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.

Special Report: Major Environmentalist Organizations and their Funders

A few months ago we highlighted an article written by Heritage Foundation visiting fellow (and occasional economic adviser to the Trump Administration) Stephen Moore in which he discussed an appearance he'd made on CNN which provoked more hate mail than he had ever previously received.

What topic of discussion could have inspired such vitriol? None other than the massive amounts of money raked in by what he called the "Climate Change Industrial Complex.”

I noted that “in America and around the globe governments have created a multi-billion dollar Climate Change Industrial Complex.” And then I added: “A lot of people are getting really, really rich off of the climate change industry.” According to a recent report by the U.S. Government Accountability Office, “Federal funding for climate change research, technology, international assistance, and adaptation has increased from $2.4 billion in 1993 to $11.6 billion in 2014, with an additional $26.1 billion for climate change programs and activities provided by the American Recovery and Reinvestment Act in 2009.”

He went on to point out that this "doesn’t mean that the planet isn’t warming. But the tidal wave of funding does reveal a powerful financial motive for scientists to conclude that the apocalypse is upon us."

But why, one wonders, does this kind of observation arouse so much rage? The answer is that environmentalists -- like so many other activists -- have courted an image of being men and women indifferent to their personal interests, who've given themselves wholly over to the cause. And, for their part, their biggest fans are happy to be taken along for the ride, and unhappy about the intrusion of "filthy lucre" spoiling their reverie.

Well, tough.

Environmentalists have a massive influence on our society, from their lobbying for laws and regulations to coerce compliance with their beliefs, to their educational efforts which persuade (or, occasionally, indoctrinate) children from a very young age. When they are doing that with tax money, or money from tax exempt donations, us tax-payers deserve to know something about it.

That being so, our crack team of researchers here at The Pipeline have spent the past month combing through publicly available documents and taking note of the major donors to some of America's most influential environmentalist groups for your information and edification.

So break out your green eyeshade, and enjoy: