Welcome back to Dry Powder. I’m Bill Cohan.

The debate over E.S.G. on Wall Street is about as heated as any that I’ve encountered in my many years reporting on finance. But the vitriol of its opponents was never more clear to me than after talking with the State Treasurer of South Carolina, Curtis Loftus, who is responsible for managing some $60 billion in public funds—and had a few choice words for Larry Fink. I hope you find our conversation as fascinating as I did.

These days, of course, everything is political. And that goes for investing, too. Suddenly with the rise of the E.S.G. movement—the weighting of environmental, social and governance factors in business—investing has also become a political battleground. If you want to stay on the right side of the mob, money managers, apparently, would be wise to abandon investing in anything resembling hydrocarbons or anything that adds to the problem of the Earth heating up. The hope, I suppose, is that if investors quit ExxonMobil, for instance, the company would just fold up its tent and disappear.

Obviously we know it doesn’t work this way, not even remotely so, in large part because human beings don’t seem the slightest bit ready to eschew oil and gas products and ExxonMobil, now worth nearly $500 billion, is trading near its all-time high, up 45 percent in the last year, while a more politically correct company, such as Microsoft, perhaps, is down 12 percent in the past year. This is not investment advice, of course.

And so now there is a battle royale brewing between the big money managers that are trying to be (and stay) woke, and the managers of big pools of capital at the state level—the state treasurers—who are sworn to be fiduciaries for billions and billions of their citizens’ dollars, and thereby becoming some of the most desirable limited partners for venture capital, private equity, mutual funds, and all manner of institutional investing. Their job is to maximize returns. They don’t want to be told what they can and can’t invest in, and many don’t want third-party investment managers avoiding ExxonMobil for political reasons when its stock is up 45 percent in a tough year.

Welcome to the new Wall Street war zone. Curtis Loftus, the state treasurer of South Carolina, who is responsible for managing some $60 billion in public, state funds is on the front lines of this battlefield. He thinks that E.S.G. represents a serious violation of the freedom to decide what you want to invest in, free of all the political whiplash. “E.S.G., for me as a treasurer, interferes with the basic and most important principle of investing which is, of course, a fiduciary responsibility,” Loftus told me in a recent conversation. “Part and parcel of E.S.G. is you move [your duty] from the shareholders to the stakeholder; well, you know, where’s the responsibility in that? Who are you responsible to?”

He continued on his diatribe, invoking Larry Fink, the C.E.O. of BlackRock, a leader in E.S.G. investing, with its $9 trillion under management. He worries especially about individuals who ask BlackRock to manage their life savings. “Their job is to live life and they turn their money over to the people like Larry Fink and say, Here, manage this money for me, and they have very little idea that Fink’s interest is elsewhere,” he said. “So as a state treasurer, I’m very concerned about the breaches of fiduciary responsibilities and the whole regulatory scheme in general.”

Loftus told me that he no longer has the “same level of trust” in money managers as he used to have before E.S.G. investing became a thing. “I realized that they would, in a moment’s notice, ignore their fiduciary responsibilities,” Loftus continued. “In fact, I think they have. When the large investment houses and the banks and some of the largest corporations in the world go to these conferences… and they decide what’s going to happen in 2030 and in 50 years, and then they decide that’s important, I decide that that’s a self-fulfilling prophecy in one of the greatest grifts of all time. At the end of the day, E.S.G. is just a great grift. It’s how the rich get richer and the powerful become more powerful.”

I asked him to explain his thinking further, since I knew some people don’t like E.S.G. investing but I’d never heard an elected public official, let alone a state treasurer, go off on the concept with such antipathy. “It gives them more power to use the funds they have been entrusted with for purposes that were not realized,” he said. By his reckoning, 80 percent of the corporate shareholder voting in America is done by three asset managers—Vanguard, BlackRock and State Street, which are fiduciaries for their customers and end up voting the shares in their custody. Since they manage so much money, they end up voting a ton of shares, especially since most individual shareholders don’t bother to vote at proxy time. He said the 1,000 or so people in the top management of these three companies control 80 percent of the voting on shareholder issues. “Now if that’s not minority rule, what is?” he wondered.

Back in 2015, Loftus made the decision to cut BlackRock, which has become a leader in trying to adhere to E.S.G. investing (while also being careful to hold onto a bunch of oil and gas stocks), out from managing any of South Carolina’s state funds. He also made sure any remnants of money that BlackRock had been managing for his state had also been ended. “I’m under no illusions that Larry Fink is shedding tears over Curtis,” he said. “But there are a lot of people out in the hinterlands, if you will, that are paying attention to this. I’ve had people send me emails and text messages, or telling me in person, that they’ve changed their retirement systems and are taking money away from some of these big E.S.G. plans.”

He blamed what he calls the “Hard Left” for “politicizing” investing, and grew increasingly animated as he spoke. “It’s Silicon Valley money,” he said. “It’s in response to Occupy Wall Street where Wall Street got itself in a very bad situation. So they made a deal with the Hard Left wing that was always after them. You notice they’re no longer after them anymore. So they said, ‘Hey, we will help you if you help us.’ And what Wall Street said is ‘We will impose these speech and behavior codes.’ E.S.G. is effectively a trillion-dollar boycott on the working and middle class of Americans. And if you don’t do as we say, we continue to put our fingers on you, we continue to oppress you. We take away your options to invest.”

Loftus isn’t the only fiduciary who is getting animated about this topic. He joins hedge fund manager Vivek Ramaswamy, who just announced he’s running for, yep, president. But he is putting his money where his mouth is. Loftus said he selected Federated Investors, in Pittsburgh, to manage a big chunk of South Carolina’s billions. “They are all aware and they are not unfriendly to E.S.G.,” he said. “But they understand our sensitivities and they have gone out of their way to make sure that they are a proper fiduciary for us. So from a realistic standpoint, from a guy who’s got to get this done every day. I’m very happy about it… We feel very confident they are adhering to our wishes.”

I wondered if Curtis had heard from other state treasurers who shared his point of view on E.S.G.-related investing, or whether this was just a Red State thing? That set him off, again. “It’s maddening when somebody says to me, like most reporters will, they’ll say, ‘Well, you’re just interjecting politics.’ And I say back to them, ‘I’m not sure. Are you crazy? The Blue State treasurers, the Blue State pension plans, the Blue City treasurers, the university foundations, the unions have all been working hand-in-hand on this for 15 years now. The Blue State treasurers have five what they call ‘Interstate Compacts’—one’s run from Connecticut, one’s run from Illinois, and they bring the investors in where they talk to them about diversity, equity, inclusion, sustainability, climate change. You vote their way or they don’t give you money. So we’re late to the program. They started this a decade ago. In fact, I dropped out of the National Association of State Treasurers, a group that I loved and learned a lot from, because there was just no turning back.”

In any event, you can be sure that Larry Fink isn’t losing sleep over Curtis Loftus. As Fink noted in Davos, responding to a question about “the political backlash” he’s experienced as a result of his and BlackRock’s advocacy of E.S.G. investing, he conceded that treasurers from “various states” had withdrawn some $4 billion from BlackRock in the past year or so because of its stance on E.S.G. investing. At the same time, though, he said, BlackRock had been “awarded,” in Fink-speak, another $400 billion in assets to manage, $230 billion of which came from existing BlackRock clients. You could see Larry almost wink. “So you tell me: $4 billion out, and $230 [billion] in, in the U.S.,” Fink replied.