by Barry A. Liebling
The leftist ruling class is enamored with ESG investing. ESG is an acronym for environmental, social, and corporate governance. Here is how it works. Businesses are scored by ESG experts according to how well – or how poorly – their policies and actions conform to the woke agenda.
What considerations go into the score?
Start with environment. Is the company being rated complying sufficiently with the demands of climate alarmists? Does it boast that it is minimizing its “carbon footprint?” Does it refrain, as much as possible, from doing business with other companies that do not support the policies of climate change hysterics?
Move on to social. Does it officially endorse the slander that “white supremacy” is the root cause of most (possibly all) problems in the world? Does it make special efforts to have anti-racism policies that are recommended by CRT (Critical Race Theory) proponents? Does it project a public image that proclaims it is on-board with the most extreme versions of Diversity, Equity, and Inclusion (DEI)?
Finally, consider governance. Does the public corporation have a substantial number people from “marginalized groups” on its board of directors? If not, is it making efforts to bring more “under-represented” people in? Does the ethnic and sexual composition of executives in the company conform to what woke experts regard as appropriate to achieve “social justice”?
According to ESG enthusiasts, companies with high ESG scores deserve to be funded, and that is where investment dollars should go. Conversely, if a company has a low score it ought to receive no investment money, unless it submits to the ruling class and joins the left progressive business cabal.
There are money management institutions – including the very largest and most powerful (Look up the Biggest Three and see how they brag about their woke commitments) – that have special ESG funds. Clients of the firms are assured that portfolio managers will buy and sell securities with the intention of helping companies with high ESG scores. Furthermore, because the large institutions are the investors (but not the owners) of the securities, they can cast decisive votes on who will be on the board of directors of the companies they invest in. This permits them to push top management into promoting ESG policies.
Who has ESG investments? Some people are highly enthusiastic about the leftist putsch. They deliberately buy into the funds and have a good understanding of what is supposed to occur. However, a lot of the money in ESG funds comes from people who do not know what ESG is and would probably prefer to have their assets invested differently.
It turns out that there are vast investments in ESG funds that are coming from both private company pensions and state-sponsored retirement accounts. The Democratic Party position is that this is a good thing. President Biden’s Department of Labor is proposing a rule that will encourage private companies to purchase pension plans that prioritize ESG.
And as expected, there is a backlash from Republicans who recognize ESG investing as a radical left program. Some Republican office holders are demanding that their state withdraw their money from the big investment managers as a protest against ESG. https://nypost.com/2022/12/01/florida-yanks-2b-from-woke-blackrock-over-social-engineering/
A typical Republican criticism of ESG makes two points. First, the ESG crowd is overtly political and committed to furthering the goals of leftist partisans. That is an accurate observation. But the disturbed Republicans get off track when they insist that politics should not play a part in deciding how to allocate money. In fact, investing is always political. The ESG mob says, “do not feed the American petroleum industry, put it out of business to save the planet.” The Republican rejoinder is that we should encourage the petroleum industry to thrive and make America energy-independent. The objectives are incompatible with one another, but each is explicitly political. https://www.realclearpolitics.com/articles/2022/11/30/esg_jeopardizes_economic_security_and_must_be_stopped_148535.html
The second Republican critique concerns fiduciary responsibility. It is reported that ESG funds perform poorly compared to investments where ESG is not the main concern. Some Republican officials have indicated that portfolio managers of ESG funds are making less money for their clients than they otherwise would. They assert that investment professionals should always go for the highest return.
Be careful what you wish for. Do you sincerely believe that the highest return is a necessary consideration? What if a fully-woke foreign company has an unusually successful year. Should an investment professional prefer it to an American company that performed less well? Notice that if the ESG people get their way, ESG-compliant companies will be subsidized with government special favors, advantageous regulations, and tax exemptions. Then they will (because of government intervention) outperform their competitors. Return on investment is very important, but it is not everything.
What is the solution to the problem of ESG investing? While the woke point of view is based on faulty reasoning, free citizens have a right to invest in the companies they like, and it is acceptable for investors to attempt to persuade management. Investment advisors should inform their clients exactly what their philosophical orientation is. If ESG is the default approach (it already is for the biggest players), the advisor should explain this in a way that is easy to understand: “We are woke. We intend to change the world in our image. Join us if you agree.”
And investment professionals who have Enlightenment values and appreciate free markets should likewise describe their approach to doing business. They can proclaim that they are the corrective and proper alternative to ESG woke delusions. Given accurate information and the ability to choose, thoughtful people will make the right investment decisions.
*** See other entries at AlertMindPublishing.com in “Monthly Columns.” ***