Wall Street has gone woke up at its highest levels. Titans of American finance like BlackRock CEO Larry Fink are pushing for American business to be more socially responsible in ways critics say run counter to the interests of shareholders.
He has the bucks to back up his position. His firm is the world’s largest asset manager, with more than $10 trillion in holdings. That gives him and his company a good deal of influence over the firms in which he’s invested or might be willing to invest. Right now, he and others like him are long on a concept called ESG — for “Environment, Social and Governance” that says corporate leaders need to worry about more than just the bottom line and act accordingly.
Proponents of ESG want businesses to consider the bigger picture in every move they make. They see business as another type of social welfare organization, with responsibilities and obligations to the world at large, not just the people holding their stocks and bonds. They’re trying to use the corporate structure to bring about the social and economic change they deem necessary that the government has been unable to force down our throats.
We’ve seen this before. Back in the 1990s, there were those, including some who should have known better, who wanted to allow entities like union pension plans to invest their reserves in projects intended to generate social goods like the construction of low-cost housing regardless of what that meant for returns on investment.
The effort never amounted to much because of the reams of regulations instructing corporate executives and pension fund directors and the other members of the financial wizarding world to focus first on generating the biggest returns for the people who trusted them to invest and manage their money.
Now, it’s not social organizers who are pushing for a change but the money managers themselves. They want to see American businesses lead the way on a surfeit of issues, fighting for gender equity and against racism and climate change at home and abroad. We thought that’s what progressive politicians thought their job was.
What is standing in their way? Not the U.S. Securities and Exchange Commission, the federal agency we normally expect to safeguard the interests of shareholders. It’s now controlled by Biden appointees who think the whole idea of institutional investors forcing corporate boards to put societal outcomes before their responsibility to preserve and when they can increase value for their shareholders is nifty.
Attitudes are shifting in part because of a raft of pseudo-econometric reports coming out of business schools and think tanks purporting to show companies that act in a socially responsible way do well. A 2020 Bloomberg analysis called ESG “a money-making opportunity.”
Maybe. We’ve yet to be convinced. Some of the doubters are pushing back. The American Legislative Exchange Council is asking states to consider strengthening their fiduciary rules to protect pensioners from politically motivated investment strategies like ESG. But the major business groups like the U.S. Chamber of Commerce who are supposed to protect the interests of American business are, sad to say, yet to engage.
In the meantime, how’s this for a bottom line? Exposing the nation’s pensioners and other members of the investor class to increased risk and lower returns for inherently political purposes in an already shaky economy is irresponsible and should be discouraged if not prohibited.
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