A fervor of an awakened backlash to ESG investing

Charles Gasparino

Business

By Charles Gasparino

March 4, 2023 | 21:51

Who thought something as arcane as “ESG Investing” would become a rallying cry for left and right in our increasingly divisive political debate, but here we are.

The investment technique – which was originally a dead-end, asset allocation model to educate money managers and companies about the environment (i.e. reducing their carbon footprint), social issues (helping the communities where they are 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 left and some corporate C-suiters looking to score wake brownie points. Throw in the racial unrest following the killing of George Floyd in 2020 and the constant, often hysterical media coverage of climate change, and the result has been a section of corporate America that has adopted some of the most radical interpretations ESG has to offer.

The examples are endless – and terrifying. American Express, a credit card company that presumably wants to serve all Americans, once instigated racially divisive “diversity and inclusion” sessions on employees that embraced the supposed racist roots of capitalism. Gary Gensler, chairman of the Securities and Exchange Commission, whose core mission is to protect investors from fraud, wants all public companies to make expensive disclosures about how their activities affect climate change, even though there is no established science on the subject.

Money managers acquiesce to the absurd demands of left-wing politicians who run 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’ll see a company so obsessed with all kinds of diversity quotas in its management 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-inflation bull market made the ESG frenzy somewhat palatable, as stocks continued to rise while the prices of essentials such as 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 zealots make no excuses for conflicting political views or the economic consequences of war, like the one between Ukraine and Russia that disrupted oil supplies.

These essentials became increasingly unaffordable, even if you had a job, as asset managers faced pressure to divest from energy production. Making the world a better place soon came at the cost of bankrupting America’s middle and working class through a harmful tax known as inflation.

What we have now is the inevitable backlash that always follows such zeal. Leading this battle is Florida Gov. Ron DeSantis, who found political gold in going after Disney companies after the company’s strange opposition to his law banning sex-ed teaching to toddlers. Disney listened to a vocal, insanely woke minority of its workforce, while DeSantis listened to voters who overwhelmingly re-elected him governor.

Tax booth

Last week, he officially stripped one of Florida’s largest employers of its special self-governing status in retaliation. And he goes on; he is now pulling government money out of BlackRock because it offers ESG investments — even to clients who want it — and has branded the firm the infamy of being a “woke” company.

Other government 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 just responding to some customers’ demands.

The bigger point here is that you can’t help but think that 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 Florida’s 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 up to 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 ban a Department of Labor rule that allows trustees to consider ESG — if they want to — in their investment decisions. President Biden is likely to veto the measure, which passed with a sliver of those who sided with Republicans in the closely divided chamber.

The fact that any Democrats 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 rule doesn’t require financial advisors to 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 divert money away from a company that dumps carcinogens into the Hudson River (GE did this until about 1977) if it is very profitable?

Apparently, yes.