A Solution Is in Sight for the ESG Controversy – WSJ

Despite the outrageous slant of this opinion piece from “anti-woke”: Vivek Ramaswamy (somehow only the other side “claims” while anti-ESGers somehow know), he is right about one thing: transparency is always beneficial to robust market responses. He says, “Lawmakers concerned about the use of ESG in capital markets need not ban it. They can simply require that capital owners be informed by their asset allocators whether their money is invested in an ESG-promoting fund and provide express consent to do so.” No argument there. Many pension funds, like TIAA-CREF, give beneficiaries a range of options to select from. Others have pension beneficiaries or their representatives as trustees approving asset allocation. So that’s already pretty much the way things are, as Ramaswamy should know. And he concedes that ESG funds are a tiny percentage of BlackRock’s funds. So what is his problem?

As always, when he is involved, we note that Ramaswamy, funded by Peter Thiel, who lost a bundle on the anti-woke bank due to use of non-financial indicators in making the investment, uses the WSJ opinion pages to promote his own “anti-woke” fund, which is just as ESG-focused as the funds he critiques. Ramaswamy promotes shareholder engagement and he just assigns different weights to ESG factors. Of course the most important disclosure will be the AUM and returns of his fund.

Large asset managers integrate ESG objectives into their investment approaches in one of two ways. The first is through dedicated ESG or sustainability funds, which systematically exclude or underweight securities in disfavored sectors such as fossil fuels, tobacco and firearms. These funds represent a small portion of total assets under management—less than 6% as of last year in BlackRock’s case. If dedicated ESG funds accurately disclose their policies and the ultimate capital owners are informed of them before making investment decisions, there’s no legal problem. People are free to use their money to promote any social causes they like.

The second and more prevalent way that asset managers promote ESG is through “stewardship,” which refers to proxy voting and shareholder engagement. The largest asset managers use stewardship to promote ESG principles in all their portfolios, including non-ESG index funds.

In 2022, large asset managers including BlackRock voted in favor of implementing racial-equity audits at companies like Apple and Home Depot notwithstanding that the companies’ boards recommended against doing so. Similar examples abound with large asset managers imposing emissions caps, ESG-linked executive compensation and board diversity mandates across corporate America. Many capital owners strongly disagree with these objectives even though their money was used to support them.

As legal scrutiny intensified, ESG advocates started to claim that their proxy-voting and shareholder-engagement practices aren’t intended to advance social or political objectives but are motivated solely by financial considerations. Courts are likely to reject these claims given that candid descriptions of ESG invariably acknowledge that its goal is to advance “socially responsible,” “moral” or “social impact” outcomes and to allow investors to “put their money where their values are.”

A Solution Is in Sight for the ESG Controversy – WSJ

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