Commentary
For the last few years, the mirage of environmental, social, and governance (ESG) has been exposed for what it is: a backdoor attempt to use Americans’ investments to fund far-left political goals. Corporations’ ESG commitments are preventing investment in natural resources such as oil, gas, and coal, even as Americans are pounded by higher energy costs and inflation.
This risky investment ideology has led to an anti-ESG pushback from state treasurers and attorneys general. That was followed by a tidal wave of state legislation seeking to protect public employee pensions and core industries in various states.
At least 11 have passed strong legislation meant to combat investment tools that prioritize radical left-wing priorities under the nose of investors.
In response, banks are in
panic mode. Why? One reason is ESG metrics have historically increased the ownership of bank shares because of their supposedly “relatively lower carbon emissions.” However, today’s banking crisis means that exchange-traded funds and other funds over-weighting bank shares were hemorrhaging money last month. State legislatures are right to further ramp up the pressure to protect pensioners and industries.
Some ask why other states outside of the 11 that have passed legislation protecting public employees’ investments haven’t yet done so. One of the reasons is that not only banks themselves but also state banking associations are spending record amounts of money lobbying state legislators to protect ESG investing. The empire of Big Finance is
striking back, spending a great deal of money and political capital to block state legislation that simply requires those managing public employee pension funds to invest for the highest returns, not for non-financial objectives such as ESG.
State banking associations are carrying the water for big banks and asset managers and
twisting the arms of state lawmakers to back off any attempts to deny activist managers from leveraging red state assets. The investment managers want to retain their ability to vote the proxies. And the Kentucky Bankers Association is suing to block Attorney General Daniel Cameron’s investigation that threatens to expose possible collusion meant to destroy a state industry, namely coal, and the value of their pensioners’ funds. BlackRock recently hired lobbyists in half the states in the Union, is throwing money around DC, and is likely an invisible hand behind state banking associations while spending millions on PR campaigns and softening public statements.
Much of this goes back to a fundamental shift in corporate leadership that shaped the financial sector.
In 2019, the Business Roundtable redefined the purpose of a corporation from maximizing shareholder value to serving various “stakeholders.” In recent years, groups such as the World Economic Forum and others that prop up ESG have built upon this redefinition.
Who are these “stakeholders?” Basically, everyone except shareholders.
With corporate executives spurred on by the Biden administration and others working from this new definition of “stakeholder capitalism,” many funds that now include ESG considerations have been able to get past financial regulators and investors with investments that are focused less on profitability, and more on funding the environmental and social agenda of the left.
Beginning in 2021, various state attorneys general and treasurers began challenging ESG’s new model of stakeholder capitalism. Nineteen state attorneys general are investigating Bank of America, Citigroup, Goldman Sachs, JP Morgan Chase, Morgan Stanley, and Wells Fargo. They’re pursuing allegations that financial institutions not only violated their fiduciary duties but also engaged in antitrust behavior by colluding to limit investment in certain industries.
However, it’s important to note that certain states are taking a longer-term view. What good are long-term investments in energy companies if the companies will become shadows of their former selves due to loss of capital investment for new exploration or loss of insurance?
This more nuanced view was inspired by Texas
Senate Bill 13 passed in 2021, which prevents state agencies from contracting with companies that restrict, cut ties with, or “boycott” investment in oil and gas. Banks and asset managers are disproportionately impacted, since they’re the non-government organizations large enough to deny capital to an industry writ large. Many states are considering bills modeled after this Texas bill. Other bills going through state legislatures further restrict proxy voting against state industries, which has been one of the means used by progressives to further weaponize ESG against pensioners who would benefit in their retirement from low-cost and reliable energy and low inflation.
Seeing the behavior of many banks and asset managers, it’s time to ask them to give a definition of stakeholder that once again prioritizes shareholders.
As I outlined in a
roadmap back to neutrality for America’s financial giants, I’m pleased to see steps in the right direction and want to see more banks and asset managers cast off politics and return to principled financial decisions. The first step needs to be the Business Roundtable rejecting their redefinition of the purpose of the corporation. Clearly, this experiment in advocating for “stakeholders” isn’t just penalizing shareholders but the American public at large.
It’s troubling that banks are putting their bottom line ahead of hard-working Americans in the public sector who rely on pensions for their retirement. Now more than ever—especially with a banking crisis on our hands—it’s time to reject the hyper-politicized stakeholder capitalism of Big Finance and get back to sound investments focused on profitability for shareholders and retirees.
Views expressed in this article are opinions of the author and do not necessarily reflect the views of The Epoch Times.
