Hiltzik: The GOP's attack on ESG investing will hurt you

By Michael HiltzikBusiness Columnist

Dec. 9, 2022 9:39 AM PT

That was quite the bill of particulars that Mark Brnovich and Doug Peterson laid against BlackRock, the world’s largest money management firm, back in August.

BlackRock stood accused of subverting the financial interests of its clients, even sacrificing pensioners’ retirements to pursue its own agenda. The giant firm was engaged in “squelching political speech” and acting to “penalize” corporate managements that bucked its preferences.

The accusations needed to be taken seriously, if only because Brnovich and Peterson are the attorneys general of Arizona and Nebraska, respectively, and their complaints were endorsed by their counterparts in 17 other red states.

The longer-term shift towards a less carbon-intensive economy is likely to continue.

— Dalia Blass, BlackRock

Their case was rather more specific than it might have seemed on the surface. The agenda that BlackRock was accused of pursuing was a fight against global warming, which the investment firm has cited, properly, as a major concern for long-term investors.

The letter from the attorneys general was just one sally in a broader war waged by conservative politicians against “ESG” investing.

The term refers to efforts by shareholders to prompt their companies to align their activities with “environmental, social and governance” goals such as ending discrimination against LGBTQ individuals, promoting gun safety and combating global warming.

As I reported this summer, “ESG” is the new “critical race theory,” or “CRT”— a concept nebulous enough to be easily invoked as something offensive or evil and employed as an all-purpose rallying cry in the partisan culture wars.

(In fact, not even Wall Street is entirely clear about what it means by “ESG”; a few investment promoters have gotten in trouble with the Securities and Exchange Commission, which has accused them of implying that some of their “green” fund offerings are greener than they really are.)

Red states such as Texas, Florida, West Virginia and Tennessee have withdrawn public funds from BlackRock and other money managers after accusing them of pursuing ESG goals to the detriment of purely financial returns.

Don’t be deceived, however. As much as the ESG critics campaign against what they call “woke capitalism,” which encompasses all those principles, their campaign is really rooted in global warming denial.

Their goal is to protect the fossil fuel industry, which is a major Republican patron, from the costs of converting from a carbon-intensive energy economy to one based on renewable sources that don’t contribute to global warming.

Former Vice President Mike Pence, for example, declared during an appearance on Fox Business in October that a GOP majority in Congress should immediately disband the Select Committee on Climate Crisis that Speaker Nancy Pelosi (D-San Francisco) created in 2007 to advance policies to fight climate change.

“It’s not a Select Committee on Climate Crisis,” Pence said, “it’s a select committee in support of the war on American energy.”

The conservative war against ESG has intensified recently in ways that expose its intellectual bankruptcy.

On Nov. 10, Kentucky Atty. Gen. Daniel Cameron issued a subpoena to Vanguard, the second-largest money management firm in the world, demanding information on its votes on shareholder ESG resolutions at corporate annual meetings.

The subpoena implied that Vanguard’s votes on some of those resolutions favored the interests of “only some,” not all, of Vanguard’s clients and promoted “non-financial interests.”

On Nov. 28, attorneys general from 12 red states asked the Federal Energy Regulatory Commission (FERC) to delay what would be a routine extension of Vanguard’s authority to own shares in publicly traded energy utilities.

The states charged that Vanguard had breached its commitment to avoid exercising “any control over the day-to-day management” of the utilities.

How did Vanguard do so? According to the states, in part by voting in favor of shareholder resolutions urging companies to make more thorough disclosures of their impact on global warming.

“Vanguard pledges to use its voting power to pressure utility companies toward decarbonization,” the states say in their complaint. “How could it do that without intending to manage the companies in its portfolio?”

That’s easy: Shareholder resolutions are almost always advisory — shareholders can only urge, but can’t force, managements to follow certain policies.

Vanguard also has been a member of the Net Zero Asset Managers initiative, a financial industry alliance whose members are committed to working to achieve net zero carbon emissions by 2050.

NZAM has been specifically targeted by the anti-ESG politicians. Vanguard’s membership is cited repeatedly, and absurdly, in the red states’ complaint to FERC as evidence of the firm’s intention to “manage” the utilities.

Despite the fatuity of the arguments being posited by the ESG critics, the investment industry is running scared. Vanguard announced Wednesday that it is resigning from the Net Zero Asset Managers initiative.

Vanguard said it is withdrawing to “make clear that Vanguard speaks independently on matters of importance to our investors.” The firm’s statement, written almost entirely in corporate gobbledygook, doesn’t tell us much, except that one can’t go broke betting on the political cowardice of Wall Street. But that’s hardly news.

The anti-ESG campaign boils down to an assault on investing that takes climate change into account. Given the pace of global warming and its impact on economies in myriad ways, ignoring the phenomenon as even a short-term investment consideration, not to mention the long term, is imprudent by any measure.

The attorneys generals’ letter to BlackRock says the firm’s concerns about the impact of global warming are based on “improbable assumptions.” Is that so?

For some states, taking an investment stand that dismisses global warming falls into the category of whistling past the graveyard.

Florida is a perfect example. The state’s troglodytic Republican governor, Ron DeSantis, is a leader in the movement against what he calls “woke capitalism.”

In August, he and his fellow directors of the state’s public pension fund passed a rule forbidding fund managers to base their investment decisions on the “ideological agenda of the environmental, social, and corporate governance movement.”

DeSantis explained that “we are prioritizing the financial security of the people of Florida over whimsical notions of a utopian tomorrow.”

That was on Aug. 23. A month later, Mother Nature took pains to make DeSantis look like a jackass. Hurricane Ian, an artifact of global warming that struck the state on Sept. 23, was its worst storm in 87 years, killing 130 Floridians and causing property losses estimated as high as $74 billion.

So much for the “whimsical notions” of tomorrow, and so much for “the financial security of the people of Florida.” Did DeSantis learn anything from the experience? On Dec. 1, the state treasury pulled $2 billion in investments from BlackRock to protest the firm’s “social-engineering projects,” whatever they are.

BlackRock has tried to educate its adversaries about the realities of climate change and their importance as an investment consideration.

“The longer-term shift toward a less carbon-intensive economy is likely to continue,” the firm warned in September, in a response to the attorneys generals’ August letter that went out over the signature of Senior Managing Director Dalia Blass.

The firm denied boycotting fossil fuel investments, as the letter had charged. It noted that it’s one of the world’s largest investors in energy companies of all sorts, from natural gas to renewables. And it advised the states that it’s they, not the investment firms, that have politicized energy investing by pulling money from investment managers because of some warped conception of their goals.

“We are disturbed by the emerging trend of political initiatives that sacrifice pension plans’ access to high-quality investments,” BlackRock wrote, “and thereby jeopardize pensioners’ financial returns.”

That’s correct. The truth is that blindly protecting investments in coal and oil without taking account of the changing world is a formula for impoverishment — environmentally, socially, and especially financially.

The same politicians who endanger their citizens by loosening gun controls, imperil their children’s ability to compete in the world by interfering with public school curricula, and subject their constituents to illness and death by fighting sensible anti-pandemic measures such as social distancing and vaccination are doing even more damage by treating the fight against global warming as nothing but a folly of “woke capitalism.”

This variety of conservative political theater, however, endangers all of us.