Wall Street woke up to its highest levels. US finance titans like BlackRock CEO Larry Fink are pushing corporate America to be more socially responsible in ways that critics say run counter to shareholder interests.
He has money to defend his position. His company is the largest asset manager in the world, with over $10 trillion in assets. This gives him and his company a good influence on the companies in which he has invested or might be willing to invest. Right now, he and others like him have long been on a concept called ESG – for “Environment, Social and Governance” which says business leaders should care about more than the bottom line and act in result.
ESG proponents want companies to consider the big picture in every move they make. They see corporations as another kind of social welfare organization, with responsibilities and obligations to the world as a whole, not just to the people who own their stocks and bonds. They are trying to use the corporate structure to bring about the social and economic change that they believe is necessary and that the government has been unable to impose on us.
We have already seen this. In the 1990s, there were those, including some who should have been better informed, who wanted to allow entities like union pension plans to invest their reserves in projects intended to generate social goods like building low-cost housing, whatever that meant. for returns on investment.
The effort was never great due to the myriad of regulations ordering corporate executives and pension fund administrators and other members of the financial wizarding world to focus on generating the best returns first. for people who have trusted them to invest and manage their money.
Now it is not the social organizers who are pushing for change, but the fund managers themselves. They want to see corporate America lead the way on a host of issues, fight for gender equity and against racism and climate change at home and abroad. We thought that was what progressive politicians thought was their job.
What stands in their way? Not the US Securities and Exchange Commission, the federal agency we normally expect to protect shareholder interests. It is now controlled by Biden appointees who think the very idea of institutional investors forcing boards to put societal outcomes ahead of their responsibility to preserve and when they can increase value for their shareholders is shrewd. .
Attitudes are changing in part because of a series of pseudo-econometric reports from business schools and think tanks claiming to show that companies that act in a socially responsible way succeed. A 2020 Bloomberg analysis called ESG a “lucrative opportunity.”
Perhaps. We haven’t been convinced yet. Some of the skeptics push back. The American Legislative Exchange Council is asking states to consider strengthening their fiduciary rules to protect retirees from politically motivated investment strategies like ESG. But the big business groups like the US Chamber of Commerce that are supposed to protect US business interests are, unfortunately, not yet engaged.
In the meantime, how’s that for a bottom line? Exposing the country’s retirees and other members of the investor class to increased risk and lower returns for inherently political ends in an already faltering economy is irresponsible and should be discouraged, if not prohibited.