ESG is on its last legs.
How do I do know this? Consider the actions of BlackRock, the large money manager and one among the initial and fiercest advocates of the Environmental, Social, and Governance investing technique. Last week, the firm, its founder and CEO Larry Fink announced something courageous in my opinion: The corporate stated emphatically that the ESG movement has gone too far, and BlackRock will probably be a part of the answer to forestall its excesses from destroying the US economy.
As I first reported, BlackRock’s missive against ESG got here via an announcement that it has scaled back on its support of environmental and social shareholder demands within the “proxy” process. It voted to approve just 7% of those proposals within the 2023 fiscal yr, down from 22% in 2022 and 47% in 2021.
The rationale: “So many shareholder proposals were overreaching, lacking economic merit, or just redundant,” the firm said.
Bravo to common sense.
Proxy or shareholder proposals are voted on during public corporations’ annual meetings. Over the past decade or so, ESG edicts became embedded into corporate America’s ecosystem as big shareholders —BlackRock, but in addition places like Vanguard and Fidelity — and the shareholder advisory firms like ISS and Glass Lewis increasingly voted in favor of those mandates that pushed corporations to cut back their carbon footprint or mandate more diversity on corporate boards.
Yes, initially the intentions were good, until ESG become a leftist leviathan. Utilized by activist groups disguised as committed long-term shareholders, ESG became the mechanism by which the left hammered corporate America into advancing its warped political agenda.
Diversity became a euphemism for dogmatic quotas. Seeking to clean up the environment meant oil corporations couldn’t drill even when supply dried up like what happened after Russia’s invasion of Ukraine, and inflation raged.
ESG also meant corporations needed to adopt probably the most radical visions of America. I’m told that to fulfill ESG mandates, Budweiser disastrously hired trans woman and activist influencer Dylan Mulvaney to push Bud Light in those now-infamous social media ads. Disney infused leftism and gender politics into its programming targeting children. In store displays, retailer Goal devised and displayed “tuck friendly” swimwear for trans women who hadn’t done the surgery yet.
Red state revolt
Then red state officials rebelled, canceling contracts with money managers who pushed ESG. Inflation soared and ESG didn’t help with spiraling gas prices. People stopped watching Disney movies; sales of Bud Light proceed to crater. Goal was boycotted and compelled to alter course together with Bud.
Fink himself recently said he would not use the term “ESG” since it carried an excessive amount of political baggage.
Losing BlackRock is a very big deal within the $30 trillion-plus ESG ecosystem due to the company’s size — $9 trillion in assets under management, the biggest money manager on the earth. Fink once seemed hooked on ESG because he really does consider corporations can enact positive change in society. It also brought in numerous business to BlackRock, and ESG funds carry higher fees.
He’s now seen ESG’s downside and he is saying enough!
To his credit, Fink for at the least the past three years has pushed back against the excesses of ESG.
In January 2022, he wrote in his annual letter to investors: “Any plan that focuses solely on limiting supply and fails to handle demand for hydrocarbons will drive up energy prices for many who can least afford it, leading to greater polarization around climate change and eroding progress.”
His sparring with NYC’s loopy leftist Comptroller Brad Lander is price noting. Lander is presupposed to be overseeing the pension investments for retired city cops, firefighters and teachers. Last yr, he began pushing Fink to start divesting all BlackRock’s oil company shares.
BlackRock manages money for the fund, so Lander’s threats carried some weight. But Fink told him to pound sand (within the nicest possible way), my sources there tell me. BlackRock, for all its ESG talk, is the biggest global investor in fossil fuels. Not only would divestment destroy the stocks of those corporations, and the pension returns Lander is presupposed to be protecting, but it surely would take inflation to dangerous latest levels.
More recently, BlackRock has begun to make use of ESG screens more selectively in its actively managed stock funds, after which only “informatively,” people there tell me. It’s not a determinative think about buying a stock for its $4.5 trillion equity portfolio, the people say.
For perspective, BlackRock manages one other $4.1 trillion in so-called passive funds that mimic various indexes and have zero ESG components.
The rest — only around $600 billion — is heavily influenced by ESG methodology because these funds spend money on renewables and other ESG-compliant corporations.
Is that this something latest? Senior executives there say it’s not; BlackRock has all the time managed money based on clients’ needs and desires.
OK, but a financial adviser with close ties to the firm says those ESG screens are used less and fewer for stock picking outside ESG-specific funds.
“ESG is still popular in Europe,” the adviser tells me. “For US investors lately it’s mostly window dressing at BlackRock. It’s not likely utilized in decision making any more.”
Amen to that.