The Wall Street Journal recently ran a story reporting that the Attorney General of Arizona and 18 of his colleagues in other states sent a letter to the financial management behemoth, BlackRock.
This is not the first salvo in this battle. There have been a series of actions taken by state financial officers such as Treasurers, Comptrollers, and Auditors General which question BlackRock and other asset managers, and object to rating agencies for imposing a political agenda on the states by assigning ESG (Environmental, Social, Governance investing) scores to those state’s bonds, thus punishing states financially for deviation from a political standard. Elon Musk, a former ESG hero and sometime world’s richest man, upped the ante, calling the whole thing a scam, and there has been a backlash from representatives, senators, governors and various potential presidential candidates against smuggling ideology into finance. This all amounts to a sudden and growing backlash to a movement whose chief selling point was its inevitable victory.
This is very important; that sense of inevitable triumph was key to ESG’s acceptance. The implied threat is that if you didn’t fall in line with the march of mankind you would be left behind and alone.
Investors were understandably a bit reticent about using political standards to make financial decisions, and investment managers who have a fiduciary responsibility to seek retirees' benefit as a sole priority were doubly concerned. But they were assured that ESG investing was good for clients because it was simply imposing on business now what would inevitably be imposed in the future by culture, politics, and taste. The idea is that eventually using fossil fuels would be considered barbaric and be illegalized, and that companies which were still sitting on such energy assets at the time this happens would be left “stranded” with assets suddenly worth nothing.
It wasn’t just anti-energy. It was the whole liberal agenda: abortion, LGBTQ protection without balancing protections for religious liberty and viewpoint diversity, etc. It was presumed these issues would win the day, and the only way not to be hurt by that victory was to give in to it now, or else the “reputational risk” and the subsequent loss of a “social license” to do business would destroy the value of the company. ESG was sold as safety.
But what happens if it no longer feels safe? What happens if dozens of Attorneys and Auditors General ask awkward questions about the fuzzy implied benefits of ESG, or whether ESG even has an objective meaning? How can asset managers sell ESG products if they can’t even agree on what ESG is? And if there is such a strong negative reaction from elected officials and conservative shareholders and consumers, how can ESG be sold as risk management? It seems to be turning into risk enhancement.
The controversial nature of ESG is now so undeniable that one of it’s chief clearinghouses, As You Sow, posted a quote on social media admitting “the acronym ESG as a construct may have lost some of its luster…” and As You Sow has been explaining to its loyalists “why there’s been such a backlash against ESG” is that it “It’s extremely effective!” It’s an odd argument to make, that the movement is losing so many votes because it wins so many votes. The more honest way to say it is that the ESG ideology simply went too far and that the pendulum did what it always does: it swung back in the other direction.
You know that things have gone wrong when shareholders of companies such as Tesla Inc. push back. Tesla was an ESG hero, but Musk dissented, coming out of the closet as a “free speech absolutist” and defender of various Twitter exiles. At the recent Tesla Annual shareholders meeting those present jeered as activists recited ideologically charged screeds and cheered as moderators cut them off. Then, the shareholders voted the left down in proposal after proposal. Again, we’re talking about Tesla: electric cars, solar panels.
The work of depoliticizing finance isn’t over yet. Humanism has a problem: it denies human sin, but it can’t ignore the reality which comes from human sin, so it must find a way to purge guilt without acknowledging God, His moral code, or the need for repentance. Instead, it embraces social action, including endless activism over every aspect of life. Each tomato consumed brings with it all the evils of the supply chain. Each dividend collected in a retirement account comes tainted with the imagined evils of capitalism.
But instead of a fixed set of commandments, the act of repentance for violating them, and the resulting forgiveness, humanism keeps upping the need for purity, adding new and unclear commandments, leaving an endless feeling of guilt and constant vulnerability to shame. This shows up in finance through ESG, and other forms of allegedly socially conscious investing. So, the backlash against BlackRock and other giant asset managers and their CEOs quest for legacy is a good start. But only a genuinely Christian view of human nature can deal with the real problem
Jerry Bowyer is financial economist, president of Bowyer Research, and author of “The Maker Versus the Takers: What Jesus Really Said About Social Justice and Economics.”