ESG investors and the East Palestine Disaster

The derailed train in East Palestine, Ohio, has created significant environmental hazards, not only to the residents of that town but also to countless other communities along the Ohio River. The derailment led to an enormous chemical fire, with hundred-foot flames and a plume of black smoke exposing local communities to a variety of chemicals, including the carcinogen vinyl chloride and phosgene, the latter of which was used as a chemical weapon in World War I.

These highly toxic chemicals were spread into the air, water, and ground, and are threatening public health and displacing residents. The Ohio River is a source of drinking water for multiple states, and the E.P.A. is concerned that it has been seriously compromised. It is estimated that some 3,500 fish have been killed by the pollution thus far. Meanwhile, residents of East Palestine who have been assured that it is safe for them to return home have been complaining of nausea and severe headaches.

So it is a supreme irony that substantial shareholders in the railway involved, Norfolk Southern, include two of the biggest promoters of ESG investing: BlackRock and Vanguard.

According to various sources, top shareholders in Norfolk Southern Corp. are the Vanguard Group, and subsidiaries of BlackRock and JP Morgan. Specifically, as of this week, CNNMoney.com lists the Vanguard Group, Inc. as the top shareholder with 7.68 percent. BlackRock Fund Advisors and JPMorgan Investment Management tie at 4.54 percent as other top investors. As of December 31, 2022 Norfolk Southern’s own website lists Vanguard, BlackRock Institutional Trust Company and JP Morgan Asset Management as top shareholders.

The latest information about the cause of the accident and toxic discharge, indicates eleven of the fifty rail cars were carrying hazardous materials.

Josh Shapiro, the governor of Pennsylvania, criticized Norfolk Southern’s response in a Wednesday letter to Shaw, saying that mismanagement by the company had put first-responders and residents “at significant risk.” He said the rail company’s personnel made decisions without talking to state and local agencies, caused first-responders to have a lack of awareness, gave state officials inaccurate information about the impact of the controlled release of vinyl chloride and “failed to explore” alternatives to the controlled release that might have been safer.

“Norfolk Southern has repeatedly assured us of the safety of their rail cars — in fact, leading Norfolk Southern personnel described them to me as ‘the Cadillac of rail cars’ — yet despite these assertions, these were the same cars that Norfolk Southern personnel rushed to vent and burn without gathering input from state and local leaders,” Shapiro wrote.

Although not right now.

Both Vanguard and Black Rock are notable for having promoted investments based not on traditional criteria to which fiduciaries have been bound, such as profitability and capital accounts, but rather on how these investment managers assess the ESG (environmental, social and governmental) policies of the companies in which they place investment funds. Of course, their analyses are utterly subjective, fluid, and difficult to quantify. Unsurprisingly, these investments are generally underperforming. As we’ve frequently noted in this space in the past, a number of states are fighting back against placing investments through these operations for these very reasons.

Maybe, to be consistent with ESG policies, investors should shun Vanguard and BlackRock over their role in the disaster in East Palestine.

BlackRock: Asset Manager or Political Operative?

Last month BlackRock announced plans to lay off 500 workers as the asset management giant and environmental, social and governance (ESG) acolyte contends with unprecedented 2022 losses. The losses are the worst in nominal terms for a 60/40 portfolio since the financial crisis of 2008-9 and the worst in real terms in a calendar year since the Great Depression in late 1929. According to the firm’s most recent earnings report, the company’s assets under management declined from $9.5 trillion in the third quarter of 2021 to $8.0 trillion in the third quarter of 2022 and delivered more than a twelve percent drop in net income.

But what precipitated such losses? Could it be old fashioned market volatility? Or was it the result of flawed strategic analysis, poor policy, or as BlackRock asserts, a problem intrinsic to its portfolio structure (60/40) that they now insist is outdated? Many in the industry, including icons like Goldman Sachs reject the assertion and acknowledge that at some point, every strategy bumps up against non-ideal market conditions through which firms must necessarily navigate.

Industry experts are breaking on both sides of the portfolio-structure argument, teeing up great debates in the months ahead. In the meantime, however, there is a compelling bit of information already known about what underpinned at least some of BlackRock’s historic losses. Rather than an outdated portfolio structure, perhaps a simple rejection of BlackRock’s evangelical approach to ESG contributed to the abysmal outcome in 2022.

Would you trust this man with your money?

BlackRock has regularly out-performed the broader market. Their moves are famously, or perhaps infamously, aped by others on Wall Street. As such BlackRock, for good or bad, influences the market in both tangible and intangible ways. Beginning in 2017, CEO Larry Fink began to increasingly focus on stakeholder capitalism and ESG. He famously said at the time that he intended to change the direction of corporate America. “At Blackrock we are forcing behaviors,” he said of the company’s ESG-scoring approach. He ordained himself the brand ambassador for both stakeholder capitalism and ESG, using BlackRock, a publicly traded company, as the podium from which to proselytize.

A creation of World Economic Forum (WEF) Founder, Klaus Schwab, "stakeholder capitalism" and the ESG construct were introduced through the WEF eco-system of non-profits, NGOs, financial partners and governments beginning in the early 1970’s (stakeholder capitalism) and in 2000, (ESG). Both have become central elements in the effort of asset management firms to re-orient capital flows. Controlling the capital markets gives the WEF-trained ideologues the ability to re-direct capital toward the social and political objectives important to them, even in defiance of the economic interest of their clients, many of which are the pensions funds of average American workers. "Climate change" is the pretense, "stakeholder capitalism" the philosophy, and ESG the unholy mechanism.

Because ESG has become a central focus of Fink in his role as an asset manager, many have pondered the degree to which his WEF board position may be affecting his objectivity. According to the WEF’s own description, the board “…serves as the guardian of the World Economic Forum’s mission and values.”

So what are the values Mr. Fink has agreed to uphold? The Forum's mission includes engaging leaders of society to shape global, regional and industry agendas. Since part of the agenda of the WEF includes divesting of fossil fuel, for example, the concern of BlackRock clients becomes clear and quite legitimate. The overt capital market manipulation that he has championed as asset manager is seemingly based on objectives defined by the WEF rather than by the sole interest rule and fiduciary obligations codified in U.S. law.. 

Has asset manager Fink influenced the WEF through his leadership at BlackRock? Or, has his position as a WEF board member and guardian of WEF’s mission and values been used to influence the investment priorities and focus of BlackRock and the larger financial sector? It is a question for BlackRock clients, litigators, and regulators.

Regardless, it is clear that BlackRock has embraced the key tenets of stakeholder capitalism and ESG as a mechanism to re-direct capital away from industries with which Mr. Fink and WEF member-companies disagree, and toward the companies and industries they believe will drive some of the most significant political and societal change ever imagined:

None of this is news to BlackRock of course. They were alerted to client discontent in early 2022 when Arizona’s treasurer quietly pulled $543 million from the firm. Then in early August last year, the exodus began after 19 state attorneys general sent a joint letter to the company expressing concerns that its ESG agenda was impeding its ability to deliver a maximum return on investment for its shareholders—a legal obligation. They wrote: “Rather than being a spectator betting on the game, BlackRock appears to have put on a quarterback jersey and actively taken the field.”

So as BlackRock and industry experts ponder how recent historic losses can be avoided in the future, perhaps they should start by being schooled about the difference between an asset manager and a political operative.

Leftists Not Rousing the Rabble as Before

There is a tone of panic in this recent Axios newsletter which should inspire a certain delight in every red-blooded American. It is, to be sure, inspired by a truly terrible event, the indefensible killing by Memphis police of a man named Tyre Nichols. But the true source of leftist panic is the realization that their ability to whip people (and particularly the business community) into a frenzy is waning.

Under the heading, "The shift toward silence," the newsletter's author gestures at the fact that, during the riots of the summer of 2020, which followed the death of George Floyd, nearly every major American company took a hardline position on the complex issues surrounding race and policing, many of them donating hundreds of thousands of dollars each in support of the "Defund the Police" movement among other questionable causes. But, laments Axios, their response has been more muted in the wake of Tyre Nichols' death. Here's just one of the examples:

The Business Roundtable, a coalition of CEOs from America's top companies, previously pushed for comprehensive police reform and in 2020 stated, “Corporate America cannot sit this one out." What they're saying, now: “We are disturbed by the brutality Mr. Nichols suffered and express our condolences to his family and community, and communities across the country grappling with senseless violence," a Business Roundtable spokesperson told Axios. "There's no public call to action, plan to reignite reform, and certainly no funding commitments."

Indeed, though one wonders how these would improve the situation. After all, the calls for action and reform of police training and tactics, as well as the corporate funding in the summer of 2020 didn't help Tyre Nichols escape death at the hands of five black men.

But why hasn't the corporate response been more righteously fulsome? The author (citing "experts") gives four suggestions: Power dynamics ("Companies are not facing public and internal pressure to make external statements"); Economic uncertainty ("Many tech companies have gutted their DEI departments in response to economic strains."); ESG pushback ("Recent pushback from activist investors and legislators at the state and federal levels have caused businesses to become more skittish on ESG initiatives."); and Fatigue.

Is the halo wearing off?

The first explanation merely raises the question. WHY aren't they facing pressure to use their resources to exert more pressure on others? But the other three do address the issue, though not quite for the reasons the author thinks. The economic situation really is more precarious today than in 2020, and not just in the tech sector. Consequently, businesses are having to work harder to bring in revenue, and they are more concerned about not alienating potential customers with ham-handed political statements.

Relatedly, there really has been pushback on ESG, the scheme whereby businesses heavily invest in leftist causes from environmentalism to defunding the police, and pledge to avoid doing business with other companies that don't do the same. Though it is amusing that he blames "activist investors and legislators" for it. In fact, ESG was popularized by activist investors and legislators, and the pushback has come from people simply noticing what they're doing. And then fatigue: regular people are sick of companies sticking its nose into political debates, particularly when they don't have anything to add.

Now, it would be a mistake for us on the right to assume that mega corporations are back on our side. As Tucker Carlson would say, Big Business still hates your family. And Michael Brendan Dougherty rightly points out that the occupant of the White House makes a difference. There's less pressure on business right now than in 2020, but should Trump or someone like him retake the reins, Woke Capital would come roaring back. But, let's take the time to delight in our adversaries' anxiety. Heaven knows, they'll be attacking us on solid ground again soon enough.

Your Credit Score Please, Comrade

Recently, the World Economic Forum (WEF) held its annual meeting in Davos, Switzerland. Known as a globalist influencing operation, it is funded through membership fees from a cross-section of the elites from the private and public sectors, including CEOs, diplomats, celebrities, media personalities, government officials, religious leaders, and even union representatives from around the world. With attendance this year encompassing 52 heads of state and government and nearly 600 CEOs, the disconnect between the social and political objectives of the attendees and the best interest of the citizens and communities from which these WEF members hail, is widening.

From Sri Lanka to Belgium and from Main Street to Wall Street, the policy proposals and social change the WEF promotes and funds have by now been repeatedly rejected, legally challenged, and roundly criticized by the people these policies are purportedly intended to help. WEF policy prescriptions caused the collapse of the government in Sri Lanka last year, the degradation of the farming sector in Belgium, the destruction of the social fabric in New Zealand, the freezing of citizens’ bank accounts in Canada, higher fuel prices in Europe, the neutralization of the US. Energy sector, the funding and promotion of totalitarian policies similar to those in Communist Chinese, the support of border collapse, and perhaps most relevant to Americans, the creation, of the reporting and scoring scheme known as environmental, social and governance (ESG).

Poisonous to every living thing on the planet.

While WEF policy failures abound, and the ESG apparatus is being met with increasing legal and market challenges, the construct has nevertheless already had a significant negative impact on some industry sectors. ESG was created as a reporting and scoring system used to justify re-orienting the capital markets toward the social and political objectives important to WEF members, and their philosophical eco-system of non-profits, NGOs and financial sector partners. Though in defiance of the "sole interest" principle and fiduciary obligations codified in U.S. law to protect investors, the outsized influence of the financial sector, which has fully embraced ESG, has delivered a particularly strong blow to the U.S. oil and gas industry.

Because of the importance of capital in the scaling and management of many businesses, creating capital pressure through the ESG scheme has been one way ESG progenitors believe they can affect the growth of certain industries. Energy companies have had to look harder to find capital to finance oil and gas assets. This attempt to impede capital has led to supply constraints and higher energy prices globally. According to WEF literature, industries including agriculture, steel and concrete will likewise begin to be attacked which will drive prices across the economy even higher.

This year’s WEF theme of “Cooperation in a Fragmented World," was an ironic choice since the policies promoted by its members seem to reflect cooperation intended to create a fragmented world. The podium and panels overflowed with quips from elites from the United States to the United Nations, all seeking to sound more relevant than the person next to them. Their very attendance revealed their desire to financially enrich themselves, even if at the expense of those in their own countries or of society more broadly. With fear-filled descriptions of the imminent destruction of the planet unless their solutions, however dystopic, be accepted, it was a parade of anti-market misfits and international villains keen to strip you of your personal liberties while entrenching their own privilege and economic benefit. 

Central to their success is the continued fomenting of fear about "climate change." According to their narrative, all problems in society emanate from this chimera. According to their logic, ESG therefore must necessarily be more deeply integrated into all business and society at large, not just corporate boardrooms. "Climate" is the pretense and ESG the mechanism from which to hang all of their liberty-defying policies and society-killing changes.

While initially focusing their ESG scoring scheme on the board rooms of publicly traded companies, WEF members and ESG advocates ultimately intend to also wrest control from private companies and even individuals. With societal control as an important strategic endpoint—think of  the social credit scoring system used in China—the WEF highlights technologies and promotes companies whose sole purpose is in some way to track and surveil members of otherwise free societies. Always couched as an effort to improve one’s life, of course.

In the WEF-inspired world, your privilege will emanate from your social credit score. Use public transportation and your score goes up. Have children, and your carbon emission score goes down. Buy products deemed environmentally acceptable and your score goes up. Use too many fossil-fuel inspired luxuries like computers and private automobiles and your score goes down.  If you have the correct colored check mark on your phone, you will be permitted to access to particular products, services, and experiences. Everyone else is relegated to the existence they are granted by their overseers.

Atop the sinister Magic Mountain, dread Klaus lies scheming.

Some of the mounting evidence: as first reported by True North during last year’s WEF’s annual meeting, an executive with the Chinese e-commerce giant Alibaba revealed that the company was working on an individual carbon footprint tracker. “We’re developing through technology an ability for consumers to measure their own carbon footprint,” president J. Michael Evans said at the time.

Meanwhile, Mastercard already provides a CO2 emissions-tracking card, developed with technology from the WEF-promoted Swedish company, Doconomy. In May 2019 Doconomy launched its credit card that monitors the carbon footprint of its customers—and cuts off their spending when they hit their carbon max.

Then last fall, the Canadian-based credit union Vancity announced the introduction of Canada’s first-ever carbon tracking Visa card. It is available beginning this year. “The Carbon Counter will help Vancity card holders understand the carbon footprint of their purchases as well as provide advice on what they can do to reduce their emissions footprint.” a statement by Vancity read. In the case of Visa’s credit card technology, developed by Ecolytiq, it too provides “education and behavioral nudging.”

How long before one isn’t even permitted to have a credit card because one’s purchases don’t comport with the values of these arbiters of the acceptable? That day is coming, unless we stop it. 

The Pipeline's Best of 2022: 'The Malign Genesis of ESG' by Joan Sammon

The year of Our Lord 2022 has been a good one for us here at The Pipeline, which has seen the launch of our weekly Substack column; the release of our first book, Against the Great Reset: Eighteen Theses Contra the New World Order; and the publication of a lot of excellent content from our wonderful group of contributors. As the year comes to its close, we thought we would spotlight some of our best work, chosen from our most clicked articles.

The Malign Genesis of ESG, Part I

Joan Sammon, 25 Aug, 2022

In the weeks since the S&P 500 announced Tesla’s removal from its ESG Index while inviting Exxon to join, but leaving Chevron out, the incongruous nature of the environmental, social and governance (ESG) construct has never been more obvious. It reveals what some might consider proof of the fraud that ESG represents. But what exactly is ESG? Where did it come from? Understanding its genesis and purpose of ESG will clarify what it actually is, not what many purport it to be.

Beginning in 2000, the World Economic Forum (WEF) embarked on an initiative that over two decades later can only be described as a Trojan-horse attack on free markets, private property, and democratic institutions. Founded in 1971 by German engineer and economist Klaus Schwab, the WEF describes its mission in part as, "improving the state of the world by engaging business, political, academic, and other leaders of society to shape global, regional, and industry agendas." Agenda-shaping it seems can be transformational, for good or bad, and quite lucrative.

Well-funded and well-organized, what has grown from that initial effort over two decades ago, is a sophisticated network of NGOs, foundations, and nonprofit entities working to achieve unprecedented ideologically inspired political, social, and financial change inside America and throughout the world, using the ESG construct.

With the promise of profit, this network engaged key asset management and banking partners, including giants like BlackRock, Vanguard, and Bank of America. Together these activist profiteers, best described as the ESG/Industrial Complex, are engaged in an extraordinary effort to fundamentally undermine and replace free markets while circumventing democratic institutions of governance and lawmaking. Seeking to force companies into behavior based on political ideology—often in defiance of the best interest of their investors—the ESG Industrial Complex represents a nefarious source of boardroom bullying and attacks on industries with which they politically disagree but whose assets they seek to control.

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Read the rest. And be sure to read the sequel here.

The ESG Counter-Revolution Has Arrived

With this week’s announcement by the asset management giant Vanguard that it is exiting the Net Zero Asset Managers Initiative, a sub-unit of the Glasgow Financial Alliance for Net Zero, it is clear that the Environmental, Social and Governance (ESG) movement is no longer in unfettered ascension. Although we're still far from being able to claim that U.S. investors are free of the talons of ESG, it is clear that the voice of investors and industry leaders who have been the target of these evangelists can no longer be ignored.

Created to repair the purported damage caused by capitalism, the ESG construct is in reality, far more sinister. The scheme was created as a mechanism to reorient capital flows toward political and social objectives that its progenitors from the World Economic Forum deem important. With help from its less attractive, though equally mischievous step-brother, the United Nations, they together seek to coerce political and social change that many investors do not want.

Vanguard’s announcement came about a week after Consumers’ Research and 13 state attorneys general asked the Federal Energy Regulatory Commission (FERC) to review Vanguard’s request to own energy company stocks, and sought to intervene in Vanguard's blanket authorization renewal request that was pending before the commission. Their brief pointed out that collectively, Vanguard, State Street and BlackRock hold the largest voting blocs for most of the S&P 500, and are the largest investors in public oil, gas, and coal companies, having a combined $300 billion fossil-fuel investment portfolio.

Fools and their money, etc.

But their membership in the Net Zero Asset Managers initiative, created an intrinsic conflict of interest: support the decarbonization of the industries in which you invest, or do what is legally required and represent the best interest of their investors by maximizing returns. The decision was binary. For Vanguard, reason and legal obligation have won out over activism and social bullying.

Until now, asset-management firms have been happy to oblige the vision of these globalists because they believed they would benefit financially. Working in contravention of the sole interest rule and in defiance of legally mandated fiduciary obligations, the largest asset management firms have been attempting to force ESG adoption upon the boardrooms of publicly traded companies so as to transition them to the envisioned New World Order. Seeking power, wealth, and control, they have ordained themselves the arbiters of the acceptable, attempting to define which industries and companies should be permitted to participate in the capital markets and which should be relegated to a world they and their globalist masters unilaterally have decided should no longer exist.  

But now, with Vanguard’s withdrawal from the Net Zero Alliance and BlackRock’s recent market thrashing, asset management meddling may have reached its apex. Beginning earlier this year, investors and states attorneys general and treasurers, like those involved in the Consumers' Research filing, began to assert that investors’ interests were not being fiduciarily represented. These asset management giants have until now believed that their sheer economic heft would allow them to coerce companies and investors into using the ESG yardstick while diverting capital into companies that would help shape the new world they and the global activists envision. With a combined portfolio of $15 trillion under management, they unequivocally represent economic heft. But economic scale aside, market returns and the legal protections conveyed to investors and codified in U.S. law remain an unforgiving reminder of reality.

This week Vanguard was reminded by business leaders and investors of its core business and related legal obligations. Its very existence was threatened by its ESG promises to impede returns. Likewise, BlackRock pension fund clients have reminded CEO Larry Fink that his annual pronouncements of the value of stakeholder capitalism and ESG are falling flat. In the face of abysmal returns and market conditions created by poor economic and monetary policy, investors are demanding an abandonment of the ESG eco-system.

The states beg to differ, Mr. Fink.

BlackRock’s unprecedented $1.7 trillion losses in the first six months of the year has caused an exodus of pension fund clients worth nearly $4 billion. Arizona’s treasurer last February quietly pulled $543 million from BlackRock. Then in early August, 19 state attorneys general sent a joint letter to them expressing concerns that the company’s ESG agenda is impeding its ability to deliver a maximum return on investment for its shareholders. They wrote:

Rather than being a spectator betting on the game, BlackRock appears to have put on a quarterback jersey and actively taken the field. As a firm, BlackRock has committed to implementing an ESG engagement and voting strategy across all assets under management, and held over 2,300 company engagements on climate, the most of any category of engagement.

Then last month, Missouri Attorney General Scott Fitzpatrick divested $500 million in assets managed by BlackRock on behalf of the Missouri State Employees’ Retirement System. Louisiana’s treasurer, John Schroder told the Financial Times that he will divest $794 million. Utah and Arkansas likewise committed to pull $100 million and $125 million, respectively. Meanwhile, South Carolina’s state treasurer will remove $200 million of state retirement funds from BlackRock. And most recently, Florida announced it will pull $600 million of short-term investments, while freezing $1.43 billion of long-term securities, with an eye on reallocating the capital to other money managers by the start of 2023.

These state attorneys general and treasurers understand leverage. BlackRock assets under management dropped 16 percent year-on-year to $7.96 trillion, decreasing its net income by 17 percent. Meanwhile, shares in BlackRock are down roughly 30 percent this year ----underperforming the benchmark S&P 500 Index.

Vanguard has taken notice of BlackRock’s plight and correctly understands that the horizon looks stormy for those in the financial sector who choose to ignore their legal obligations to investors. Still, the ESG counter-revolution has only just begun. Whatever ESG ground that might be lost by private-sector asset management firms, one should assume that a doubling down by the Biden administration is already in motion. Whether through executive orders or regulatory mandates, ESG is the mechanism for governments and globalists to create the dystopic world they yearn for. Investors and states must maintain the pressure. 

From Social Credit to Societal Control

While attending the APEC CEO Summit in Bangkok, World Economic Forum founder and Chairman Klaus Schwab was interviewed by a Chinese state media outlet and made a stunning series of comments about the People's Republic of China. The 84-year-old mastermind behind the Great Reset described China as a “role model for many countries” and expressed admiration for what the communist dictatorship has accomplished over the last four decades.

Schwab's comments provide a look at the kind of world for which he and other WEF member corporations currently advocate. With Chinese President Xi Jinping’s reign resting solely, if tenuously, on his government's ability to control the lives, opinions, currency, capital flows, and social interactions of Chinese citizens, Schwab’s fawning over Xi's achievements should set off alarm bells for the entire free world. It suggests that Schwab and his corporate WEF partners believe that all people should be similarly controlled, in defiance of national borders and democratic processes and institutions, with the capital flows of the U.S. and other nations redirected toward what WEF members describe as global goals. Conspicuously absent from their vision of a transformed world are the opinions, rights, and liberties of the governed.

The mastermind.

Schwab claims that a great societal transformation is coming, led by people tasked with specific duties to ensure its success. Enter the ever-feckless financial sector, including BlackRock, JPMorgan Chase, State Street, Wells Fargo and most other banking and financial sector corporations.

Always willing to place profit above principle, they are ideal partners in a campaign to rob investors of their sole-interest rights, while abdicating their own fiduciary obligations. These are the partners Schwab has in mind when he refers to the best people and most relevant people:

We have to try, with a collaborative platform where we integrate the best people -- the most relevant people. Where we work for progress. Now the base has been formed, but we have to go one step further.

This is where the Environmental Social, and governance (ESG) construct comes in. An initiative launched by the WEF over two decades ago and introduced through its multi-layered non-profit eco-system, ESG is a mechanism to re-orient capital flows toward political and social objectives that include government regulation, communal property rights and, ultimately, social scoring. It is an organized effort to wrest control of private property from the hands of owners and transfer it to WEF-minded interests under the guise of "protecting" the environment and repairing the "damage" done by capitalism.

According to Schwab, “We [WEF members] have to define specific elements of the global system. For example, nature and environment, climate change…to see what areas we can make... real progress.”

To underscore this, consider the report “Accelerating the Rate of Change: 2021-2025,” produced by the WEF-funded non-profit, Carbon Disclosure Project (CDP), which contends that the most pressing objective to ensure the culmination of a transitioned world is to define the concept of natural capital as having parity with financial capital. "Natural capital," under the ESG construct, refers to the entire planet's stocks of water, land, air, and renewable and non-renewable resources such as plant and animal species, forests, and minerals. If natural capital is given partiy with financial capital, as the WEF desires, there is no longer any private property. If property can be controlled by everyone, it is owned by no one. 

To garner insight into what Schwab's world might look like in practice, one need only observe the protests that broke out throughout China only days after Schwab spoke so highly of Xi's achievements. They were held in defiance of lockdown measures that are purportedly in place to control the spread of Covid-19. But these methods are not new in Xi's China. They have been previously used against China's Uyghur population and other enemies of the Communist state, but now they are enveloping the entire Chinese population.

Laughing at us, not with us.

Chinese citizens are not free to move around or leave the country without the permission of government officials. They are not free to drive where they want and do not have unfettered access to their own money. They cannot freely communicate with anyone over their phones, and are under continuous surveillance by means of cameras equipped with facial-recognition technology. With the assistance of U.S. tech companies like Microsoft and Apple, Xi has waged war against his own people. He uses social credit scores and digital surveillance to perfect the societal control that Schwab finds so inspiring. No doubt this is what Schwab had in mind when he said,

In reality I think the world has moved closer together because we are moving from a physical world much more into a digital world. And a digital world is by nature a much more globally oriented.... We have to construct the world of tomorrow. It’s a systemic transformation of the world.

If unchallenged, ESG will similarly evolve into a tool to ascribe social scores to private companies, and ultimately to individuals. As is the case in China today, a good score will allow one to participate in society. Disobey the arbiters of the permissible, and your score will preclude you from living freely. This has already begun in North America, where ESG scoring has been used to redirect capital away from the U.S. oil and gas industry, while the likes of Goldman Sachs and BlackRock invest in China -- including in Petro China. In the meantime in Canada, prime minister and Schwab acolyte Justin Trudeau locked Canadians out of their own bank accounts for participating in peaceful protests against his administration’s policies last winter. That set a precedent which other nations will be happy to follow.

So while Klaus Schwab strives for his vision of a transformed world, we too must seek transformation -- from a world of mediocre corporate group-think to one in which excellence eviscerates arrogance. American business leaders who prefer coercion and control over liberty and freedom must be made to learn that they have no future here, digital or otherwise. No matter what Herr Schwab says or does.

From Ether to Gold to Dross

Of all the tales of the spectacular collapse of FTX Crypto Exchange and its cautionary fate, nothing is as amusing as how Sam Bankman-Fried, the slobbish-looking CEO and Democrat Party benefactor who founded the now-bankrupt firm once "valued" at $32 billion, admits he used ESG (Environmental, Social and Governance) fans to manipulate investors into funding his Bahamian-based Ponzi scheme. From the Wall Street Journal:

Hedge funds, venture-capital firms and other professional investors earn billions of dollars of fees for their purported skill in judging the potential of businesses and the integrity of their managers. Yet dozens of the world’s leading investment firms, including Sequoia Capital, Singapore’s state-owned investment company Temasek, the Ontario Teachers’ Pension Plan, SoftBank Group Corp., and hedge funds Third Point and Tiger Global, showered SBF with money. Despite their vaunted investing expertise, these firms all missed the many red flags fluttering high above FTX. And seldom in financial history have red flags been redder than this.

The product was hard to understand, the books of its trading affiliate, Alameda Research, were never audited. The leaders lacked any discernible expertise or moral compass. And yet suckers couldn't wait to give them their money.

Many public entities lost a lot by investing in FTX. The Missouri Employees’ Retirement Fund lost about one million dollars. The private equity firm who had them invest in the company was BlackRock, the biggest fan of ESG investing. The Ontario Teacher’s Pension Fund is writing down ninety-five million in "investments" it made in FTX. (No mention of whom it used to place this wild bet.) In the meantime Bankman-Fried admits ESG was a big part of his promotions:

Mr. Bankman-Fried virtue-signaled by committing to make FTX “carbon neutral” and donating generously to fashionable progressive causes such as a foundation working to provide solar energy in the Amazon River basin. “We’re giving millions each year to launch sustainability related initiatives,” he said in an April Forbes magazine interview with—you can’t make this up—Brazilian super-model Gisele Bündchen.

The reason he did was to keep regulators from looking too closely at his virtue-signaling, booming company. Meanwhile, he was leveraging FTX customer funds to make risky, ill-timed bets. It worked (until it cratered) with ESG rating organizations such as Truvalue ESG scoring it even higher than Exxon Mobil on “leadership and governance.”

Harry Adjmi and Sam Bankman-Fried at the first annual Moonlight Gala benefitting Children With Special Needs.

Bankman-Fried has made the obligatory apology for those who were harmed, but admits that the philanthropic side of his company, and ESG generally, are part of “this dumb game we woke westerners play where we say all the right shibboleths and so everyone likes us.”

How bad was the leadership and governance of FTX? You have to look at the account of John J Ray whom the court has appointed to oversee the liquidation in the bankruptcy case and who reports, "Never in my career have I seen such a complete failure of corporate controls." Read his report to fully appreciate what a ridiculous investment vehicle this was.

As 'ESG' Falters, the Left Seeks to Rebrand

As Clarice Feldman has explained here at The Pipeline, the Wall Street enthusiasm for ESG (environmental, social, and governance) investing is already starting to wane. Which means the greens will go back to the drawing board, and will bring it back again under a new name. ESG is mostly a cover for "climate change" and social-justice activism, and as such its real agenda is to divert private capital to politically-favored causes, such as “green” energy and disguised redistribution schemes benefitting favored client groups like Black Lives Matter.

Investment funds that follow the ESG mantra are suffering from sub-par investment returns, and suddenly fear shareholder lawsuits for failing their fiduciary duty to maximize returns. Moreover, the attempt to enshrine ESG by regulation through the Securities and Exchange Commission (SEC) is running into political opposition on Capitol Hill and appears vulnerable to legal challenge. Suddenly the biggest boosters of ESG investment, and especially de-investing in oil, natural gas, and coal production, are backtracking, with J.P. Morgan CEO Jamie Dimon telling Congress last week that cutting off credit to fossil-fuel production would be “the road to hell” for America. Late in the week the state of Louisiana announced that it was pulling all of its assets invested with BlackRock, one of the prime cheerleaders of ESG.

On the "road to hell."

ESG is likely to persist, however, on account of its unseriousness and malleability. Several traditional domestic oil producers, like heavy fracking user Diamondback Energy, have received high ESG ratings from the third-party gatekeepers of ESG seals of approval through the simple expedient of buying “carbon offsets” and pledging themselves to be fully carbon-neutral . . . someday. Think of it as the environmental version of St. Augustine’s famous intercessory petition, “Lord, make me chaste—but not yet.”

ESG should be regarded as the third iteration of the left’s attempt to co-opt corporate America, which they otherwise hate, under the banner of “corporate social responsibility” (or CSR). CSR attempts to blur the lines between shareholders and “stakeholders,” that is, self-appointed advocates who want businesses to serve some special “social” interest as defined by the advocacy groups. But such “stakeholders” have neither a tangible “stake” in the businesses they mau-mau, nor do they represent anyone but themselves.

Roll back the calendar about 20 years, before the term ESG was coined, and you find the same essential idea marching forward in the business community under the slogan “triple-bottom line” (or BBB). This was the hey-day of “sustainable development,” and it was proposed that in addition to the traditional accounting measures of profit-and-loss, businesses should formally include new accounting measures of “environmental and social performance.” Exactly what these accounting measures might be were never specified with any rigor.

"Sustainable" green heaven for you and for me.

Important voices in corporate America immediately rolled over for this flim-flam. PricewaterhouseCoopers published a “sustainability survey” of 140 major U.S. corporations, arguing that “companies that fail to become sustainable–that ignore the risks associated with ethics, governance and the ‘triple bottom line’ of economic, environmental and social issues–are courting disaster.” The triple bottom line, PwC concluded, “will increasingly be regarded as an important measure of value.”

The CEO of Monsanto at the time, Robert Shapiro, wrote that “We have to broaden our definition of environmental and ecological responsibility to include working toward ‘sustainable development'." This groveling did nothing to reduce the Left’s hatred of Monsanto, or prevent endless lawsuits against Monsanto for the sin of producing Roundup and other useful products.

Perhaps the most egregious corporate suck-up to the CSR/BBB nonsense was Enron which, it is conveniently forgotten today, was the environmental lobby’s favorite energy company right up to the moment it imploded partly because its fraud was based on the hope that it could dominate trading in artificial “markets” for greenhouse gas emissions credits. (Enron was a cheerleader for the Kyoto Protocol that the U.S. Senate had indicated it would never ratify.) In January 2001, a Bear Stearns analyst cited Enron’s planet-friendly orientation in concluding: “We believe that Enron should be compared to leading global companies like GE, Citigroup, Nokia, Microsoft, and Intel, and that its valuation reflects this eminence.” The Bear Stearns note predicted Enron’s stock was going to $90 a share, but in less than 12 months, Enron was bankrupt and its shares worth zero. (And we all know what happened to Bear Stearns.)

There was even a “Dow Jones Sustainability Index” (DJSI) formed in 1999 to track the performance initially of 300 supposed BBB companies, though a close look at its composition found that there was less than met the eye. The DJSI added and deleted companies on their list with surprising frequency, with criteria that confessed to being politicized. Its process of sustainability analysis included reviewing “media, press releases, articles, and stakeholder commentary written about a company over the past two years.” (Emphasis added.)

The DJSI still exists, even though there are now several ESG indices competing with it. Despite its flexible criteria, the DJSI lagged the Dow Jones Industrial Average significantly. Over the last decade it has achieved an annual return of 5.2 percent, while the DJIA has returned 15 percent per year, and the S&P 500 14.8 percent. There is no compelling statistical evidence to validate that “socially responsible” corporations are more profitable or are better investments than companies not on the green bandwagon.

The best commentary on “corporate social responsibility,” no matter how cleverly defined, still comes from Milton Friedman’s observation made sixty years ago in Capitalism and Freedom:

Few trends could so thoroughly undermine the very foundations of our free society as the acceptance by corporate officials of a social responsibility other than to make as much money for their shareholders as possible. This is a fundamentally subversive doctrine. If businessmen do have a social responsibility other than making maximum profits for stockholders, how are they to know what it is? Can self-selected private individuals decide what the social interest is?

You'll own nothing and be happy.

As we can see with this long-term perspective, “sustainable development” and the “triple-bottom line” gave way to “Net-Zero” and ESG, which are just like “sustainable development” in that their imprecision allows for lots of cheating and self-serving definitions by both government and the private sector alike. ESG will likely start to fade from public view, and eventually the left will come up with some new term replete with with its own jargon and imaginary concepts. And as before, craven and gullible business leaders will fall for it, and the cycle will repeat itself.

The Deadly Threat of 'ESG'

In recent months there has been growing awareness about the detrimental nature of the environmental, social and governance construct known as ESG. Using the pretense of social diversity and environmental protection allegedly needed to repair damage caused by capitalism, ESG represents an expanding threat to many industries, to the larger corporate culture and increasingly, to America itself.

The ESG construct creates competing frameworks, reporting systems, and scoring systems for environmental and social reporting—but without quantifiable economic measurements or metrics. While presently focused on publicly traded companies, ESG is being used to evaluate private companies and eventually even individuals, thus creating a social credit score not unlike what Communist China uses to oppress its citizens.

While the origins of ESG reach back over two decades, with the initial funding by the World Economic Forum (WEF) of the Carbon Disclosure Project (CDP), the network that grew from that initial effort consists predominantly of governments, non-profit organizations, and large publicly traded companies and their capital and banking partners. Together they have created a validation feedback loop that promotes political and social change using the capital markets—other peoples’ money—to re-direct investment capital toward companies that align with the political and social worldview of ESG activist profiteers.

Guess who?

Though touted as a non-political effort, but sounding conspicuously ideological, the progenitors of ESG assert,“ without the intervention of non-market entities such as the state, international organizations and social forces, capitalism as an economic system simply will not safeguard our planet."

While the legality of re-directing investor capital to achieve political and social outcomes has yet to be adjudicated, there is no question that banking and asset management firms intend to force political change.

In 2017, BlackRock CEO, Larry Fink, said he intended to change the direction of corporate America. “At Blackrock we are forcing behaviors,” he said of the company’s ESG scoring approach. “You have to force behavior, and if you don’t force behavior whether it’s gender or race or any way you want to say the composition of your team, you’re going to be impacted.”

By incentivizing companies with the prospect of higher management and consulting fees, and the ability to direct the capital toward companies in their portfolios that reflect their politicized world view, investor "best interest" is sacrificed. Best interest, a legal obligation, has never been part of the calculus of the ESG gangsters. Knowing that markets and democratic institutions would never offer them a path to their vision of the world, they need other peoples’ capital to force the creation of their dark, unfree world.

While profit-making would still not make ESG social scoring any more acceptable, the current capital re-orientation efforts have been unequivocally disastrous for investors. In June, BlackRock posted a stunning $1.7 trillion loss of investor capital, the largest loss ever for a single firm in a six-month period. Helping BlackRock achieve these disastrous outcomes was Unilever, run by Alan Jope. The consumer-goods giant put its sustainability plan to a shareholder vote where it passed with 99.6 percent shareholder support. Let’s hear it for groupthink!

At the time Jope said he credited BlackRock with leading the support and described the investment firm as "one of the finest commentators on sustainability and what companies should be doing.” Not surprisingly Jope was recently fired. Investors don’t agree with BlackRock’s Fink, Jope or the WEF. Jope’s tenure began in 2019 and he immediately began parroting the WEF’s stakeholder capitalism spiel and espoused the same ESG mandates promoted by BlackRock.

Jope-a-dope.

Through this alignment of overly interested global actors and self-interested financial services actors, the ESG construct has been able to get a footing in the boardrooms of publicly traded companies. But needing to create the perception of upholding fiduciary obligations, "stakeholder capitalism" has become the philosophical underpinning ESG. By expanding and conflating shareholders (investors) with stakeholders (everyone else), the activist class believes it can perpetrate an anti capitalist slight-of-hand: changing a free society into a centrally planned and controlled society.

According to WEF Founder, Klaus Schwab, "stakeholder capitalism" is a system in which private corporations are moral trustees of society and work for the benefit of everyone. Stakeholder capitalism is celebrated by BlackRock to Bank of America and from the WEF to Wall Street. Certainly not groups one thinks of as “working for the benefit of everyone.” Toward their centrally planned end, Bank of America CEO Brian Moynihan said, "to uphold the principles of stakeholder capitalism, companies will need new metrics. For starters, a new measure of 'shared value creation' should include 'environmental, social, and governance' (ESG) goals as a complement to standard financial metrics. Fortunately, an initiative to develop a new standard along these lines is already under way, with support from the 'Big Four' accounting firms and the International Business Council.”

Unconcerned about the rights of investors, and feeling triumphant over publicly traded companies, ESG activists are now more assertively turning their sights toward private equity and even individuals. While many of the largest private equity firms have already willingly begun to report their ESG data, many still do not. According to CDP’s strategy document:

Accelerating the Rate of Change: 2021-2025… businesses, including private companies, need to overhaul their operations and ensure they will remain viable within environmental boundaries. Governments must set the example and provide the regulatory environment that supports and encourages responsible corporate action.

The message is clear: do what you’re told or you will not be permitted to participate in their centrally planned society. From publicly traded companies to private companies, the activists class intends to control everyone, including individuals.

Those efforts are already beginning. Bans on natural gas-powered stoves and heating systems in California and Washington State for new construction are already in place. But even closer to home are the new generation of appliances. Some features are only available through an app the owner must upload on their phone. No app, no access to those feature. More creepy still are pregnancy tests. Traditional indicators like +/- or single versus double bars have announced to women for years of the impending arrival of a crumb cruncher. In the new world of social scoring, however, those tests now offer a “result reader” that is available through an uploaded app on her phone. Slowly changing the behavior of consumers will allow these societal score-keepers to more easily track an individual’s carbon footprint.

Many legal challenges loom against ESG advocates and the firms that do their bidding. As in previous conflicts throughout history, victory isn't won simply by the efforts of businesses, but rather by individuals willing to defend the lines of liberty and personal autonomy.