A zeal of an awakened response to ESG investing

Charles Gasparino

Company

By means of Charles Gasparino

March 4, 2023 | 9:51 pm

Who thought something as mysterious as ‘ESG investing’ would become a rallying cry for the left and right in our increasingly fragmented political debate, but here we are.

The investment technique — which was initially a backward asset allocation model to educate money managers and companies about the environment (i.e. reducing their carbon footprint), social issues (helping communities where they are), and governance (getting more women and minorities on boards of directors) — began innocently enough. After all, who would be against making the world a better place?

That is, until it was hijacked by the radical leftists and some corporate C-suiters looking to earn awake brownie points. Add to that the racial unrest following the 2020 murder of George Floyd and the constant, often hysterical media coverage of climate change, and the result is sections of corporate America adopting some of the most radical interpretations ESG has to offer.

The examples are endless – and scary. American Express, a credit card company that presumably wants to serve all Americans, once forced racially divisive “diversity and inclusion” sessions on employees that contained capitalism’s allegedly racist roots. Gary Gensler, chairman of the Securities and Exchange Commission whose core job is to protect investors from scams, wants every public company to make precious disclosures about how their activities affect climate change, even though there is no established science on the subject.

Money managers agree to the absurd demands of left-wing politicians who run large pension funds or risk losing business. New York City Comptroller Brad Lander, who oversees Gotham’s more than $200 billion retirement system, wants asset manager BlackRock — which uses ESG in some of its investment models — to provide “a granular approach to keeping fossil fuels in the ground and high assets.” expel.” Not just in NYC but everywhere else it manages money take a look at any Disney annual report and you’ll see a company so obsessed with all sorts of diversity quotas in its executive ranks and programming that it doesn’t seem to have much time to make money earn for its shareholders.

For a while this kind of idiocy could be ignored. The low inflationary bull market made the ESG frenzy somewhat palatable as stocks continued to rise while prices for essentials like food and gas held steady. Then reality set in: the pandemic, huge stimulus spending and too much money chasing too few goods. The public began to realize that ESG zeal does not excuse opposing political views or the economic impact of war, such as the one between Ukraine and Russia, that disrupted oil supplies.

Those essentials became increasingly unaffordable, even if you had a job, as asset managers were under pressure to divest from energy production. Making the world a better place soon 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 zeal. Leading that fight is Florida Governor Ron DeSantis, who struck political gold by shaking up corporate life at Disney after the company’s weird opposition to its law banning the teaching of sex education to toddlers. Disney listened to a vocal, insanely awake minority of his workforce, while DeSantis listened to voters who overwhelmingly re-elected him as governor.

Tax penalty

Last week, he officially stripped one of Florida’s largest employers of its special self-governing status in retaliation. And he continues; he is now taking state money out of BlackRock because it offers ESG investments – even to customers who want it – and has branded the company the disgrace of being an “awakened” company.

Other state pulses are jumping on the anti-BlackRock bandwagon, which is a shame because the company didn’t invent ESG, nor is it pushing it to Central America; it just responds to the demands of some customers.

The bigger point here is that you can’t help but think that many elements of the resistance 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 retirement 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 company manages other people’s money.

Seems reasonable in an increasingly unreasonable debate. Last week, the U.S. Senate followed the House of Representatives in voting to ban a rule from the Department of Labor that allows fiduciaries to consider ESG — if they choose — in their investment decisions. President Biden will likely veto the measure passed with a few Dems joining Republicans in the closely divided chamber.

The fact that Democrats have joined the opposition tells you how much the pendulum is swinging in the opposite direction and perhaps dangerously. Unless I’m reading it wrong, the rule doesn’t say that financial advisors must use ESG in their portfolio recommendations to clients, only that they should consider it.

Again, pretty reasonable. Do the radical ESG detractors really want a world that makes it illegal to funnel money away from a company that dumps carcinogens in the Hudson River (GE did until about 1977) if it’s highly profitable?

Apparently so.