Utah AG claims ESG or ‘climate investing’ contributed to SVB collapse

Mar 22, 2023, 5:30 PM

FILE: The Utah attorney general’s office at the Capitol in Salt Lake City on Friday, Jan. 27, 202...

FILE: The Utah attorney general’s office at the Capitol in Salt Lake City on Friday, Jan. 27, 2023. KSL and the Utah Attorney General’s Office are squaring off in a legal fight over access to Attorney General Sean Reyes’ work calendar. (Jeffrey D. Allred, Deseret News)

(Jeffrey D. Allred, Deseret News)

SALT LAKE CITY  — Utah’s Attorney General has sent a letter to the federal government claiming climate investing, or Environmental Social Governance (ESG) contributed to the collapse of Silicon Valley Bank (SVB).

The letter — sent to the heads of the Treasury, Federal Reserve, Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC) — added that the administration needs to stop elevating its “climate risk” agenda above other “true” risks.

Related: Utah leading a lawsuit against new ESG rule affecting 401(k) plans

It also questioned the political motivations of the agencies that Reyes believes “bailed out” SVB depositors. 

ESG investing

It’s the latest in Reyes’ and other Utah Republican leaders’ ongoing battle against Environmental Social Governance (ESG) investing. That’s a type of investment that focuses on a company working to help the environment or social causes (in this case SVB’s solar or sustainability projects.) ESG investing is not a requirement of the Biden administration. But the AG’s office argues the goal of investing — at least, when the government is investing people’s money — should be profit.  

“We’re not trying to prevent anyone from investing the way they want to invest,” said Utah Solicitor General Melissa Holyoak, who spoke to KSL NewsRadio on behalf of Attorney General Sean Reyes.

“What we don’t want is pressure from the government pushing investments in one way or the other, or allowing rules that allow people with fiduciary duties — like investment managers — to push investments into things that they shouldn’t be doing.”

The AG’s office believes SVB made “speculative sustainability investments,” like in the solar industry.

“The problem here is SVB had thousands of clean tech industry clients, so an overexposure to that industry,” said Holyoak. That’s something that she and AG Reyes believe is a result of the administration’s charge to focus on climate risk.

Specifically, “[SVB] had committed to $5 billion in financing of speculative sustainability investments. SVB claimed that it was involved in over 60% of community solar financings,” the letter reads. “It was, in other words, the kind of bank that perfectly encapsulated your regulatory posture of viewing climate change as the leading risk to the finance industry, and as a ripe business opportunity to boot.”

But the Federal Reserve has indicated that SVB’s poor risk management led to selling tons of US Treasury bonds at a time when interest rates had risen drastically.  

“Just to be clear, we think [ESG investing] contributed to [the SVB collapse] but it wasn’t just the sole reason. We do think the increased interest rates also, was probably the largest contributor of this,” said Holyoak.

“But we do think the Biden administration’s focus on climate risk in the financial regulatory world really put pressure on this.”

‘Bailout’ of SVB depositors 

The letter sent by Reyes also asserts that the administration is “bailing out” SVB depositors because they’re in the clean-tech sector.

“It’s not difficult to suggest that the Biden administration might certainly be motivated by a net-zero compliant climate agenda. And the ability to do so  requires that these clean-tech startups, that they are able to be bailed out of the loss of these funds.”

On March 12, President Biden said no shareholders, senior management, nor certain unsecured debtholders would be bailed out.

“But these are companies that are being utilized to fulfill the climate agenda that Biden is bringing on,” said Holyoak. “If those depositors were, for example, oil and gas companies, would the Biden administration feel the same need to bail out those tech companies? I don’t know,” Holyoak said.

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Utah AG claims ESG or ‘climate investing’ contributed to SVB collapse