By: Gabriella Hoffman
Escaping Environmental, Social, and Governance (ESG) investing is unavoidable today.
Since its first mainstream mention in the 2005 United Nations report entitled Who Cares Wins, it’s been touted in both corporate boardrooms and by the federal government.
In August 2019, the Business Roundtable urged corporations to prioritize non-financial factors in investment practices going forward. ESG posturing now informs presidential budgets and was legitimized under recent Department of Labor rulemaking.
The environmental (“E”) prong is the most visible plank of the three. It encourages money managers to favor mutual funds, bonds, and investments that prioritize net-zero climate aims. The social (“S”) prong promises adherence to socially responsible investing – i.e., human rights and women’s empowerment – yet, in practice, invites controversial social policies that detract from day-to-day affairs. The governance (“G”) prong demands a company operates with integrity and please shareholders, although vocal proponents are found to buy high ESG scores and engage in virtual signaling.
My Independent Women’s Forum colleague, Carrie Sheffield, explained here at Smart Women Smart Money how ESG is subjective, induces inflation, detracts from maximizing financial returns, and strays from free enterprise.
How does opposition present itself? What kind of actions have been taken against ESG?
Several state financial officers have published lists of restricted financial companies engaging in energy boycotts. Kentucky State Treasurer Allison Ball, who published a list featuring 11 companies, said in a press release: “Traditional energy sources fuel our Kentucky economy, provide much-needed jobs, and warm our homes. Kentucky must not allow our signature industries to be irreparably damaged based upon the ideological whims of a select few.”
State legislatures have successfully passed anti-ESG legislation. Nearly two dozen attorneys generals have filed complaints against agencies mandating ESG considerations. Even bipartisan and bicameral Members of Congress voted but failed to block the aforementioned DOL ESG rule from going into effect by invoking the Congressional Review Act. And last month, the House Judiciary Committee announced its intention to subpoena financial asset managers BlackRock and State Street.
The backlash to ESG was initially dismissed as a partisan culture war until its early adopters renounced the movement and opponents began to score victories, respectively.
Two BlackRock employees–past and present–appear to have distanced themselves from the acronym. Tariq Fancy, the company’s former sustainable investing chief, called ESG a “dangerous placebo” in an August 2021 interview. Then its CEO, Larry Fink, announced last June he ditched the term because it’s too “politicized and weaponized.”
Another ESG proponent, Oxford Business School professor Robert Eccles, took a less dismissive view of the opposition and welcomed it as an opportunity to “educate” skeptics. “Start making friends with Republicans,” Eccles said.
Fast forward to December 2023: Harvard Business Review published a guide for corporations to respond to backlash. The guide divided criticism into two groups: those arguing in bad faith and those arguing in good faith. Of those lumped into the former category, criticism from “traditional investors,” fossil fuel companies, elected officials, and pundits is considered delegitimized. Traditional investors are regular everyday Americans who want to see their assets accrue and grow.
The anti-ESG coalition has recently channeled its efforts to opposing a new type of investment called natural asset companies. A proposed Securities and Exchange Commission (SEC) rule, if approved, would allow NACs to be listed on the New York Stock Exchange (NYSE)
SWSM’s parent organization, the State Financial Officers Foundation, is actively exposing all ESG derivatives–including NACs.
“The SEC’s proposed rule creating natural asset companies will not only upend the accepted standards of value by which businesses are judged, it would pave the way for ESG fanatics to remake the American landscape. NACs would lock away vital resources that have underwritten America’s prosperity, sacrificing them on the altar of climate alarmism,” Derek Kreifels, the CEO of the State Financial Officers Foundation, said in a statement to FOX Business.
Three years ago, opposing ESG investing would be unheard of. But its funds perform poorly compared to non-ESG ones and now suffer from low demand. Mutual funds weighing non-pecuniary factors are also being dissolved, while companies boasting high ESG scores aren’t found to pollute less than their low-scoring counterparts.
Moreover, consumers are feeling the impact of ESG in their everyday lives. ESG investing, by nature, is inflationary. Net-zero energy policies are perpetuating en-flation (or environmental inflation) by forcibly transitioning away from reliable sources like coal, oil, and natural gas to unreliable and subsidized sources like solar and wind. ESG rulemaking will make meat and produce more expensive while economically displacing small and medium-sized agribusinesses.
SFOF’s campaign, Our Money Our Values, notes that ESG investing will impact individuals even if you aren’t an investor. Your 401k, pension, or retirement fund could be managed by third-party investment firms that are investing your hard-earned money in causes or viewpoints you disagree with. It’s understandable why ESG is set to take center stage in 2024. Its opponents, undoubtedly, have the momentum going forward.