DV Journal

I routinely engage with corporate executives at pro-ESG institutions, including public companies, asset managers and proxy advisers. (“ESG” stands for environmental, social and governance, factors to be considered by corporations and investors when making business decisions.)

While objective in theory, in practice, you will find no light between the typical ESG platform and the governance wish list of Elizabeth Warren. ESG is, in practice, a Trojan horse for partisan policies for those unable to implement them via legislation.

There is a specific type of individual routinely found on these calls — distinctive in their ability to (1) filibuster in corporate-speak, (2) brazenly ignore compelling evidence of bias, and (3) throw handfuls of factually implausible explanations for that bias against the wall in hopes that some of it will stick, or at least distract until the call ends.

For example, over the years, a number of these actors have supported zero — as in not a single one — of our or our allies’ “anti-ESG” (or, more accurately, “pro-fiduciary-duty” or “pro-prosperity”) shareholder proposals despite supporting significant percentages of pro-ESG proposals, amounting to a vast amount of partisanship. 

This is in the face of proposals mimicking pro-ESG proposals but for their viewpoint diversity. For example, proposals for a diversity, equity and inclusion audit to root out White supremacy or gender equity codes or catastrophizing that failure to abandon all oil and gas activities will result in stranded assets may generate 30 percent support. However, let someone submit the exact proposal only with a reverse discrimination viewpoint or green-stranded assets as the focal point, and, suddenly, no support can be found.

The explanations for this overt bias don’t hold up under the most basic scrutiny. 

On a recent call, the following excuses were given: (1) “We are merely implementing our clients’ preferences.” (2) “There is no evidence your proposals address issues that are material to the bottom line.” (3) “Your language is incendiary.” (4) “The issues you raise do not constitute big issues or big problems or real controversies. You’re simply grabbing one-off headlines.” (5) “Your proposals don’t implicate reputational risk.”

Most of these are factually unsupportable because the issues are some of the most significant to corporations, including racial discrimination, transgenderism support and climate policies. As for client preferences, that could be a legitimate excuse. This could also signal that these institutions are running cover for fiduciaries to breach their duties in pursuit of ideological ends. 

Finally, the language may be incendiary — to a leftist.

This leads to a recent book review of “The Total State: How Liberal Democracies Become Tyrannies,” by Auron MacIntyre. The review makes six points: (1) America is effectively run by a managerial elite. (2) This managerial power constantly seeks to expand and centralize its power. (3) “Naturally, managers have a material incentive to make alleging the virtues of control and top-down social engineering the locus of their moral and ideological beliefs.” (4) Having passed “through the same educational institutions … they are enculturated with the same language, cultural sensibilities, and ideological prejudices as their peers.” (5) “This unification means that competence in a given organization is of less importance to one’s career than an ability to demonstrate loyalty and acceptance within the managerial class. Refuse to hold the correct opinions and your professional future across the managerial world — now global — is permanently tarnished.” (6) “Faced with the need to maintain a façade of … legitimacy, the managerial regime’s solution has been … to seek to manage the will of the people. … Hence the belief in the need to tell ‘noble lies’ …; hence, the constant media gaslighting; hence, the vast … censorship-industrial complex.”

All of this explains a lot. These managerial types — the “VP of Corporate Diversity and Green Energy” et al. — are all in on ESG. There hasn’t been a more significant “brand” for centralizing power in the managerial elite since the New York Times praised Joseph Stalin’s five-year plans. These managerial elite are going to be black belts in corporate doublespeak. They are going to be all-in on the lies they must spout to maintain their status.

Now, if I can stop letting them get under my skin.

Please follow DVJournal on social media: X@DVJournal or Facebook.com/DelawareValleyJournal

Every Democrat in the Delaware Valley delegation voted to uphold President Joe Biden’s veto protecting his administration’s pro-ESG investing rule, the first veto of his presidency. Critics say those votes ignore the key role the energy sector, a top target of ESG activists, plays in Pennsylvania’s economy.

Congress passed a bipartisan resolution reversing the Biden Labor Department’s revision to Employee Retirement Income Security Act (ERISA) rules. According to Richard Morrison, a senior fellow at the Competitive Enterprise Institute, under the old rule, managers of private retirement funds “had to invest with the best interests of your beneficiaries as the priority.” The Trump administration reiterated this “fiduciary first’ stance with a 2020 rule, but Biden has now reversed it.

“The Biden administration said, ‘Well, actually, you can use environmental and social factors to guide investment decisions even when investing for retirees.’ You still have a responsibility to the beneficiaries, but it opens the door for these other investment decisions.”

ESG investing often involves diverting funds from fossil fuel companies, which is particularly problematic for Pennsylvania. The Keystone State ranks second in natural gas production behind Texas and third in coal production (after Wyoming and West Virginia.)

When queried about Biden’s veto, the White House did not respond, including whether or not the president believes investment decisions driven by global warming concerns make financial sense for retirement funds.

Gordon Tomb, a senior fellow at the Pennsylvania-based Commonwealth Foundation, told DVJournal that “any action that might encourage such ESG criteria as the imagined threat of global warming to be included in the investment decisions of financial managers is foolish.”

It could also be costly for retirees, according to a report from Bloomberg that “Global ESG funds have underperformed the broader market in the past five years, returning an average of 6.3 percent per year, compared with 8.9 percent for broader funds.”

“An investor who put $10,000 into an average global ESG fund in 2017 would have $13,573 today, roughly $1,720 less than if they’d put it into a non-ESG portfolio,” Bloomberg reported.

Samantha Heckel, press secretary for Pennsylvania Treasurer Stacy Garrity, said the state’s guidelines for investment funds under the treasurer’s control are narrowly focused.

Pennsylvania law, Heckel said, requires the state treasurer to ensure that investment decisions “preserve the capital,” “meet the liquidity needs,” and “earn a reasonable, risk-adjusted return on the investment.”

“That language does not currently apply to the state pension funds,” Heckel said, “but Treasurer Garrity would support an amendment to do so.”

Garrity previously told DVJournal that “the only goal [she has] is to protect the interests of the taxpayers.”

“Those who support ESG tend to care less about returns and more about policy goals,” she argued.

Delaware Valley Democratic Reps. Madeleine Dean, Chrissy Houlahan, and Mary Gay Scanlon voted against the ESG repeal resolution, as did U.S. Sen. Bob Casey (D). The three House members also voted to sustain Biden’s veto last week.

Rep. Brian Fitzpatrick (R) supported the ESG rule repeal.

And state Sen. Gene Yaw (R-Bradford) earlier this month indicated his opposition to ESG rules when proposing the creation of a state-level Independent Energy Office.

“I believe most Republicans and Democrats in the Pennsylvania legislature agree that we can advance policies that promote energy development and protect our environment simultaneously,” Yaw said.

Please follow DVJournal on social media: Twitter@DVJournal or Facebook.com/DelawareValleyJournal

For many people, especially small-business owners and entrepreneurs, uncertainty is the only certainty about the economy. Unfortunately, policy ideas that aren’t well thought out only intensify the uncertainty and make it harder to plan.

Lawmakers and regulators should be striving to do the opposite. In the last few years, Americans have endured inflation, supply chain disruptions, a possible recession and more layoffs. Again, small-business owners have been on the front line of it all. They, like most Americans, are still planning for their futures and need as many options as possible.

Several major investment managers have leaned into Environmental, Social and Governance (ESG) goals to determine how they invest funds on behalf of their stakeholders, which include pension funds and individuals (such as small-business owners) planning for retirement. According to their ESG goals, investment managers have declined to invest in certain companies and industries, including fossil fuels.

These tactics have received understandable scrutiny from lawmakers who question whether these investments are designed to maximize returns.

The problem with ESG investing isn’t that it exists. The problem is that some asset managers make it the only option. Americans should have as many tools as possible to plan for their futures, whether saving for retirement or getting ready to take on a new entrepreneurial challenge. If investors don’t like the options presented to them, they should be able to take their business elsewhere.

A Gallup survey in 2022 found that 78 percent of investors consider expected returns when deciding where to place their money, while 41 percent consider corporate governance, 38 percent consider social values and 35 percent consider environmental impact. ESG investing isn’t for everyone — and that’s a decision that every individual should be able to make themself.

There are valid questions about the wisdom of investment managers categorically refusing to invest in specific sectors. The answer to these questions shouldn’t be another mandate that could hurt individual investors, who are smart enough to make these decisions as long as they have every available option.

 The investment field should be as wide open as possible, ensuring low-cost products that provide freedom of choice to select the most effective investments from a broad range of options. Mandates — whether from ESG-fueled asset managers or lawmakers who question those strategies — only force investors into one position or another and rob them of their choices.

One asset manager understands this balance. Vanguard, one of the largest investment managers worldwide, gives its customers every option. Importantly, it is not incentivized into one position or another on issues like ESG. The company is uniquely structured by being client-owned and operated at cost. So as an investor in Vanguard funds, the customer’s interest and Vanguard’s are one and the same.

In December, Vanguard withdrew from the Net Zero Asset Managers initiative, an alliance that uses its investment portfolios to contend with climate change. In withdrawing, Vanguard cited a commitment to its “singular goal” of maximizing long-term returns. Climate-focused funds remain available to those who want them, and other funds are available to investors with different priorities. That’s the way it should be.

The only sensible ESG policy solution for lawmakers and regulators is to step out of the way and let firms do what they do best — help consumers, entrepreneurs and small-business owners invest in themselves, their employees and build sound financial futures. 

In times of uncertainty and an unpredictable economic climate, this is one of the most effective and empowering tools we have left. Mandates, bans and other heavy-handed regulations make it more difficult for investors to plan. These proposals should be roundly rejected in favor of a wide-open investment landscape allowing everyone to make the best decision.

Please follow DVJournal on social media: Twitter@DVJournal or Facebook.com/DelawareValleyJournal

The pushback against Environmental, Social and Governance has begun. It’s coming from market influencers like Vivek Ramaswamy, cultural influencers like Dilbert creator Scott Adams lambasting it in his (banned) comic strips, and 19 Republican governors going after the banks that push it. It’s a good thing.

Washington and Wall Street want to save the planet, much of it choking on Chinese coal dust. Its Environmental, Social, and Governance (ESG) policies, particularly the Security and Exchange Commission’s ESG policy proposal for investors, pretend China exists on another planet. Big business and big investment houses wouldn’t have it any other way. They’ll punish the locals for not being environmentally sound. But China can throw chemicals down a river and burn a thousand suns, and it’s OK.

Adherence to ESG rules would make it more expensive to do business in the United States. It is another bad idea that will further drive manufacturing away from the United States and into Asia, led by China.

The SEC is not alone.

An ESG bill passed the House of Representatives in 2021. Financial Services Committee Chairwoman Maxine Waters said, “It’s past time Congress makes ESG requirements explicit.” There are two ways to interpret that. One: make sure investment products and companies declaring to be ESG have the same metrics. Two: ensure companies comply with climate policies to keep them ESG-friendly. Both are valid points if ESG policies are mandated by the SEC or Congress. That bill is now in a Senate committee. It will likely die there.

ESG is a U.N. endeavor that became an investment product. It’s big in Europe. The idea is that portfolio managers and lenders will direct capital to companies that are easy on the environment, hire women and minorities, and are good corporate stewards of the communities they serve. As a standalone, no one is against this idea or real, quality metrics that provide transparency to ESG investors.

But ESG has moved away from being just an investment product. It’s political now. Democrats fully embrace ESG. Republicans, not so much. Significant “woke capital,” as Ramaswamy calls them, loves ESG.

Shareholders can weaponize information from where a company’s electric power comes from to how much fertilizer the local rancher was selling beef to Cargill is using, all to pressure a business based on climate risk or other social causes packaged as environmental justice. Compliance requires costly lawyers who understand the rules. Business leaders then need to shift gears to ensure they are not running afoul of the climate police — which includes global bankers like Rabobank and asset managers like BlackRock that threaten to take their bank loans and investments elsewhere.

The proposed SEC rule will not only define ESG standards but it will also require publicly traded companies to comply with lowering greenhouse gas emissions or risk losing their lenders. This also affects private companies that sell to publicly traded ones. “Not green enough? Sorry, we need to find a greener partner.”

It’s everywhere. The Department of Labor is proposing new rules on pension plans that will require ESG investments as a matter of fiduciary duty.

ESG is voluntary for now. Democrats want to legislate its permanence. They are easily sold on ESG as good for the planet. Big lenders see it as corporate uniformity, doing “good,” and risk reduction. But if implemented, the SEC proposal will be a mega headwind for the United States as greenhouse gas emissions become a costly investment risk — despite the U.S. being a leader in reducing greenhouse gases and environmental standards.

None of these climate policies exist in application anywhere in China.

Picture this: a U.S. mutual fund with an ESG focus invests in Chinese solar companies and supply chains. Chinese polysilicon maker Daqo New Energy trades on the New York Stock Exchange. It’s in climate-change-themed funds, which are total ESG plays. Daqo was placed on the Commerce Department’s Entity List in 2021 for forced labor. So? BlackRock, Templeton, PIMCO, Fidelity, Vanguard, Morgan Stanley and State Street own 13 million shares. Americans who own the iShares Global Clean Energy ETF own Daqo, which probably uses Muslim prison labor.

ESG was designed to be voluntary. Now its strictest adherents, which include major Wall Street investors and lenders, want it to be mandated. Meanwhile, the usual hypocrites at global companies who are ESG fans will continue sourcing from China, where widgets are made thanks largely to coal-fired power plants. Those are bad here. Not ESG enough. But weak environmental rules and no women in power anywhere, that is perfectly fine in China.

No U.S. company should be forced to follow a climate policy its biggest rival can ignore. ESG must remain an optional investment product, not an investment policy.