By now you’ve heard about Environmental Social and Governance, or ESG. But do you know why it’s controversial?
If you haven’t researched asset management, the answer is probably no.
The role of asset managers is to invest people’s money – their assets – in mutual funds, securities, or exchange-traded funds that yield good returns. [bold, links added]
Why would you entrust an investor with your money if not for the expectation that its investment on your behalf will appreciate in value or generate income?
Under this arrangement, the asset manager isn’t the beneficiary of the holdings it manages. You are. The asset manager has a fiduciary duty to you – and must act with good faith, candor, and heightened caution – because it controls your money.
It’s unethical to use someone’s money in ways he or she doesn’t like, or in ways, he or she doesn’t agree to. Individuals, by contrast, are free to indulge in ESG goals when investing their own money.
These are basic principles – yet many asset managers and mutual funds seem to have forgotten, ignored, or neglected them.
Many investment companies have used ESG criteria to screen corporations for inclusion or exclusion.
Rather than investing assets where they will yield the most returns, or on the basis of financial performance, these investment companies invest assets in funds consisting of corporations that meet certain ESG criteria.
Under the guise of stewardship, they’re expanding their fiduciary responsibilities to include climate change and using their proxy power to strongarm companies at the board level.
Two problems: First, corporations easily game the system, figuring out how to meet the ESG criteria and improve their public image and reputation without actual commitments to any one of the three ESG prongs; second, the investment companies are mismanaging people’s money and leveraging their proxy power to intimidate company boards.
Top executives and board members at major asset management companies have done a great disservice to investors by pursuing ESG objectives over fiduciary duties.
Large investment companies have gotten wealthy by investing state pension money in underperforming ESG funds – at the expense of the beneficiaries.
To the extent that public pension fund managers are responsible for this situation, they have vastly increased risks to taxpayers who could be expected to bail out these funds if they fall short of the returns necessary to pay retirees.
To make matters worse, the biggest asset managers – companies like BlackRock, Vanguard, and State Street – have gained voting rights in publicly traded companies and are pushing those companies into “wokeness.”
Rather than divesting from the corporations that don’t satisfy vague ESG standards, the asset managers use their proxy power to change the corporations in a leftward direction.
This raises troubling questions: Aren’t the true owners of these companies the clients of the asset managers, the people whose money the asset managers are investing and supervising?
When an asset manager aggregates hundreds of funds, which include companies in which it enjoys voting rights and companies that directly compete, how can the asset manager vote in the best interests of any one of these companies? Aren’t these conflicts of interest?
The unethical character of companies like BlackRock is finally coming to light.
Responding to warnings from Republican state attorneys general, BlackRock, earlier this month, denied that it “dictated” specific emissions targets to companies.
Now New York Comptroller Brad Lander, the custodian and delegated investment adviser to the New York City Retirement Systems and a man of the left, decries the apparent contradiction: “BlackRock cannot simultaneously declare that climate risk is a systemic financial risk and argue that BlackRock has no role in mitigating the risks that climate change poses to its investments by supporting decarbonization in the real economy.”
There’s hope. People are pushing back.
Read rest at Fox News
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