazen, about why ESG requirements are harming our state and what she hopes to accomplish with legislation, HB 1429, which would create a new section in North Dakota Century Code that would address unfair discrimination in the business of insurance and the investment and management of public funds that ESG requirements cause. In addition, the bill calls for a study during the interim to evaluate the level of involvement North Dakota has with companies using ESG criteria.
Contact Rep. Novak at anovak@ndlegis.gov
Contact host Emmery Mehlhoff at emmery@ndfb.org
Learn more about NDFB policy positions at ndfb.org/policy/
In recent years, Environmental, Social, and Governance (ESG) standards have become increasingly popular in the investment world. While these were supposed to encourage investments in companies that prioritize environmental sustainability, social responsibility, and good governance practices, as with anything, when you impose specific standards on society some necessary segments suffer.
Agriculture and energy are the pillars of North Dakota's economy. But ESG requirements target those very pillars. Are we being socially responsible when this feel-good framework causes people to lose their jobs?
In this episode, your host, Emmery Mehlhoff visits with District 33 Representative Anna Novak (R), Hazen, about why ESG requirements are harming our state and what she hopes to accomplish with legislation, HB 1429, which would create a new section in North Dakota Century Code that would address unfair discrimination in the business of insurance and the investment and management of public funds that ESG requirements cause. In addition, the bill calls for a study during the interim to evaluate the level of involvement North Dakota has with companies using ESG criteria.
Contact Rep. Novak at anovak@ndlegis.gov
Contact host Emmery Mehlhoff at emmery@ndfb.org
Learn more about NDFB policy positions at ndfb.org/policy/
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[00:12] Emmery Mehlhoff: Welcome to Straight talk with NDFB. This is your host, Emmery Mehlhoff. Today I visit with Representative Anna Novak from District 33. Representative Novak visits with me about ESG, what it is, how it could affect North Dakota, and legislation that she has sponsored and championed through the North Dakota Legislature. Join us for this conversation.
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[00:39] Emmery: Welcome to Straight talk with NDFB. Today, I have Representative Anna Novak with me to talk about ESG issues. But before that, Representative Novak, why don't you go ahead, tell us about yourself, about your district and how you got involved and ran for the legislature.
[00:58] Rep. Novak: Oh, absolutely. And Emmery, thank you so much for having me on today. So I represent District 33, which is all of Mercer County, all of Oliver County, parts of Morton, and parts of McLean. Essentially it's all of coal country. And I got involved in politics, really local politics, about three years ago. So I'm co-founder of an organization called Faces of North Dakota Coal. It is a grassroots advocacy group that our goal is to humanize the people that work in the coal industry. For the last decade or so, there's just kind of some negative connotations coming at the national level and really from the EPA and parts of the federal government. The people that work in the coal industry that I know, my dad, my brother, my husband now does, and most everybody is affiliated with the coal industry in some way, shape or form that lives in my district. And these people are the salt of the earth. And many of these people that work in the coal industry, a lot of them, they also farm and ranch on the side. And so when you came up to me and introduced yourself yesterday and asked me to be on the podcast and talk about my district, I've got a lot of farmers and ranchers as well as coal miners in my district. And the topic of ESG, it affects both energy and agriculture.
[02:18] Emmery: Energy and agriculture have always gone hand in hand, particularly in North Dakota since we are such an energy and ag rich state. And so let's dive into this topic of ESG. So it's kind of a buzzword right now. You see it in the news, but can you tell us what ESG is and some of the implications of it?
[02:40] Rep. Novak: Absolutely, and thanks for the question. So I actually have a bill. It's House Bill 1429, and it focuses on ESG. And two years ago, the last Legislative Session, Senator Jessica Bell, who's also from District 33, she came from a farming and ranching, or maybe it was just ranching background, but also worked in the coal industry. And she introduced a bill that basically prohibited the State Investment Board from having funds invested based on ESG. And my bill just kind of is building on that concept.
And ESG is meant to be kind of like a framework within an organization to focus on environmental and social issues. And it's essentially put in place to encourage companies to kind of, quote, do the right thing and also invest in companies that want to reduce their carbon emissions and act in a way that is viewed by society to be socially responsible. And publicly invested companies are evaluated and given scores based on applying those ESG practices within their organization. And so, like, companies, for instance, are allowed to purchase renewable energy credits or hire a diverse workforce to increase their ESG score. And I'm all about doing things in a more environmentally friendly way. I'm one of the few younger women serving the Legislature and women in general around here, kind of.... You don't see too many of us. It's becoming more and more, which is great. And so I feel like everybody should have a seat at the table. But I'm a conservative, and I believe that hiring somebody or making sure that equal representation simply based on what you look like, if you're male or female, your skin color, whatever, it's not based on merit. And I just feel like any of the ESG stuff really flies in the face of that. So anyway, it's important that we fight back. There have been other states that have fought back against ESG. West Virginia has been kind of at the forefront of that fight. Texas, Louisiana, Florida, they've all taken a part of it. And two years ago, when Jessica had introduced that legislation, there were a lot of legislators here that didn't really know what ESG was. And you move forward two years and like you say, it's a buzzword. Everybody knows.
[05:06] Emmery: Where did this framework come from? I mean, obviously there's a general movement nationally, and I suppose globally, to push to these feel good things where really they're more about the buzzword or the idealism behind it, not really the people and oftentimes not even the environment behind it. They tend to just be things to make other people feel good about themselves. And so where does this framework come from and how has it become something that companies feel bullied into adopting?
[05:39] Rep. Novak: Well, it really does come from very kind of liberal minded organizations. And the thing is, what happens with some of these organizations is if you're a publicly traded company, you sell shares and you can buy them on the stock exchange. And as soon as you become a shareholder, you're considered kind of as an owner of the organization. And there have been companies that have had environmentalists and things like that that have gotten to be on the board of directors, and they've been able to kind of infiltrate these companies into adopting these sorts of standards, essentially, from what I understand, I think the way that they look at it is if they can kind of come together in a global system and push these ideas, they're sort of in control of opportunities for power and wealth accumulation within the companies, and they can push their agendas through. It's amazing, this framework has been taking place for at least the last decade, and they've been pretty sneaky in the way that they've gone about it.
[06:47] Emmery: It is really concerning when you think about, particularly here, talking about energy and agriculture, because both of those industries being strong is essential for the reliability and sustainability of not only the state, but the nation. You want to have a strong agricultural production system to ensure food, fuel and fiber across the nation. And for sure, with your experience in the energy industry, you really need that grid reliability, and you need to look at what kind of energy sources are providing us with the sustainable strong grid, particularly here in North Dakota, where it gets really cold, like, I think, people and livestock across the state that depend on that. And so looking at making sure that that reliability exists instead of giving it up for the sake of feeling good about yourself.
[07:43] Rep. Novak: Yeah, absolutely. I mean, energy and agriculture are the two largest industries in our state, and I've heard a lot of people say it, but we feed and fuel the world, and ESG targets both of those industries. Obviously, for our state over, I think it's up almost 60% of our state tax revenue comes from the fossil fuel industries within the state. And I tell you what, we can do things cleaner and better than anywhere else in the country, and I would probably even say the world. And we're constantly trying to refine the way that we do things and do things in a cleaner manner. Regardless if you believe in climate change or not, we're always doing things cleaner because who doesn't want clean air and who doesn't want clean water? And getting back to agriculture, I read a study in regards to ESG and agriculture, and in the study it said that 17% of greenhouse gas emissions come from the ag sector. And they've attacked fossil fuels in the past, but now they're going against agriculture and trying to regulate the different types of herbicides and fertilizers and regulate the fresh water and that sort of a thing. And it really impacts our freedoms and really goes against capitalism and the free market. And it's one of those things where we have to stand up and we have to do something about it here at the state, at the state level.
[09:17] Emmery: So your bill, House Bill 1429, I believe, is a conglomeration of several ESG bills that were proposed at the beginning of this session. Can you dive a little bit more into what it will do to help address this problem of the ESG framework?
[09:35] Rep. Novak: Yeah, so again, it's House Bill 1429, and it actually just passed out of the committee today on the Senate side. And I did have three ESG bills at the beginning of session, but this one, like you say, it just kind of groups all of them together and puts it under one bill. The bill is broken down into four separate sections. And the first bill codifies our law to prohibit state Investment Board dollars so they can't be invested in companies that have ESG as their end goal. I understand that there might be some companies, whether it's BlackRock or JPMorgan, that have some ESG funds. They're allowed to invest in those funds, and I'm not saying that they can't. But when you are discriminating based on ESG, we shouldn't be investing dollars in companies and businesses that don't want to invest in the state of North Dakota.
Section two of the Engrossed Bill 1429, it covers the insurance sector. And so fossil fuel companies are really struggling to get insurance companies to cover them and not based on any accidents or anything like that, that are typically factored in with insurance premiums. They're being discriminated against just because they're fossil fuel companies and their premiums have in the last five years or so, their premiums have pretty much doubled. And it's based on this kind of stuff. So section two tackles that.
And section three, it adds language that applies to state entities that invest public funds and it also adds proxy voting requirements. And kind of getting back to what we had talked about at the beginning of your segment. You have these companies that get shareholders. They send out these mailers to any kind of shareholder within the company and they weasel in certain voting requirements and possibly add social justice issues to be voted on and want to be impacted for the fund that the mailer is being sent out of. And this essentially makes it so that if you represent or invest the assets for the state of North Dakota, then you have to invest and vote according to policies that don't damage our key industries. And these proxy voting services will be actively monitored just to make sure that the proxy voting companies don't breach our state policies.
And then the last part of the bill provides a study during the interim to evaluate the level of involvement that North Dakota has with companies that use ESG criteria when doing business or investing. And so this study will essentially be completed before our next Legislative Session and it'll give us an idea of whether or not we need additional legislation to fight back even further against ESG.
[12:32] Emmery: You mentioned that since even a couple of years ago, this has become a popular legislative issue for other states and Texas is one of the ones that you mentioned. How has their legislation gone? Has some of it been implemented? And are we seeing some positive things coming out of those other states?
[12:52] Rep. Novak: Yes. So it's interesting that you say that. So last summer, I believe, well, probably about a year ago now, West Virginia passed a law where they essentially came up with a list of banks that have been known to they've taken a stand and said that we're going to implement ESG. And I think it started off with seven banks on this list. And in the last couple of months, two of the banks have walked back and said, "It's kind of hurting our pocketbooks and so we are no longer going to be factoring in ESG." And Vanguard is one of those. And so you can see that it is making a difference in the return to investors because essentially that's what it is and that's what it should be about. And so it is making a difference.
Now, the state of Texas, that's an interesting one because Texas is so much bigger, obviously, than North Dakota. And North Dakota, if we take away our energy and agriculture sectors, that's kind of it for us, you know what I mean? Just because they are the largest sectors. But Texas is so much bigger and they've got health care and they also have agriculture and energy. I think it was last year that they implemented some of their ESG kind of bans and it is making a difference. I think that, to be honest with you, I think that when you have the state of Texas that does something like this, it probably has a direct result on some of those banks like Vanguard and prompts them to make a change because it hurts them financially.
[14:25] Emmery: One of the things that you hear sometimes in support of this ESG is if private company wants to do this, then they should be able to. And if they want to impose this, then they should be able to. Or even if the state wants to invest in a company that doesn't really matter what their ESG status is. But I think what is really significant about North Dakota taking a stand on this is you and the Legislature represent the citizens of your state, and you represent the citizens of District 33. And the values of the citizens being what they are as far as agriculture and energy and then also the family values I think, need to be represented in this issue. And so just being able to stand up and say, "Hey, we're not going to put up with this kind of framework being imposed," I think is a significant thing. And I think it truly is representing the citizens of your state.
[15:27] Rep. Novak: Well, thank you. Energy and agriculture, they're North Dakota's largest industries. They employ thousands of people, and we have a responsibility to our citizens to protect their livelihoods.
[15:38] Emmery: Well, thank you again, Representative Novak, for joining me today and for representing energy and agriculture in North Dakota, and I hope to visit with you again soon.
[15:48] Rep. Novak: Thanks, Emmery.
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[15:53] Emmery: You've been listening to Straight Talk with NDFB. To find out more about issues that NDFB is tracking during the Legislative Session, visit us at ndfb.org.
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