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The Grades Are In: Schwab Scores a D

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By karen roach @ Shutterstock.com

You have been reading here that ESG managers are using investor money to pursue their own political goals. They do that by stripping investors of the rights to control the voting on their own shares. This isn’t only done with ESG funds though, many index funds are setup to give money managers the voting power. And even with funds that aren’t earmarked for ESG strategies, managers are pursuing proxy votes that prioritize political agendas over shareholder value. The Wall Street Journal’s editorial board reports:

If Americans want to make investment decisions using environmental, social and governance factors, that’s fair enough. It’s a free country. The problem is having a hidden agenda that applies to everybody else. A new analysis says that, even in non-ESG investment vehicles, many asset managers proxy vote in favor of woke shareholder proposals to do racial audits or strangle fossil fuels.

The table nearby shows the score. It’s from a report by the Committee to Unleash Prosperity, which examined “4,814 non-ESG branded funds” to see how proxy votes were cast on “50 of the most extreme ESG-oriented shareholder proposals from 2022.” One proposal wanted Home Depot to perform a “racial equity audit” to identify “adverse impacts on nonwhite stakeholders.” Another called on Costco to set climate targets for “Scope 3” emissions, including due to “land use change” and “deforestation.” Neither has anything to do with the bottom line.

It wasn’t just money managers that got poor grades. Proxy advisers, which are supposed to guide shareholders to the best decisions, also scored poorly, with the journal reporting:

The report also calculates an imputed grade for the big two proxy advisers. Given their recommendations, Glass Lewis gets a D. ISS gets an F-minus. As shareholder proposals get wackier, perhaps they will adjust their tack, especially now that they’re getting political attention. In January a group of Republican state Attorneys General argued in a letter to Glass Lewis and ISS that they seem to have “acted contrary to the financial interests of their clients.”

Sunshine is what this ESG business demands. Pensioners and investors want a good return. What they don’t want, to pick one example, is for companies that sell paint or hamburgers to undertake costly external audits so that they can self-flagellate about the ills of the world. The Committee to Unleash Prosperity won’t have the last word, but its ranking is a good resource if you’re wondering what your asset manager is doing when you aren’t paying attention.

Action Line: Schwab, one of America’s most popular brokers for individual investors, scored a D. Not exactly a resounding endorsement for investors. The best way to control the vote on your shares is to work with a fiduciary who puts your interests first. When you’re ready to talk to a fiduciary, I’m here.

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E.J. Smith - Your Survival Guy

E.J. Smith is Founder of YourSurvivalGuy.com, Managing Director at Richard C. Young & Co., Ltd., a Managing Editor of Richardcyoung.com, and Editor-in-Chief of Youngresearch.com. His focus at all times is on preparing clients and readers for “Times Like These.” E.J. graduated from Babson College in Wellesley, Massachusetts, with a B.S. in finance and investments. In 1995, E.J. began his investment career at Fidelity Investments in Boston before joining Richard C. Young & Co., Ltd. in 1998. E.J. has trained at Sig Sauer Academy in Epping, NH. His first drum set was a 5-piece Slingerland with Zildjians. He grew-up worshiping Neil Peart (RIP) of the band Rush, and loves the song Tom Sawyer—the name of his family’s boat, a Grady-White Canyon 306. He grew up in Mattapoisett, MA, an idyllic small town on the water near Cape Cod. He spends time in Newport, RI and Bartlett, NH—both as far away from Wall Street as one could mentally get. The Newport office is on a quiet, tree lined street not far from the harbor and the log cabin in Bartlett, NH, the “Live Free or Die” state, sits on the edge of the White Mountain National Forest. He enjoys spending time in Key West (RIP JB) and Paris. Please get in touch with E.J. at ejsmith@yoursurvivalguy.com To sign up for my free monthly Survive & Thrive letter, click here.
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