Woke Corporations ‘On Thin Ice’ as Free Market Pushes Back on ESG: Asset Manager

Tim Price speaks to NTD's British Thought Leaders programme. NTD

The recent push back against ESG has already put organizations “on thin ice,” according to Tim Price, a portfolio manager, author, and financial columnist.

Speaking to NTD’s “British Thought Leaders” programme, Mr. Price said “a lot of these problems” such as debanking will hopefully “resolve themselves over the next few years” as the political pendulum swings to a different direction.

ESG stands for environmental, social, and governance. It’s an investing approach that takes into account the governance of a company and its environmental and social impact. The concept was formalised by a U.N. report in 2004 (pdf), and rating agencies have since added the metric to their evaluation processes.

Supporters of ESG have been pressuring corporations to incorporate climate change-related and progressive ideology into investment decisions, but firms have been facing an increased backlash in recent months.

The world’s largest asset management fund BlackRock, once a vanguard of ESG, has voted down the majority of ESG proposals for the 2022–23 proxy season, according to its 2023 Investment Stewardship report, published on Aug. 23.

It comes two months after the firm’s CEO Larry Fink told Fox Business that he had stopped using the term ESG because it had been “weaponized by the far left and weaponized by the far right.”

Mr. Price said he was “more than surprised” by Mr. Fink’s public disavowal of “his commitment to ESG.”

In the UK, ESG has recently come under scrutiny for lurking behind the controversial debanking of broadcaster and former Brexit Party leader Nigel Farage.

Meeting minutes released to Mr. Farage show Private bank Coutts decided to close Mr. Farage’s account because his “publicly-stated views” were at odds with the bank’s position as “an inclusive organisation,” specifically regarding “ESG/Diversity and inclusion.”

The incident has led to the resignation of Coutts’ CEO Peter Flavel and the CEO of Coutts’ parent bank NatWest, Dame Alison Rose.

City Minister Andrew Griffith told the UK’s top bankers last month that the idea that a person could have their account terminated for expressing their political views is “wholly unacceptable.”

ESG is also believed to be behind the difficulties some industries, including the defence industry, are facing with banking, insurance, and other financial services. Last month, defence procurement minister James Cartlidge said the Ministry of Defence has launched an investigation into the impact of ESG rules on the defence industry.

Rating agency S&P Global has also dropped ESG scores earlier this month.

Mr. Price said ESG and DEI, which stands for diversity, equity, and inclusion, didn’t arise out of a “natural free capital market” but out of something that’s akin to “cultural Marxism,” a term often used to describe the application of Marx’s power struggle between the Bourgeoisie and the Proletariat to other identity groups such as different races or sexes.

“It’s completely subjective,” he said. “So who gets to determine whether something is for the social good and something isn’t?”

Commenting on what to do with the issues brought by ESG-style policies,  Mr. Price said ideally the invisible hand of the free market will “sort these problems out for itself.”

Battle Royale

In the broad-ranging interview, Mr. Price also criticised inflationary policies that were adopted by governments’ central banks across economies.

Government borrowing has piled up “too much debt in the system that’s clogging the arteries of global capital,” he said, arguing it’s no longer possible to keep the debt serviced by boosting the economy.

Defaulting on the debt would “instantaneously bankrupt probably the banking and pension fund industries of the world,” he said.

“What that gives rise to is the third option. And what’s in box number three has been the preferred choice by every bankrupt government since the beginning of time, and that’s you inflate the value of the debt away,” he said.

Stating that inflation is “a policy” rather than something that occurs naturally, Mr. Price said we’re “living through a period of explicit state-sanctioned inflation-ism,” which “seems to be the common thread behind a lot of things that are happening in the world right now.”

Since the 2008 financial crisis, central banks such as the Bank of England (BoE), the U.S. Federal Reserve, and the European Central Bank have all adopted quantitative easing as a tool in a bid to stimulate economic growth.

During the COVID-19 pandemic and the lockdowns, the BoE lowered interest rates to a historical low of 0.1 percent, announced three rounds of Quantitative Easing (QE), and injected £450 billion ($567 billion) into the economy as the Treasury borrowed to fund the furlough scheme.

Meanwhile, the Federal Reserve slashed the interest rates to zero percent and announced a $700 billion (£555 billion) QE programme, followed by an unlimited bond-buying initiative.

But the supply shock during lockdowns and Russia’s invasion of Ukraine means the extra money has been chasing a limited amount of goods and services, causing inflation to surge.

All these, according to Mr. Price, are the opposite of the free market which has a “naturally deflationary impulse.”

“You’ve got deflationary forces by the real economy, the markets ... want to deflate. But central banks and governments do have to keep the inflation game going. It’s the only thing that keeps them on life support,” he said.

“We’re having a battle royale between those two forces. But so far, it does look like inflation has the upper hand, which is in turn, why within our client portfolios, the things we’re most interested in, are basically inflation hedges, things like gold, silver, real assets, rather than paper ones,” he said.

Mr. Price said he believes the fiat currency, or money that’s “not backed by anything tangible,” is not workable, and a “more honest monetary system” will be “a better outcome for just about everybody.”