Will ESG Mandates Fail Too?

Last week we discussed the downturn in the manufacture and sale of electric vehicles despite the massive subsidies by the federal government at the behest of liberal/progressive in support of the Green New Deal. That isn’t the only initiative by liberal/progressives that is failing in the cold, harsh light of the market place. The next is ESG. It’s not a concept that has gotten a lot of coverage because it is aligned with the far left views of the mainstream media and its primary effect is only on those who invest in the financial markets. Well, that is not exactly true because the effects of ESG directly impacts those whose retirement funds are being managed by the adherents to ESG. Let me explain.

ESG stands for Environmental, Social and Governance. As harmless as those initials may seem, its attempt was to move investments away from profit and growth and toward adherence to the Green New Deal, social justice and liberal/progressive governance. It has become so pervasive at the behest of the billionaire investor class – obviously suffering from the guilt of excesses – that there is even a “governing board” to determine who is in or out of the ESG adherents and even “seminars” to be gobbled up by the chief executive officers of large corporations trying to fit in with the billionaires. Its main premise is that to save the world (code for turn everything over to the liberal/progressives) you must focus primarily on whether companies reduce their carbon imprint, whether they have embraced the new norms for sexual identity, whether they have accepted the concept of white privilege, etc, etc, etc. on to nausea. Forget about whether your investment makes a return or grows, focus instead on those items that are subjective in nature – subjective in a way that subsumes liberal/progressive political thought.

But, like the case with most liberal/progressive adventures, it wasn’t their money they were trying to spend – it was yours. They already had so much money invested in much more esoteric financial assets beyond the reach of the real effects of ESG. So they wanted yours. As usual, while the liberal/progressives of the investor class are using your money to fund their “great” ideas, they forgot that people don’t invest their life savings, their retirement portfolios or their businesses on a political philosophy based on redistribution of wealth, rather they invest it on the basis of return and growth. They have to in order to live when retired and to avoid becoming another casualty of the welfare state.

While ESG is failing in the market place, it continues apace in many instances where government meets and mandates business. Take for instance the struggles going on in Delaware. A member of the Delaware Supreme Court former Delaware Supreme Court Justice Tamika Montgomery-Reeves, declared that officers and directors were free to consider the views of “stakeholders” as opposed to shareholders when making decisions about the corporations. Ms. Montgomery-Reeves was rewarded by President Joe Biden (D) – a champion of everything woke – with an appointment to the federal Court of Appeals. That has been followed on by several judicial opinions suggesting the management of issues other than those of shareholders interest should not be simply permissively optional but rather mandated issues to be considered in decision making. Contrast Delaware’s embrace of wokeness with say Florida that confronted Disney over its attempted interference in decisions about what should be taught in public schools to children. Disney not only lost that confrontation with Florida but the exposure of Disney’s woke agenda that came as a part of that contest has caused it to suffer significantly in investor confidence and historical preferential treatment in Florida and elsewhere. Disney has become the symbol of corporate woke decision making and its devastating impact on business performance.

If that view continues to gain purchase in Delaware, we will see more conservative states move to the fore and establish their own specialized business courts – like Texas – with the resulting migration of businesses incorporating or re-incorporating in those states. It has happened before when New Jersey attempted to make corporate executives individually liable for business mistakes. It was a classic example of market conditions nullifying intrusive government. It was a classic example of shareholders protecting their investments from an intrusive government.

But a more telling signal came from a summer conversation I had with with my advisor from a diversified fund that I use. I had called him to complain that they had placed a portion of my account into a private equity fund whose web page noted that it was following the principles of ESG. He was surprised first by my complaint and second that the private equity fund management had embraced ESG since he knew their senior management well and viewed them to be rather conservative both in their investment advice and their political position. Subsequently he called to tell me that the private equity fund indeed endorsed ESG but indicated that it do not invest in that fashion – that it supported ESG in name only – and that further conversations with fund managers convinced him that that was the case in most instances. ESG had become something you had to “embrace” in order to “fit in” but not follow. He then cited a February 26, 2023 Terrence Keeley article in the Wall Street Journal:

Vanguard’s Tim Buckley is having a Copernican moment. Like the famous Renaissance polymath who challenged conventional wisdom about celestial movement, the 54-year-old CEO is challenging the asset-management industry’s environmental, social and governance orthodoxy.

Our research indicates that ESG investing does not have any advantage over broad-based investing,” Mr. Buckley said in a recent interview with the Financial Times. Matching word to deed, his comments came after he had withdrawn his firm from the $59 trillion Net Zero Asset Managers initiative, an organization that is part of the $150 trillion United Nations-affiliated Glasgow Financial Alliance for Net Zero. Both alliances are committed to restricting their investments over time to companies that are compliant with the Paris Agreement’s objective of net-zero greenhouse gas emissions by 2050. Mr. Buckley claims the financial world, swept up in climate-change fervor, can’t make such commitments without reneging on its fiduciary duties.”

This is a signal that yet another element of the liberal/progressive woke agenda is failing competitive marketplace despite the determined efforts of a government dominated by liberal/progressives. The free market cannot co-exist with an insistent political dogma that demands government control of everything – particularly when it flies in the face of personal need and accomplishment, not when it effects their savings, and not when it sees that those who make the decisions immunize themselves first from the effects of those decisions.