In a detailed editorial in The Wall Street Journal, Arizona Attorney General Mark Brnovich explains the ways BlackRock and other money managers use client funds to push ESG principles, even without much input from their customers. He writes:
If asset managers have committed to push portfolio companies to attain net zero, how is the choice of approaching the “energy transition” left to the client? Even if BlackRock allows clients to vote their shares, BlackRock has pressured public companies long before any vote occurs. It appears that all clients buying BlackRock funds are forced to support ESG whether they like it or not. These actions raise more questions.
A diagram from a BlackRock report suggests ‘net zero’ is an implausible goal.PHOTO: BLACKROCK INVESTMENT INSTITUTE
The diagram nearby, taken from a BlackRock report, shows that governments are neither implementing nor pledging policies that would achieve net-zero greenhouse gas emissions by 2050. Would a prudent fiduciary bet everything on the green line?
Perhaps the trajectory for net zero will change. Perhaps a U.S. president with 40% approval ratings will build enduring majorities in Congress with a coalition that supports destroying the American energy sector and, in turn, perpetuating high energy prices, low economic growth, and inflation. Perhaps leftist Democrats will attain majorities sufficient to enact the Paris Agreement, impose a carbon tax, hold the presidency for decades, and subsidize green products until a “thousand Solyndras bloom.” Perhaps the world will ignore aggression by Russia and China to stay on track with emissions targets. Perhaps the U.S. will cheerfully shovel $8 trillion into China by 2030 for green investments, which is the amount BlackRock’s public documents state China needs to keep on track for net zero 2050.
Would a prudent fiduciary make company disclosures based on such unlikely events and negative investment returns its top priority? ESG simply isn’t a natural outgrowth of a focus on financial returns. And research reflects that some ESG funds have underperformed.
Maybe there is another explanation for asset managers’ actions. Asset managers make money by accumulating assets under management. Fellow members of BlackRock’s climate organizations include pension funds from states such as California, Connecticut, Illinois, Hawaii, New Jersey, New York, Oregon and Washington. Are asset managers making net-zero commitments to market themselves to these investors?
Consistent with this theory, BlackRock’s other ESG activities also are problematic. From 2020-21 BlackRock voted 1,554 times to impose gender quotas on company boards. In fact, imposing gender quotas was its top reason for opposing directors at companies in the Americas. What is the evidence that sex is the most important factor for director candidates, compared with other criteria like expertise related to pandemics, supply-chain disruption, or geopolitical conflict? Perhaps the best evidence of these improper ESG policies came in May, in Crest v. Padilla, when a California judge struck down California’s board-quota law.
My colleagues and I are committed to ending ESG practices that are rife with potential conflicts of interest and may be in violation of well-established laws. Amid a volatile market beset with inflation, properly managing Americans’ retirement funds should be a sufficient challenge for Wall Street. Asset managers’ social and legal purposes are the same: focus on financial returns.
Action Line: If your state’s attorney general is joining Brnovich in the fight against companies using your money to fund their political philosophy, count yourself lucky. If not, maybe it’s time to look for a better America. Start your search with my Super States. If you need to build an investment plan that eschews ESG funds and instead focuses on dividends and income, let’s talk. I’d love to help you. In the meantime, click here to sign up for my free monthly Survive & Thrive letter, and we can stay in touch.
