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Tags: environmental and social guidance | esg | investing

Thank ESG Titans, Profiteers for Economic Dead End

a wall street sign with environmental and social guidance written around it
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Larry Bell By Monday, 27 February 2023 11:06 AM EST Current | Bio | Archive

So-called “Environmental and Social Guidance” (or ESG) is driving the U.S. energy supply chain to China, Congo and other countries with terrible environmental and human labor practices on the backs of American pension holders and other investors who are paying the freight.

ESG is dominated by enormously influential fund managers — BlackRock, Vanguard and State Street — with $15 trillion in combined global assets which hold controlling 17% to 45% shares of 14 of the 15 world’s largest banks.

Together, these “Big Three” and their financial affiliates exert unilateral preeminence over vast aspects of our lives including the forms of energy we use,cars we drive and countless other decisions.

In short, ESG operates through economic and political leverage over insanely powerful government agencies, institutions, lobbies and corporations that purport to know and champion our best interests.

And yes, this leverage comes at enormous national competitiveness and energy security costs.

Consider, for example, that in 2021 BlackRock exercised its proxy voting rights as Exxon’s second-largest shareholder to lead an activist campaign that forced the company to cut oil production without disclosing that those oil fields they dropped are poised to be acquired by PetroChina where BlackRock is one of their largest investors.

Hark back to the Biden administration’s proposed Labor Department rule that would direct pension plan and asset managers to account for politically progressive ESG scores in determining 401(k) retirement plan decisions including assessments of impacts on workforce diversity, climate change and investments in sanctioned "green" energy projects.

Any claimed benefits would hardly apply to China, which is building the equivalent of about one new coal-fired plant every 10 days, has abysmal environmental standards and along with the Congo, mines its monopoly control global of rare earth minerals needed for electric vehicle batteries that are being pushed by “green energy” lobbies using child labor.

Any such mandate also violates retirees' and other investors’ basic right to have their money invested solely to advance their financial interests, whereby pension-fund managers as fiduciaries are legally required to make every investment decision with one purpose — maximizing client financial interests.

The proposed new Labor Dept. ruling scraps and reverses a Trump administration proviso within the Employee Retirement Income Security Act (ERISA) implemented last fall requiring retirement plan fiduciaries to act “solely in the interest” of participants and based upon a “material effect on the return and risk of an investment.”

The rule effectively barred plans from automatically placing unknowing workers who don’t select a 401(k) fund option into a default ESG fund with higher fees.

By contrast, the proposed Biden DOL rule “makes clear that climate change and other ESG factors are often material,” and thus in many instances should be considered “in the assessment of investment risks and returns.”

In other words, retirement plan sponsors won’t merely be allowed to prioritize climate and social factors in how they invest; they can be sued if they don’t comply. Plan holders, on the other hand, won’t get much say because option managers won’t be required “to solicit preferences” on ESG.

The Uniform Prudent Investor Act, a model law adopted by 44 states, makes it clear that “no form of so-called ‘social investing’” is lawful “if the investment activity sacrifices the interests of … beneficiaries … in favor of the interests … supposedly benefitted by pursuing the particular social cause.”

ESG hasn’t yielded financial favors for many of those social investors either, with returns underperforming the broader market by more than 250 basis points per year, an average 6.3% return compared with an 8.9% return as of Sept. 2022.

A March 2022 Harvard Business Review stated that “ESG funds certainly perform poorly in financial terms.” A June study last year published in the Review of Accounting Studies found that “ESG funds appear to underperform financially relative to other funds within the same asset manager and year and to charge higher fees,” concluding that ESG asset selection “accounted for an annual drag on returns of -1.45 percentage points.”

Encouragingly, many states are pushing back.

Citing inferior returns due to the ESG focus, Florida has recently divested $2 billion from BlackRock funds.

Gov. Ron DeSantis has proposed legislation that would bar the state and its local governments from using ESG criteria when issuing municipal bonds or from housing deposits in financial institutions “pursuing this woke ESG agenda.”

Attorneys general from 19 states are seeking answers in a letter to BlackRock about its political agenda with regard to “using hard-earned money of our states’ citizens to circumvent the best possible return on investment, as well as their vote.”

The eight-page letter adds: “ BlackRock’s past public commitments indicate that it used citizen’s assets to pressure companies to comply with international agreements such as the Paris Agreement that force the phase-out of fossil fuels, increase energy prices, drive inflation and weaken the national security of the United States.”

Famously influential free market economist Milton Friedman prudently argued that public companies that assume moral authority to direct funds to causes other than their shareholders’ best business interests, are “preaching pure and unadulterated socialism.”

Friedman further observed that “Businessmen who talk this way are unwitting puppets of the intellectual forces that have been undermining the basis of a free society these past decades.”

Whether unwittingly or not, insanely influential ESG titans and marketing profiteers are leaving our nation and citizens dangerously awash in an economically and socially destructive tide.

Larry Bell is an endowed professor of space architecture at the University of Houston where he founded the Sasakawa International Center for Space Architecture and the graduate space architecture program. His latest of 12 books is "Architectures Beyond Boxes and Boundaries: My Life By Design" (2022). Read Larry Bell's Reports — More Here.

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Influential ESG titans and marketing profiteers are leaving our nation and citizens dangerously awash in an economically and socially destructive tide.
environmental and social guidance, esg, investing
Monday, 27 February 2023 11:06 AM
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