A zeal for an awakened backlash to ESG investing

Charles Gasparino

Business

By Charles Gasparino

March 4, 2023 | 9:51 p.m.

Anyone who thought something as mysterious as “ESG investing” would become a rallying cry for left and right in our increasingly fractured political debate, but here we are.

The investment technique – which was originally a backward asset allocation model to enlighten fund managers and companies on the environment (i.e. reducing their carbon footprint), social issues (helping communities where they are) and governance (more women and minorities on 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 radical leftists and some corporate executives looking to earn woke brownie points. Add to that the racial unrest following the 2020 murder of George Floyd and the constant and often hysterical media coverage of climate change, and the result has been that swathes of corporate America have embraced some of the most radical interpretations that the ESG has to offer.

The examples are countless – and frightening. American Express, a credit card company that presumably wants to serve all Americans, once forced racist “diversity and inclusion” sessions on its employees that included the supposed racist roots of capitalism. Gary Gensler, chairman of the Securities and Exchange Commission whose main mission is to protect investors from scams, wants every public company to make costly disclosures about the impact of its operations on climate change, even if it doesn’t. There isn’t really any established science on the subject.

Fund managers agree to absurd demands from leftist politicians who run large pension funds or risk losing business. New York City Comptroller Brad Lander, who oversees Gotham’s $200 billion-plus retirement system, wants asset manager BlackRock – which uses ESG in some of its investment models – “provides a step-by-step approach to keeping fossil fuels in the ground and phasing them out. – issuing assets. Not just in New York, but everywhere else he manages money. Take a look at a Disney annual report and you’ll 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 while, this type of idiocy could be ignored. The low inflation bull market made the ESG madness somewhat palatable as stocks continued to rise while prices for essentials like food and gasoline held steady. Then reality set in: the pandemic, massive stimulus spending, and too much money for too few goods. The public has begun to realize that ESG fanaticism does not excuse opposing political views or the economic impact of a war, such as the one between Ukraine and Russia, which disrupted oil supplies.

These essentials were becoming increasingly unaffordable, even if you had a job, as asset managers faced pressure to divest from power generation. Making the world a better place quickly came at the cost of bankrupting the American middle and working class through a pernicious tax known as inflation.

What we have now is the inevitable backlash that always follows such fanaticism. Leading this fight, Florida Governor Ron DeSantis struck political gold by taking the corporate wake up call to Disney after the company’s bizarre opposition to his law that banned teaching education. sex to toddlers. Disney listened to a vocal and incredibly woke minority in its workforce while DeSantis listened to the voters who overwhelmingly re-elected him as governor.

Tax penalty

Last week, he officially stripped one of Florida’s largest employers of his special freelance status in retaliation. And it goes further; he is now taking state money out of BlackRock because he offers ESG investing – even to clients who want it – and has called the firm a disgrace for being a “woke” company.

Other state policies are jumping on the anti-BlackRock bandwagon, which is a shame because the company didn’t invent ESG or push it on Central America; it is simply to meet the demands of certain customers.

The most important point here is that you can’t help but think that many elements of the backlash are just as dangerous as those that mindlessly push the most radical interpretations of ESG. My sources at BlackRock tell me that if the governor of Florida wants a portfolio of sin stocks for state pension money, all he has to do is ask. Likewise, they told Lander in New York that if he doesn’t like oil and gas companies, that’s on him; don’t force BlackRock to impose these standards when the company handles other people’s money.

Seems reasonable in an increasingly unreasonable debate. Last week, the US Senate followed the House and voted to outlaw a Labor Department rule that allows fiduciaries to consider ESG – if they choose – in their investment decisions. President Biden will likely veto the passed measure with a handful of Democrats joining Republicans in the tightly divided chamber.

The fact that Democrats have joined the opposition tells you how the pendulum is swinging in the opposite direction, and perhaps dangerously. Unless I’m mistaken, the rule does not state that financial advisors must use ESG in their portfolio recommendation to clients, just that they might consider it.

Again, pretty reasonable. Do the radical opponents of ESG really want a world that would make it illegal to embezzle money from a company dumping carcinogens into the Hudson River (GE did this until about 1977) if it’s very profitable ?

Apparently yes.