ESG developments this week
Economy and Society is Ballotpedia’s weekly review of the developments in corporate activism; corporate political engagement; and the environmental, social, and corporate governance (ESG) trends and events that characterize the growing intersection between business and politics.
Around the world
Norwegian sovereign wealth fund plans to expand ESG investing approach
The executives of the largest sovereign wealth fund in the world, Norwegian Government Pension Fund Global, argued that ESG pushback is creating an opportunity to expand the fund’s ESG investment approach, according to CNBC:
Norway’s $1.6 trillion sovereign wealth fund says it will continue to advocate for investments based on environmental, social and governance (ESG) factors, brushing off the impact of a green political backlash. …
Nicolai Tangen, CEO of Norges Bank Investment Management (NBIM), told CNBC that the country’s wealth fund continued to advocate for the ESG agenda.
“We think it is part of long-term investing. You really need to care [about] the impact that companies have on the environment otherwise you’re not going to make good long-term investing. So that’s important,” Tangen told CNBC’s “Squawk Box Europe” on April 23. “And we think the fact that some other people are pulling away gives us a better opportunity to kind of phase in. So, really interesting times.”
European ESG funds see slower inflows
European investors continued to add money to ESG exchange-traded funds (ETFs) during the first quarter of the year, but the ESG inflows (as a percentage of total ETF inflows) slowed by almost half:
European investor allocations to environmental, social and governance exchange traded funds slowed down in the first quarter of 2024 as the sector endures an “existential crisis”, Morningstar research shows. …
ESG sales represented 16 per cent of total ETF inflows during the quarter, compared with 29 per cent in the previous period, the research found. “This means further deceleration from the highs of 2022 when close to 65 per cent of all flows into the European ETF market were directed to ESG-themed strategies,” said Jose Garcia-Zarate, associate director of passive strategies at Morningstar.
ESG investing “appears to be going through a period of existential crisis as flows, while still positive in absolute terms, dwindle as a proportion of total flows, particularly within equity”, Garcia-Zarate added.
On Wall Street and in the private sector
U.S. ESG funds see record outflows
In the first quarter of 2024, U.S. investors removed nearly $9 billion of net capital from funds promoting ESG investing strategies. The move marked the largest ESG outflow recorded:
Client withdrawals from US funds targeting environmental, social and governance goals reached $8.8 billion in the first three months of 2024, according to fresh data compiled by Morningstar Inc. …
It’s the latest sign that US investors are turning their backs on the investment strategy, which has been targeted by high-profile Republicans as “woke” and anti-American in its design. At the same time, many core ESG industries such as wind and solar have suffered setbacks, leading to poor returns and further alienating many investors.
The scale of redemptions from US ESG funds dragged down global inflows, which were a modest $900 million in the first quarter, Morningstar said. Japan had $1.7 billion of outflows, while the rest of Asia, as well as Australia and New Zealand, saw little to no change.
BlackRock makes staffing changes following ESG investing pushback
BlackRock is changing its wealth management approach and staffing for public and private clients following pushback from critics who argue the firm’s investment strategies hurt the oil and gas industries:
BlackRock is changing its strategy for interacting with wealth-management clients in the U.S., shifting a seasoned fund-distribution executive into a new role designed to cultivate relationships, including with clients in Texas, where it has run into criticism over environmentally conscious investing.
The firm, which oversees $10.5 trillion of assets, is also putting a longtime BlackRock wealth leader in charge of reorganized teams catering to U.S. wealth clients, Barron’s has learned. The shift comes as BlackRock, already the world’s biggest asset manager, seeks to expand its ties with rich investors and calm a backlash over oil and gas investment strategy, among other areas.
The firm, led by CEO and co-founder Larry Fink, is trying to mend fences in Texas, in particular. It has faced fierce public criticism from conservative state officials there and lost business over environmentally conscious investing practices.
In the spotlight
Shareholder resolutions propose stopping business transactions with Israel
Shareholders of weapons manufacturers and other companies have introduced proposals that would require the corporations to stop doing business with Israel, creating new corporate governance debates:
Shareholder proposals calling for Israel divestment are showing up on companies’ proxy statements, including Lockheed Martin, Raytheon, and Amazon Web Services—we’ve come a long way from Ben and Jerry’s Israel controversies. How do corporate activists push investors into divestment? In the case of Lockheed Martin, they employ one of ESG lobby’s favorite strategies: vaguely serious-sounding language pushed to political ends. As per a filing from Bowyer Research, a key ESG skeptic firm, pro-divestment activists accused Lockheed of complicity in ‘war crimes” due to its ongoing partnership with the IDF, a conveniently one-sided analysis of a war that began as an unprovoked attack against the state of Israel. Further, activists accuse Lockheed of contributing to ‘escalating violence’ in the region, additionally revealing a stunningly slanted analysis that views Israeli military operations as deserving of humanitarian skepticism, and Hamas’ military operations as business-as-usual.
The resolution will go to a vote at Lockheed’s annual meeting on May 2. But, as with many radical shareholder proposals, the telling thing isn’t about whether the proposal passes (it probably won’t). What’s telling is how it got there.
The push to disarm Israel is being led, perhaps ironically, by groups responsible for managing the funds of religious groups. Proposals like the one at Lockheed are being featured by groups like the Interfaith Center on Cultural Responsibility. The Center, as reported by Charlie Gasparino at the New York Post, represents ‘faith and value-based’ investors looking to bring an ethical perspective to their investments. Yet there are undeniable ethical questions with this approach—if ESG ideologues get their way and pull weapons partnerships from Israel, the tide of war turns in a way that, while palatable to a certain segment of the activist class, is not palatable to innocent Israeli civilians, many of them children, trapped in a war against enemies who have openly vowed to annihilate them. Divesting from Israel, despite what groups ranging from ESG activists to the virulently pro-Hamas protestors currently taking over Columbia University seem to think, means innocent children die—there’s no getting around that.