Anyone who thought of something as “ESG investing” would become a rallying cry for left and right in our increasingly fractured political debate, but here we are.
Investment technology – which was initially a backwater, asset-allocation model that allowed money managers and corporations to focus on environmental (ie, reducing their carbon footprint), social issues (helping the communities where they are located), and governance shed light on (more women). and minorities on corporate boards)—started out innocuously enough. After all, who would be against trying to make the world a better place?
That is, until it was hijacked by radical leftists and some corporate C-suiters looking to score brownie points. Throw in racial unrest following the 2020 killing of George Floyd and constant, often-hysterical media coverage of climate change, and the resulting adoption by corporate America of some of the most radical interpretations that ESG has to offer.
The examples are endless – and terrifying. American Express, a credit card company that wanted to serve as many Americans as possible, once engaged in racially divisive “diversity and inclusion” sessions on employees that included the racial roots of capitalism. . Gary Gensler, chairman of the Securities and Exchange Commission, whose main purpose is to protect investors from scams, requires every public company to make costly disclosures about how their operations are affecting climate change even though there is actually no established science on the subject. is not
Money managers are giving in to the absurd demands of the left-wing parties running the big pension funds or risking business losses. New York City Comptroller Brad Lander, who oversees Gotham’s more than $200 billion pension system, wants asset-manager BlackRock — which uses ESG in some of its investment models — to “keep fossil fuels in the ground and keep higher levels.” To provide a comprehensive approach to exit” – draining assets. Not just in NYC but everywhere it manages money. Take a look at Disney’s annual report, and you’ll see a company so busy with all kinds of diversity quotas in its executive ranks and programming that it doesn’t have much time to make money for its shareholders.
This kind of stupidity can be ignored for a while. The low-inflation bull market made the ESG frenzy somewhat palatable as stocks continued to rise while the prices of essentials like food and gas held steady. Then reality sets in: pandemics, massive stimulus spending, and too much money chasing too few things. The public began to realize that ESG fervor was no excuse for opposing political considerations or the economic impact of war, such as the one between Ukraine and Russia, which disrupted oil supplies.
Even if you had a job, those essentials become increasingly unaffordable as asset managers face pressure to decouple energy production. Making the world a better place soon came at the cost of bankrupting America’s middle and working class through the pernicious tax known as inflation.
What we have now is the inevitable backlash that always follows such enthusiasm. Leading that fight is Florida Gov. Ron DeSantis, who found political gold with a corporate awakening at Disney after the company’s strange opposition to his law that would have prohibited teaching sex-ed to young children. Disney heeded a voice, rousing a minority of his employees to panic while DeSantis listened to the voters who overwhelmingly elected him governor.
Tax penalty
Last week, he officially stripped one of Florida’s largest employers of its special self-governing status in retaliation. And he is going further; He is now pulling state money out of BlackRock because it offers ESG investments — even to clients who want them — and has branded the firm a notoriety for being a “whack” corporation.
More states are jumping on the pol anti-BlackRock bandwagon, which is a shame because the company didn’t invent ESG, nor is it pushing it on Central America; It is only responding to some customer demands.
The bigger point here is that you can’t help but think that many elements of the reaction are just as dangerous as those who mindlessly push the most radical interpretations of ESG. My sources at BlackRock tell me that if Florida’s governor wants a portfolio of sin stocks for the state’s pension money, all he has to do is ask. Likewise, they told Landor in New York City that if he didn’t like the oil and gas companies, that was on him; Don’t force BlackRock to apply those standards when the firm manages other people’s money.
Seems reasonable in an increasingly unreasonable debate. Last week, the US Senate followed the House and voted to outlaw a Department of Labor provision that allows fiduciaries to consider ESG — if they choose — in their investment decisions. President Biden is likely to veto the measure, which passed with a breakdown of Dems joining Republicans in the closely divided chamber.
The fact that any Democrats have joined the opposition tells you how much the pendulum is swinging in the opposite direction and perhaps dangerously so. Unless I’m reading it wrong, the regulation doesn’t stipulate that financial advisors must use ESG in recommending their portfolios to clients, just that they consider it.
Again, quite reasonable. Do radical ESG opponents really want a world that makes it illegal to direct money from a company that dumps carcinogens into the Hudson River (GE did this until about 1977) if it is so profitable to do so?
Apparently, yes.
