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.