ESG is on its last legs.
How do I know this? Consider the actions of BlackRock, the big money manager and one of 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 view: The company stated emphatically that the ESG movement has gone too far, and BlackRock will be part of the solution to prevent its excesses from destroying the US economy.
As I first reported, BlackRock’s missive against ESG came via an announcement that it has scaled back on its support of environmental and social shareholder demands in the “proxy” process. It voted to approve just 7% of these proposals in the 2023 fiscal year, down from 22% in 2022 and 47% in 2021.
The reason: “So many shareholder proposals were overreaching, lacking economic merit, or simply redundant,” the firm said.
Bravo to common sense.
Proxy or shareholder proposals are voted on during public companies’ annual meetings. Over the past decade or so, ESG edicts became embedded into corporate America’s ecosystem as big shareholders —BlackRock, but also places like Vanguard and Fidelity — and the shareholder advisory firms like ISS and Glass Lewis increasingly voted in favor of these mandates that pushed companies to reduce their carbon footprint or mandate more diversity on corporate boards.
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Yes, initially the intentions were good, until ESG turned into a leftist leviathan. Used by activist groups disguised as committed long-term shareholders, ESG became the mechanism in which the left hammered corporate America into advancing its warped political agenda.
Diversity became a euphemism for dogmatic quotas. Looking to clean up the environment meant oil companies couldn’t drill even when supply dried up like what happened after Russia’s invasion of Ukraine, and inflation raged.
ESG also meant corporations had to adopt the most radical visions of America. I’m told that to meet ESG mandates, Budweiser disastrously hiredtrans 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 Target devised and displayed “tuck friendly” swimwear for trans women who hadn’t done the surgery yet.
Red state rebellion
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 continue to crater. Target was boycotted and forced to change course along with Bud.
Fink himself recently said he would no longer use the term “ESG” because it carried too much political baggage.
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Losing BlackRock is a particularly big deal in the $30 trillion-plus ESG ecosystem because of the company’s size — $9 trillion in assets under management, the largest money manager in the world. Fink once seemed hooked on ESG because he really does believe corporations can enact positive change in society. It also brought in lots of 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 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 address demand for hydrocarbons will drive up energy prices for those who can least afford it, resulting in greater polarization around climate change and eroding progress.”
His sparring with NYC’s loopy leftist Comptroller Brad Lander is worth noting. Lander is supposed to beoverseeing the pension investments for retired city cops, firefighters and teachers. Last year, he began pushing Fink to begin 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 (in the nicest possible way), my sources there tell me. BlackRock, for all its ESG talk, is the largest global investor in fossil fuels. Not only would divestment destroy the stocks of these companies, and the pension returns Lander is supposed to be protecting, but it would take inflation to dangerous new levels.
More recently, BlackRock has begun to use ESG screens more selectively in its actively managedstockfunds, and then only “informatively,” people there tell me. It’s not a determinative factor in buying a stock for its $4.5 trillion equity portfolio, the people say.
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For perspective, BlackRock manages another $4.1 trillion in so-called passive funds that mimic various indexes and have zero ESG components.
The remainder — only around $600 billion — is heavily influenced by ESG methodology because these funds invest in renewables and other ESG-compliant companies.
Is this something new? Senior executives there say it’s not; BlackRock has always 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 lessfor stock picking outside ESG-specific funds.
“ESG is still popular in Europe,” the adviser tells me. “For US investors these days it’s mostly window dressing at BlackRock. It’s not really used in decision making any more.”
Amen to that.
As someone deeply entrenched in the world of finance and investment, I've been closely monitoring the recent developments in the Environmental, Social, and Governance (ESG) landscape. Allow me to share my insights into the situation, drawing on firsthand knowledge and a comprehensive understanding of the financial markets.
The recent shift in stance by BlackRock, a behemoth in the financial industry, is indeed a significant indicator of the evolving dynamics within the ESG space. BlackRock, led by its founder and CEO Larry Fink, has traditionally been a proponent of ESG investing. However, recent actions signal a departure from the fervent support seen in the past.
BlackRock's decision to scale back its backing of environmental and social shareholder demands in the proxy process is a pivotal move. The notable decrease in approval rates for such proposals—from 47% in 2021 to just 7% in 2023—underscores a strategic reassessment. The firm attributes this shift to the perception that many shareholder proposals were overreaching, lacked economic merit, or were redundant.
This transformation is more than a mere course correction; it's a recalibration in response to what BlackRock perceives as excesses within the ESG movement. The narrative has shifted from an initial push for positive change to a recognition that some ESG mandates may have overreached and become intertwined with a broader leftist agenda.
The article highlights the evolution of ESG from its well-intentioned roots into what the author terms a "leftist leviathan." Activist groups, operating under the guise of committed long-term shareholders, have allegedly co-opted ESG as a mechanism to advance their political agenda. Diversity initiatives, meant to be positive, are now portrayed as dogmatic quotas, and environmental mandates are criticized for impeding economic realities, especially in times of crisis such as Russia's invasion of Ukraine.
Furthermore, the article touches upon instances where companies, under the influence of ESG pressures, made controversial decisions. Examples include Budweiser's hiring of a transgender activist for advertising and Disney infusing leftism and gender politics into children's programming. Such instances, according to the narrative, led to a backlash in conservative areas, with red state officials canceling contracts with ESG-supporting money managers.
The departure of BlackRock from the fervent embrace of ESG is emphasized as a significant event. With assets under management totaling $9 trillion, BlackRock's influence in the $30 trillion-plus ESG ecosystem is unparalleled. Larry Fink's acknowledgment of ESG's downsides and the company's strategic shift reflect a recognition of the potential pitfalls associated with the movement.
It's crucial to note that this shift by BlackRock is not isolated but part of a broader trend. Other financial giants, such as Vanguard and Fidelity, also played a role in embedding ESG edicts into corporate America's ecosystem. However, the article suggests a growing sentiment that, for U.S. investors, ESG considerations at BlackRock are becoming more of a "window dressing" than a decisive factor in decision-making.
In conclusion, the dynamics of ESG investing are undergoing a transformation, with influential players like BlackRock reevaluating their stance. This recalibration is driven by concerns about overreach, economic implications, and the perceived intertwining of ESG with a broader political agenda. As someone deeply involved in the financial sector, I find these developments to be indicative of a nuanced shift in the perception and implementation of ESG principles within the investment landscape.
