Whoever thought something as arcane as “ESG Investing” would become a rallying cry for the left and right in our increasingly fractured political debate, but here we are.
The investing technique — which was initially a backwater, asset-allocation model to enlighten money managers and corporations about the environment (i.e., reducing their carbon footprint), social issues (helping the communities where they’re located), and governance (more women and minorities on corporate boards) — started innocently enough. After all, who would be against trying to make the world a better place?
That is, until it was hijacked by the radical leftists and some corporate C-suiters looking to gain woke brownie points. Throw in the racial unrest after the 2020 killing of George Floyd and the constant, often-hysterical media coverage of climate change, and the result has been swaths of corporate America adopting some of the most radical interpretations that ESG has to offer.
The examples are endless — and scary. American Express, a credit card company that presumably wants to serve all Americans, once foisted racially divisive “diversity and inclusion” sessions on employees that included the supposed racist roots of capitalism. Gary Gensler, chairman of the Securities and Exchange Commission whose core mission is to protect investors from scams, wants every public company to make costly disclosures about how their operations are impacting climate change even though there really isn’t established science on the subject.
Money managers are acquiescing to the absurd demands of left-wing pols running large pension funds or face losing business. New York City Comptroller Brad Lander, who oversees Gotham’s $200 billion-plus pension system, wants asset-manager BlackRock — which uses ESG in some of its investment models — to “provide a detailed approach to keeping fossil fuels in the ground and phasing out high-emitting assets.” Not just in NYC but everywhere else it manages money. Take a look at a Disney annual report, and you will see a company so obsessed with all kinds of diversity quotas in its executive ranks and programming that it doesn’t seem to have much time to make money for its shareholders.
For a time this type of idiocy could be ignored. The low inflationary bull market made ESG madness somewhat palatable because stocks kept going up while prices for essentials like food and gas remained stable. Then reality set in: the pandemic, massive stimulus spending, and too much money chasing too few goods. The public began to realize that ESG zealotry makes no excuses for opposing political views or the economic impact of war, like the one between Ukraine and Russia, which disrupted oil supplies.
Those essentials became increasingly unaffordable even if you had a job because asset managers faced pressure to divest from energy production. Making the world a better place soon came at the expense of bankrupting America’s middle and working class through a pernicious tax known as inflation.
What we have now is the inevitable backlash that always follows such zealotry. Leading that fight is Florida Gov. Ron DeSantis who found political gold in taking on corporate wokeness at Disney after the company’s weird opposition to his law that prohibited teaching sex-ed to toddlers. Disney listened to a vocal, insanely woke minority of its workforce while DeSantis listened to voters who overwhelmingly reelected him as governor.
Last week, he officially stripped one of Florida’s largest employers of its special self-governing status as retribution. And he’s going further; he’s now pulling state money out of BlackRock because it offers ESG investments — even to clients who want it — and has branded the firm the ignominy of being a “woke” corporation.
Other state pols are jumping on the anti-BlackRock bandwagon, which is a shame because the company didn’t invent ESG nor is it pushing it on middle America; it’s merely responding to the demands of some customers.
The bigger point here is that you can’t help but think many elements of the backlash are just as dangerous as those mindlessly pushing the most radical interpretations of ESG. My sources at BlackRock tell me that if the Florida governor wants a portfolio of sin stocks for state pension money, all he has to do is ask. Likewise, they told Lander in New York City that if he doesn’t like oil and gas companies, that’s on him; just don’t force BlackRock to impose 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 rule that permits fiduciaries to consider ESG — if they want — in their investment decisions. President Biden will likely veto the measure that passed with a smattering of Dems joining Republicans in the closely divided chamber.
The fact that any Democrats joined the opposition tells you just how much the pendulum is swinging in the opposite direction and maybe dangerously so. Unless I’m reading it wrong, the rule doesn’t stipulate that financial advisers must use ESG in their portfolio recommendation to clients, just that they could consider it.
Again, pretty reasonable. Do the radical ESG opponents really want a world that makes it illegal to direct money away from a company dumping carcinogens into the Hudson River (GE did this until around 1977) if doing so is very profitable?
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