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Economy and Society: Arizona AG argues ESG may be antitrust violation

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.

ESG Developments This Week

In Washington, D.C.

ESG goes to war, continued

The New York Times reported last week that some ESG investors are keen to change the way ESG considers some seemingly long-settled issues; two CITI analysts argue that social responsibility means “putting your investment money into the stocks of companies that make weapons”:

“Russia’s invasion of Ukraine has upset the world order. It could conceivably alter the way some people think about investing, too.

At least that’s the view of two analysts with Citi, who argue that the height of social responsibility at this moment requires putting your investment money into the stocks of companies that make weapons.

“Defending the values of liberal democracies and creating a deterrent, which preserves peace and global stability,” is so important that weapons makers should be included in funds that carry an E.S.G., or “environmental, social and governance,” label, the two analysts, Charles J. Armitage and Samuel Burgess, wrote.

That labeling seems utterly bizarre for some E.S.G. investors, however.

It certainly does to Andrew Behar, the chief executive of As You Sow, an advocacy and research group that frequently files shareholder proxy proposals on E.S.G. issues.

“We don’t think that you should have any weapons systems in an E.S.G. fund,” he said. The group provides an online tool on the web site Weapon Free Funds that enables investors to screen mutual funds and exchange-traded funds on this issue.

Leslie Samuelrich, president of the Green Century Funds, which was founded by nonprofit groups, including the California Public Interest Research Group and the Citizen Lobby of New Jersey, was appalled by the notion.

“This is absurd,” she said. “It feels very opportunistic and shallow.” She added that Ukraine needed to be defended. “I’m part Ukrainian,” she said. “Of course, they need weapons.”

But she said that had nothing to do with investing in funds devoted to socially responsible investing. “Those who argue that weapons belong in a sustainable portfolio are capitalizing on the horrific attack,” she said. “Excluding military and civilian firearms has been a long-held screen by authentic responsible investors.”

Mr. Armitage and Mr. Burgess, the Citi analysts, make a vigorous counterargument. Essentially, it boils down to this: Without strong militaries capable of “defending the values of liberal democracies and creating a deterrent” against geopolitical adversaries like Russia and China, there can’t be much progress on other pressing global issues.”


Financial Times: “Putin’s war on Ukraine exposes the folly of ESG”

In London’s Sunday Times newspaper, associate editor Oliver Shaw argues that, in his view, the Russian war in Ukraine “exposes the folly of ESG” investing as a whole:

“Putin’s invasion of Ukraine has transformed reality in Europe and blown away the cosy assumptions on which it had operated since the fall of the Berlin Wall. The investment industry has some hard questions to answer in this bleak new light. They say the first casualty of war is truth; in finance, it has been the ESG movement’s credibility.

For some time, the monomaniacal focus of certain investors on compliance with environmental, social and governance metrics has been proving counterproductive. In some cases it has even begun to undermine the tenets of democracy, as decisions that should be made by governments are instead taken by fund managers based on external pressure from campaigners. Putin’s thinly veiled threats of nuclear war on Nato expose the dangerous folly of what has become a fully fledged industry.

The clearest examples of this rude awakening are in defence and energy.

Arms companies have traded on tobacco-type multiples in recent years as they have been shunned by ever more banks and investors. Ironically, the charge has been led by institutions in Germany and the Nordics, now feeling the heat of Putin’s ambitions. Last year, the state-owned Bayerische Landesbank stopped doing business with companies sourcing more than 20 per cent of their revenues from munitions, ruling out loans to national champions such as Airbus Defence and Space. Swedish banks have been doing similar things.

Most seriously, some investors have started ditching companies involved in nuclear weapons, on the basis that nukes are nasty and shouldn’t be funded. Last November, for example, the Norwegian pension fund KLP sold $147 million of shares in 14 groups including Babcock and Rolls-Royce, because their work touched on “controversial” weapons.

It is difficult to put this cowardice and idiocy into words. KLP and its clients are presumably happier in a world where Russia and North Korea have to think twice before starting a nuclear war. The 14 companies’ customers are sovereign states whose electorates have voted to maintain a nuclear deterrent. And yet, for the sake of a press release, KLP took away a sliver of their capital.

On its own this would be meaningless, but multiplied many times it raises the cost of operating for defence companies. And multiplied many times it is. Robert Stallard, an analyst at consultancy Vertical Research Partners, told the Financial Times that the sector had been “blacklisted by many European investors — and even if defence companies replanted the Amazon, they would still be on the blacklist”.

Germany’s decision to address years of anaemic defence spending with a €100 billion fund flips the narrative. It has become painfully clear that in an unstable era, hard power is not a “nice to have”. It is perfectly ethical for states to reinforce themselves against tyranny.

The situation is more advanced in energy, where financial backers have — more understandably — been trying to push companies to phase out fossil fuels….”


Debates about whether Russian investments mean potential ESG black mark 

Over at Bloomberg, three reporters make the case that, for some investors, simply having been invested in or having done business in Russia is now a potential black mark in the ESG world:

“An investing movement that promotes itself as a protector of people and the planet has somehow found itself providing capital to the autocratic regime behind Europe’s worst military conflict since World War II.

Funds labeled ESG — an acronym that denotes a commitment to environmental, social and governance interests — own shares of Russia’s state-backed energy behemoths Gazprom PJSC and Rosneft PJSC, as well as its biggest lender Sberbank PJSC. The funds also hold Russian government bonds, providing money that ultimately helped pad the coffers of President Vladimir Putin’s autocracy.

Paul Clements-Hunt, who led a group that coined the term ESG back in the mid-2000s, said it’s now clear that “ESG investors have failed.”

“ESG is being used ineffectively,” said Clements-Hunt, founder of advisory firm Blended Capital Group. Investors should be measuring risks across entire systems not just corporate risks, but instead, “the obsession with easy money-making is overriding everything,” he said.

Russia’s invasion of Ukraine is rapidly laying bare unexpected exposure in much of the ESG universe. Industry researchers at Morningstar Inc. estimate that 14% of sustainable funds globally held Russian assets right before the war. That’s as sustainable investing morphs into a $40 trillion industry embraced by the financial behemoths of Wall Street, where funds that track benchmark indexes are ubiquitous.”

In the process of reporting on the ESG aspects of the conflict, the Bloomberg reporters stumble on one of the key rifts in the ESG world:

“But those representing the more mainstream side of ESG investing argue the term is widely misunderstood. It is, in fact, just a screening tool to protect investments from environmental, social and governance risks, according to some of the biggest firms working with and analyzing ESG data.

“There are still people who inappropriately conflate sustainability and ethics,” said Hortense Bioy, Morningstar’s global head of sustainability research. “Sustainable and ESG funds aren’t the same as ethical funds.”

For that reason, ESG funds can buy everything from makers of conventional weapons to producers of fossil fuels. The world’s biggest ESG-focused exchange-traded fund — BlackRock Inc.’s $23.7 billion iShares ESG Aware MSCI USA — holds shares of companies ranging from Raytheon Technologies Corp. to Exxon Mobil Corp. 

Bioy said ESG portfolio managers, “just like any other managers holding Russian assets or not, will be evaluating the situation and trying to understand the broader implications of the conflict and impact on their portfolios.” The war “has broader implications for ESG investors than just ethical ones,” she said.”


Will war put ESG on the backburner?

Finally, over at MarketWatch, Debbie Carlson writes that oil and gas are the new kings and that the war in Ukraine means that ESG will be put on the backburner:

“There’s nothing like sticker shock to make consumers rethink priorities, and interest in climate action may be one of those.

Assets under management in environmental, social and governance (ESG) exchange traded funds and mutual funds have grown sharply, coinciding with greater public demands to mitigate climate change.

But near-term crises can overshadow long-term threats, and Russia’s war against Ukraine kicked concerns about climate change off headlines, replaced by oil and gas shocks, and geopolitical worries.

Crude oil prices have topped $100 a barrel and retail gasoline prices jumped 20% in a week, leading President Biden to announce a release of oil from the Strategic Petroleum Reserve to take the edge off prices. European consumers will pay astronomical prices for energy since they are much more dependent on Russian oil supplies.  

Fossil-fuel proponents are using the high prices to call for greater U.S. hydrocarbon production to ease prices on consumers in the short-term and secure domestic energy independence in the long-term. In Europe, Germany proposed Sunday to build two liquefied natural gas terminals to import U.S. natural gas, while also calling to speed up its transition to all renewable energy by 2035. 

The acute need for energy supplies now has climate concerns taking a back seat, say several sustainable fund managers.

“I think probably the ‘drill, baby, drill’ mentality is back in the U.S.,” says Tony Tursich, co-portfolio manager at Calamos Global Sustainable Equities Fund.”

In the states

Is ESG an antitrust violation?

Arizona attorney general Mark Brnovich wrote an op-ed, published by the Wall Street Journal, suggesting that ESG investing may amount to an antitrust issue that his state and others might pursue. He wrote:

“The biggest antitrust violation in history may be in plain sight. Wall Street banks and money managers are bragging about their coordinated efforts to choke off investment in energy. It’s nearly impossible to raise money to explore for oil and gas right now, and we may all be experiencing rising energy costs because of this market manipulation. Russian and Chinese aggression overseas also is exacerbating inflation.

Here’s what is happening: The biggest banks and money managers seek to implement a political agenda, such as compliance with the Paris Climate Accord. Then a group mobilizes: Climate Action 100+, for example, comprised of hundreds of big banks and money managers that together manage $60 trillion. The group uses its coordinated influence to compel companies to shut down coal and natural-gas plants. The activism can include pushing climate goals at shareholder meetings and voting against directors and proposals that don’t comport with the agenda, even if other decisions may benefit investors.

Firms report their plan to carry out these activities back to Climate Action 100+ headquarters. This helps ensure maximum coordinated effort toward the common goal of overhauling the energy industry. Money managers wield influence over these companies because they represent investors who are shareholders, often through their 401(k)s or pension plans. In other words, your retirement funds are likely helping facilitate these political campaigns to advance far-left policy goals, with consumers bearing the costs of increased energy prices.”



Economy and Society: ESG goes to war?

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.

ESG Developments This Week

In Washington, D.C., and around the world

ESG goes to war?

The Russian war in Ukraine is, inarguably, not an ESG story. And yet, because of the integration of global markets and economies and especially the connection of the Russian oil and gas sector to the rest of the world’s energy needs and commitments, the war has had and will continue to have implications for ESG and its practitioners.

The Financial Times published a story on the biggest losers so far in the wake of the war, a story which noted the following:

“Calpers, one of the world’s largest public pension plans, has around $900mn exposure to Russia, after increasing its emerging market allocation last November to boost chances of reaching its return targets.”

CalPERS – the California Public Employee Retirement System – was one of the earliest adopters of ESG investment protocols among large asset managers in the United States, having been in the ESG business for more than a decade now.

Stephen Soukup, the author of The Dictatorship of Woke Capital, one of the most prominent books critical of ESG published last year, has suggested that a big part of the reason that CalPERS had to take on this hazard and invest in risky Russian-exposed securities is because its ESG returns have been subpar. In a note to readers, Soukup cited the following passage from his book:

“With over $360 bil­lion in assets, CalPERS is the largest public pension fund in the country. It is also one of the most aggressively activist and aggressively “green” public pension funds, despite having some $150 billion in unfunded liabilities.

 According to a December 2017 report from the American Council for Capital Formation (ACCF), “One key factor behind this consistently poor performance…is the tendency on the part of CalPERS management to make investment decisions based on political, social and environmental causes rather than factors that boost returns and maximize fund performance.”  The report also noted “that four of the nine worst performing funds in the CalPERS portfolio as of March 31, 2017, focused on supporting Environment, Social and Governance (ESG) ventures. None of the system’s 25 top-performing funds was ESG-focused.”

As Bloomberg notes, CalPERS is not the only ESG player to be hit hard. Indeed, the biggest player of them all stands to be one of the biggest losers of them all:

“BlackRock Inc., Capital Group Companies and Legal & General Group Plc are the top holders of Russia’s dollar bonds, which lost almost half their value this week, according to data compiled by Bloomberg.

BlackRock, the world’s biggest asset manager, has about $1.5 billion of the $33 billion of bonds outstanding, according to the data. Capital Group and Legal & General are the second and third biggest investors, with holdings of $283 million and $272 million, respectively. The firms didn’t immediately comment on the data when contacted by email earlier today.

Russian dollar bonds were hammered this week on concern the invasion of Ukraine would incur sweeping sanctions that would severely limit Moscow’s ability to access financial markets, including restricting investors’ ability to trade Russian debt on the secondary market. They lost 45%, or $15 billion, of their market value, according to a Bloomberg index that tracks 10 dollar bonds. The selloff on Thursday alone wiped out about $11 billion.”

Additionally, the global reaction to Russian enterprises has hit energy companies – traditional fossil fuel companies, in particular – hard. At least two major fossil fuel corporations, BP and Shell, have said that they are exiting their partnerships with Russian oil and gas companies:

“Shell is to exit its joint ventures with Russian state energy firm Gazprom, a day after BP said it would offload its 20% stake in Kremlin-owned oil firm Rosneft, as British businesses scrambled to distance themselves from Vladimir Putin.

The oil company said it would “exit its joint ventures with Gazprom and related entities”, which are worth about $3bn.

The planned sales include its 27.5% stake in the Sakhalin-II liquefied natural gas facility, its 50% stake in the Salym Petroleum Development and the Gydan energy venture.

Shell will also end its involvement in the Nord Stream 2 pipeline project, in which it holds a 10% stake worth $1bn. Germany, which was due to double its Russian gas imports via the pipeline, had recently called a halt to the project in the light of Russia’s invasion of Ukraine.

“We are shocked by the loss of life in Ukraine, which we deplore, resulting from a senseless act of military aggression which threatens European security,” said Shell’s chief executive, Ben van Beurden.”


The SEC and its delayed ESG disclosures

In a long piece on ESG, stakeholder capital, and the connection between the two, the Washington Examiner explains some of the problems that the Securities and Exchange Commission (SEC) is having in coming to an agreement on the type and form of sustainability disclosures it would like corporations to make. The SEC has been promising the new disclosure rules for nearly a year but has been held up for some time by conflicting perspectives:

“The SEC is debating the extent to which it can compel companies to disclose details about how much energy they buy and how they handle climate risks. Such self-reported disclosures to investors have already become commonplace in business, and adding government-mandated ESG disclosure rules is a big goal for the administration.

The SEC has been working on the disclosure rule for months now, with Chairman Gary Gensler initially announcing that the draft would be released by October and then later pushing that deadline back to January. Now it is unclear when exactly it will be unveiled, although some are beginning to get restless, including Sen. Elizabeth Warren, who called for “quick action” on the matter earlier this month.

The proposed rule is part of President Joe Biden’s broader climate agenda, which envisions cutting greenhouse gas emissions by more than half by the end of the decade when compared to 2005 levels.

At the heart of the SEC’s troubles with releasing a proposed rule is the scope of the reporting requirements. Some of the more hard-charging climate activists want to see stringent reporting requirements, while others fear putting those in place would entail too much red tape for companies to handle and legal challenges for the SEC.

In analyzing corporate climate emissions, the SEC organizes them into three categories, known as scopes. Scope 1 includes the emissions that a company directly generates — this scope will certainly be included in a proposed rule. Scope 2 refers to indirect emissions, such as those involved in the use of electricity, and Scope 3, which is the most controversial, measures the emissions of other entities, such as suppliers or customers in a company’s value chain.

Gensler and the SEC must be careful with how they proceed because if they are too heavy-handed in the rulemaking, they could face lawsuits that have the potential to strike the rule down, delivering a massive blow to Biden’s climate agenda….

Gensler is reportedly worried about the new climate reporting rule being successfully challenged in court and struck down if the SEC is too liberal with what it establishes as materiality, while the other two Democrats are reportedly pushing for more aggressive climate reporting guidelines. If Gensler’s concerns win out, Scope 3 emissions would likely not be required to be reported.”

In the states

More media attention for state financial officers

Over the course of the last several weeks, this newsletter has noted on several occasions, the pushback against ESG and its practitioners – notably BlackRock and its CEO Larry Fink. This week, it appears that the mainstream conservative media has taken notice of the phenomenon and begun covering the subject for its readers. The above-mentioned piece in The Washington Examiner made the jump from the SEC to discuss Republican-controlled state financial officers as follows:

“While the Biden administration and some companies have embraced the ESG shift and are hoping to make disclosures the norm, they are facing opposition from some Republican states who are trying to use their power to push back.

Last year Texas Gov. Greg Abbott signed a bill that banned state investments in businesses that cut ties with the oil and gas industry. Abbott also signed legislation banning state and local governments from working with corporations whose policies restrict the firearms industry.

Another example is West Virginia. The Mountain State’s Senate recently passed a bill authorizing the state’s treasurer to produce a list of firms that refuse to do business with fossil fuel companies and to reject such companies from consideration for state financial contracts.

“It’s real simple,” West Virginia Sen. Rupert Phillips, the bill’s chief sponsor, recently told the Washington Examiner. “Why should we take our tax dollars that our coal miners and our gas industry has produced and invest it into a bank that is trying to shut them down?”

Additionally, last month West Virginia’s state Treasurer Riley Moore announced that his state would end the use of a BlackRock investment fund. Moore said that BlackRock “has urged companies to embrace ‘net zero’ investment strategies that would harm the coal, oil and natural gas industries, while increasing investments in Chinese companies that subvert national interests and damage West Virginia’s manufacturing base and job market.””

On the same day, The Federalist likewise discussed the states’ pushback, as well as some states that are not pushing back:

“Beyond Moore’s efforts in West Virginia, lawmakers in Texas and Florida have also made moves to counteract BlackRock’s undue influence.

In Florida, Republican Gov. Ron DeSantis recently moved to strip proxy vote power over state finances from companies that foster investment in China while managing taxpayer dollars. That would include BlackRock, which oversees billions from Florida’s pensions and investment funds. According to Bloomberg, BlackRock held $227 million in a fund focused on Chinese markets in late June.

“The state pension plan has also invested in separate private equity and investment funds with exposure to China in particular,” Bloomberg reported….

Other Republicans leading major oil-producing states, such as state treasurers in Ohio and Oklahoma, have remained apathetic as the movement grows to deter Wall Street financial firms from weaponizing taxpayer dollars against American taxpayers.”

In the spotlight

Gallup study: “Where U.S. Investors Stand on ESG Investing”

On February 23, Gallup released the results of a study it recently completed on ESG and investors’ attitudes. Among the study’s findings were the following:

“U.S. investors are receptive to taking personal values into account when making stock purchases, but this is not their highest priority when investing and not something the majority spend much time focused on before making stock buys. Close to half express interest in sustainable investing, but only one in four say they have heard much about it….

Currently, 25% of investors, similar to past readings, say they have heard a lot or fair amount about sustainable investing. Ten percent, also consistent with prior measures, say they are currently invested in such funds.

At the same time, after reading the survey’s description of sustainable investing, 48% of investors say they are very or somewhat interested in purchasing sustainable investing funds. This is statistically unchanged from the 42% to 46% readings taken during the pandemic. Interest was slightly higher, at 52%, in February 2020….

The poll also measured investors’ attention to each aspect of ESG investing — asking investors how much they research or think about a company’s performance on environmental, social and corporate governance matters — along with their attention to a stock’s potential earnings and risk.

The potentials for profit and loss emerge as investors’ main concerns when choosing stock. Seventy-eight percent of investors say they give a lot or fair amount of thought to the expected rate of return when choosing which companies or funds to invest in, and 74% give the same thought to the risk for potential losses.

ESG considerations are secondary, with about half as many investors investigating these factors upfront. Roughly four in 10 say they look into corporate governance policies (41%) or the social values advocated by company leadership (38%) before buying. Slightly fewer (35%) research the environmental record or impact of a company….

Female investors are slightly more likely than male investors, 42% versus 35%, to say they give a lot or fair amount of thought, overall, to the social values of companies they invest in. But women are no more likely than men to look into the environmental impact of companies, their corporate governance, their expected rate of return or their risk for potential losses.”



Economy and Society:

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.

ESG Developments This Week: On Wall Street and in the private sector

Fund managers argue ESG comes at a cost

Just over a month ago, the Financial Times reported on the story of Unilever and the frustration some of its investors argue its ESG focus is causing:

“Unilever has “lost the plot” and its management prizes displaying its sustainability credentials at the expense of running the business, according to influential fund manager Terry Smith.

The founder of Fundsmith, a top-10 shareholder in Unilever whose stellar long-term record has helped him amass a large retail following, used his annual letter to investors on Tuesday to hit out at the global consumer goods group.

The maker of Dove soap, Hellmann’s mayonnaise and Magnum ice cream has set out ambitious climate and social targets and is trying to prove that sustainable business does drive superior financial performance.

Smith, a veteran stockpicker who runs the £28.9bn flagship Fundsmith Equity Fund, wrote: “Unilever seems to be labouring under the weight of a management which is obsessed with publicly displaying sustainability credentials at the expense of focusing on the fundamentals of the business.”

He said that while “the most obvious manifestation of this is the public spat it has become embroiled in over the refusal to supply Ben & Jerry’s ice cream in the West Bank . . . there are far more ludicrous examples which illustrate the problem”….

Smith added: “A company which feels it has to define the purpose of Hellmann’s mayonnaise has in our view clearly lost the plot. The Hellmann’s brand has existed since 1913 so we would guess that by now consumers have figured out its purpose (spoiler alert — salads and sandwiches).””

Roughly a week later, the Financial Times reported again on frustration within the industry at perceived ESG-fixations, citing various investors who are upset with various fund providers for changing the focus of their funds’ investments, moving away from traditional, passive investment strategies and to ESG-based formulas and indices:

“The switch by many passive funds in Europe to indices with an environmental, social and governance tilt has left many professional fund selectors feeling wrongfooted, industry observers say.

Funds increasingly are including ESG considerations in their objectives as an ever-larger proportion of flows moves into sustainable products.

Some of Europe’s largest exchange traded fund providers, including iShares, DWS and BNP Paribas, have changed indices on some of their products….

But not all professional fund buyers are happy with passive funds being repurposed as sustainable.

Jose Garcia Zarate, associate director, passive strategies at Morningstar, said one portfolio manager he spoke to was “upset” that an ETF the company held had switched to an ESG index, which excluded energy company Shell.

The selector wanted to maintain exposure to the Anglo-Dutch oil and gas giant, said Garcia Zarate.

Some think investing in stocks excluded from ESG indices could be advantageous at a time when other investors are divesting from these companies, he added.

Chris Chancellor, senior director, global insights at Broadridge, said views of this kind among European fund selectors were “not common but not unknown”….

[Detlef] Glow [head of Europe, the Middle East and Africa research at Refinitiv Lipper] said ETF providers “need to be careful when making the decision to repurpose an ETF” as this can have “massive impacts on the relationship between the ETF promoters and their investors”.”

Finally, last week (February 16), the Financial Times reported that one of the most hyped of all ESG funds recently launchedthe MSCI Global Climate Select fundis near “on the brink of failure”:

“A UN-backed green investment fund is on the brink of failure three months after its launch during the Glasgow climate summit because institutions including big banks never delivered expected seed funding.

The MSCI Global Climate Select exchange traded fund was unveiled in early November. Trading under the ticker NTZO, it excludes fossil fuel companies and boosts holdings of companies with lower carbon emissions.

The fund has amassed less than $2mn and is likely to be wound down as soon as the end of March without further investment, said Ethan Powell, founder of Dallas-based Impact Shares, the fund manager. He said Impact Shares has been spending about $25,000 a month to manage the ETF.

Bank of America, Citigroup and Santander, all GISD members, pledged to provide seed money to NTZO but have refused until other investors step up, said Jim Healy and Sudip Thakor, former Credit Suisse bankers who are involved with the fund.

“It is a classic case of everyone just going through the motions,” Thakor said….

Impact Shares and the UN announced the new ETF in November as global leaders met in Scotland for the COP26 climate summit. Fani Titi, chief executive of South African banking group Investec and a GISD member, was quoted in a press release saying that the climate ETF “created a real opportunity for investors to finance greater good”.”


Fidelity, nevertheless, remains undeterred

Fidelity Investments has launched four new ESG fundsthree mutual funds and one exchange-traded fund (ETF)in the hope of capturing a larger share of the ESG trend in capital markets. MarketWatch has the details:

“The Fidelity Sustainable International Equity Fund (FSYRX), Fidelity Sustainable Emerging Markets Equity Fund (FSYJX), Fidelity Sustainable Multi-Asset Fund (FYMRX), and Fidelity Sustainable High Yield ETF FSYD, +0.28% will target companies with strong ESG ratings, according to the Boston-based asset manager. 

“We’re constantly monitoring where companies are relative to another on their ESG journey,” said Pam Holding, co-head of equity and head of sustainable investing at Fidelity, in a phone interview. “These are actively-managed strategies.” 

Fidelity will use a “proprietary reading” of how companies stack up in areas such as diversity, carbon emissions and cybersecurity by combining static ratings and a “forward-looking” view through quantitative and bottom-up, fundamental analysis, according to Holding. While the Fidelity Sustainable Multi-Asset Fund is “sort of a fund of funds that will use a combination of active and passive” investing, she said the other three new funds are “100% actively managed.”

The four new funds bring Fidelity’s total lineup of sustainable mutual funds and ETFs to 15.”


Greenwashing a major ESG concern for industry, reports Institutional Investor

In a piece published on February 17, Institutional Investor magazine reported that the ESG movement remains, in its view, rife with confusion, lack of transparency, and what some observers see as potential fraud. As a result, greenwashing has become the watchword of the industry:

“Greenwashing is often in the eye of the beholder, depending largely on one’s sustainable investing philosophy, according to PitchBook analyst Anikka Villegas.

In an analyst note published Monday, Villegas wrote that the growth in environmental, social, and governance investing has come with confusion and disagreement about the definitions of terms like ESG, sustainable investing, and impact investing. As a result of this lack of clarity, many venture capital and private equity firms have been accused of greenwashing — claiming to practice ESG and sustainability but not following through on those promises.

While some firms are guilty of this deception, Villegas argued that many of the greenwashing accusations are a product of a difference in philosophy: Investors have different ideas about what sustainability, ESG, and impact look like in practice….

According to Villegas, purists consider it greenwashing when any firm that claims to practice ESG invests in socially or environmentally harmful industries, or in companies that don’t contribute to sustainability.

“In many cases, greenwashing accusations from purists are likely to be false positives, where the accused ESG approach simply aligns with a different philosophy and is in fact transparent about its intentions and execution,” Villegas wrote….

It’s unlikely that investors will ever agree on the adoption of a single philosophy, Villegas wrote, making it challenging for investors to identify which strategies qualify as ESG.”


Morningstar strips funds, deemed unworthy, of their ESG label

Meanwhile, just under two weeks ago (February 10), Bloomberg reported that Morningstar Inc., one of the biggest names in ESG ratings, had taken steps to strip several funds of the ESG labels, deeming them unworthy of the title:

“ESG funds representing more than $1 trillion in assets aren’t delivering on their stated environmental, social or governance goals, according to one of the main researchers tracking the market.

A forensic analysis of the industry resulted in the ESG tag being removed from more than 1,200 funds, or roughly one in five, according to Morningstar Inc.’s classification system. The findings feed into concerns that asset managers are still making misleading claims on the extent to which their allocations are doing the planet or its inhabitants any good.

Hortense Bioy, global head of sustainability research at Morningstar, told Bloomberg that sustainability tags were taken off “funds that say they consider ESG factors in the investment process, but that don’t integrate them in a determinative way for their investment selection.” 

Bioy said funds that used “light or ambiguous ESG language” were targeted in the purge. 

The correction marks something of a line in the sand for an investment trend that has enjoyed stratospheric growth, much of which took place before regulations were in place. It also offers a glimpse of the scale of potential greenwashing as the ESG label goes from niche to mainstream.

Morningstar’s calculations suggest that vast sums of money have been mis-allocated, hobbling efforts to fight global warming and inequality. The numbers also indicate that a sizeable group of investment managers may be vulnerable to regulatory reprimands.”

In the spotlight

Punching up at ESG

On February 17, Punchbowl News, “a membership-based news community founded by journalists and best-selling authors,” announced that it would be launching what it called a new ESG platform:

“Punchbowl News is launching a next-generation ESG platform “The Punch Up” with Target as our inaugural partner. This accountability-centric approach will focus on some of the biggest issues facing the world today. During the initial year, we’ll bring together leading voices on racial equity and sustainability to convene a much-needed dialogue between the private and public sectors.”

Punchbowl offers few details about its plans, while promising to “have a lot more to say on this in the coming days and weeks!”



Economy and Society: SEC planning largest regulatory push in decades

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.

ESG Developments This Week

In Washington, D.C., and around the world

SEC planning largest regulatory push in decades says CNBC

According to a report from CNBC, the Securities and Exchange Commission (SEC) has a full agenda for 2022, with Chairman Gary Gensler planning to introduce the greatest number of rules and rules changes in decades. On February 9, the network reported the following:

“Securities and Exchange Commission Chair Gary Gensler has kicked off an ambitious regulatory agenda — and his agency is pushing forward with key measures focused on hedge funds and private equity.

The federal agency is meeting on Wednesday to consider three new rules: more disclosure from hedge funds and private equity funds, more disclosure regarding cybersecurity risks and attacks, and shortening the date on which stock transactions must be settled, a fallout from the GameStop saga. 

There are more than 50 proposed rules that Gensler is considering this spring, one of the largest regulatory pushes by the SEC in decades….

Surveying the more than 50 rules that are currently proposed or being finalized by the SEC, Shane Swanson, senior analyst at Coalition Greenwich, expressed amazement at their breadth.

“This is an aggressive agenda from the SEC,” he told me.

Swanson noted a common thread: “The broad theme is more disclosure and more reporting — it’s driving across all these issues.”

He also noted that part of the aggressive agenda — such as the focus on payment for order flow and shortening the settlement cycle — is a result of the GameStop controversy, and that it is understandable for Gensler to want to move on these issues while they are still fresh in the public mind.

“They have a lot of ideas that have been kicked around for a while, and in particular they want to act while there is focus on some of these issues [because of GameStop], like moving the settlement cycle,” Swanson said. 

“So there’s a bit of ‘let’s make things happen’ while they still have the public’s attention,” he added.”


Pushback against private company disclosure rules

In a recent cover story, Inc. magazine wrote of the concerns opponents of proposed SEC rules have about disclosure mandates for private companies:

“The Securities and Exchange Commission is pushing for more transparency — and though it’s mostly setting its sights on hedge funds and private equity shops, other public and private companies won’t necessarily be exempt. It’s is an initiative that the agency has been vocal about for some time.

SEC Commissioner Allison Herren Lee last October aired concerns over the lack of financial transparency at unicorns (companies with valuations of at least $1 billion), not to mention decacorns ($10 billion) and hectocorns ($100 billion). 

Estimates from CB Insights, a research and analytics firm, suggests that there are upwards of 1,000 unicorns around the world today. That’s up significantly from the 39 unicorns that Lee estimated were extant in 2013. 

Many of the requirements the SEC is pushing target large, private companies, hedge funds, or private equity shops. But that doesn’t mean small and mid-size businesses are unaffected here — especially considering that private companies are increasingly on the agency’s radar. 

Widespread transparency precedents could gain traction if the agency has its way. And in some instances, measures the agency is weighing for large companies could trickle down to small ones….

Congress never empowered the SEC to mandate disclosures based on a company’s valuation, according to Alex Platt, a law professor at the University of Kansas who specializes in financial and securities regulation. Instead, the SEC looks to another figure: the holders of record, or the registered owner of a security. Right now the disclosure threshold is 2,000 shareholders or 500 individuals who are not accredited investors. Accredited investors can include high-wealth individuals, those with various financial professional licenses, and different cohorts of institutional investors, Platt says. 

Beyond that cap, the company is required to go public and make the disclosures required of public companies. Platt explains that if a venture capital fund invests in a start-up, the fund is counted as “one” holder of record. But Platt says that the agency might be looking to propose a change to how that number is calculated.

The SEC is also considering regulation around the environment. Climate change is a key focus for the Biden administration, especially in reducing greenhouse gas (GHG) emissions. Since coming into office, Biden’s eyed the goal of reaching net zero emissions in the United States by 2050.

And as environmental, social and corporate governance (ESG) criteria become increasingly adopted, more companies are shouldering their own environmental responsibilities by cutting down on emissions.

Emission admissions could fall under three different “scopes.” Scope 1 pertains to a company’s direct GHG emissions while scope 2 includes a company’s indirect emissions, the latter usually associated with electricity or heating and cooling. 

Scope 3 emissions are those that are linked to entities that are not directly owned by a company, such as a third-party supplier. It’s also the scope that’s most likely to cause businesses more grievances: according to the Environmental Protection Agency, scope 3 emissions usually make up the largest portion of a company’s total emissions…. 

Any new SEC rules in this area are expected to affect all companies that make public statements about greenhouse gas emissions, according to David Slovick, a partner at the Indianapolis-based law firm, Barnes & Thornburg.

In Slovick’s view, there’s still the question of whether the SEC will give smaller companies a break on what they have to disclose, since their contributions to climate change pale in comparison to that of larger companies.

“That said, small and mid-sized companies will still be impacted disproportionately, both because they may not have the financial wherewithal to quantify the impact of climate change on their businesses, and because smaller companies typically have fewer resources to dedicate to preparing their public disclosures in the first place,” Slovick says.”


ESG rules are on the agenda in the European Union 

While the SEC continues to work through its own rules-making process, the European Union is moving forward on new ESG efforts. Indeed, the EU looks to be as busy as the SEC in the coming months:

“The year 2021 was a prolific one for environmental, social and governance (ESG) in the EU. The year 2022 looks just as productive for the EU legislature. 

Companies must comply with increasing obligations related to ESG. They must also do their best to meet requirements to have their businesses qualify as sustainable and to be noticed by investors on the EU market. 

Many legislative initiatives are also in the EU pipeline to ensure effective protection of human rights and the environment, involving potential further obligations for companies as well as their supply chains….

At the end of 2021, two European Commission (Commission) delegated acts were published in the EU Official Journal, allowing the EU Taxonomy Regulation to apply from 1 January 2022….

The first delegated act sets the technical screening criteria (TSC) to establish whether an economic activity contributes substantially to climate change mitigation and adaptation. Climate change mitigation and adaptation are two of the six objectives established in the EU Taxonomy Regulation, the main EU instrument to channel investors’ money toward sustainable activities and achieve the bloc’s climate goals. 

Therefore, since 1 January 2022, companies carrying out one of the activities listed in this delegated act are able to use the TSC to determine and report/disclose whether their activities are eligible and aligned with the EU Taxonomy as regards the objectives of climate change adaptation and mitigation (provided that such activities do not harm any of the other EU Taxonomy objectives). 

The second delegated act relates to the companies’ obligations to disclose how and to what extent their activities are associated with environmentally sustainable economic activities (Article 8 of the EU Taxonomy Regulation). The Article 8 delegated act provides for a simplified disclosure regime during a transitory period covering the year 2022. Thus, companies must report only on certain elements (regarding taxonomy eligibility) from 1 January 2022….

On 2 February 2022, the Commission presented its Complementary Delegated Act (CDA) on climate change mitigation and adaptation covering certain nuclear and gas activities.

Nuclear and gas related activities must meet the TSC set out in the CDA to be considered as contributing to climate change mitigation and climate change adaptation. Thus, upon the fulfillment of certain conditions, these activities could be included in the EU Taxonomy. The CDA also introduces specific disclosure requirements for businesses active in the gas and nuclear energy sectors to provide full transparency to investors. 

However, the CDA remains subject to the approval of the European Parliament (Parliament) and the Council of the European Union (Council). They will have four months from the Commission’s formal adoption to scrutinize the CDA and possibly reject it….

Increasing disclosure obligations apply to financial market participants and companies in the EU. 

The Sustainable Finance Disclosure Regulation (SFDR) provides for disclosure obligations that apply to financial advisors and financial market participants (fund managers’ insurance undertakings, investment firms and credit institutions providing portfolio management services).

Level 1 disclosures have applied since March 2021 (i.e., the disclosure of information about the financial market participants’ policies on the identification and prioritization of principal adverse sustainability impacts). 

Level 2 disclosures are more detailed disclosure requirements that were supposed to apply from 1 January 2022. However, the Commission has delayed the application of the Level 2 disclosure obligations because it has not been able to adopt the relevant regulatory technical standards (RTS). The draft RTS was submitted to the Commission by the European Supervisory Authorities in two tranches in February 2021 and October 2021, which, according to the Commission, did not leave enough time for a proper review. The Commission has therefore announced that the application of the Level 2 disclosures is postponed until 1 January 2023. 

However, financial market participants should already prepare for such disclosures, including by collecting all the relevant data.”

The EU is aiming to exempt companies from antitrust concerns, if the perceived good that they do outweighs the perceived harm they may cause:

“At the end of last year, the Commission published a communication titled “A Competition Policy Fit for New Challenges.” In its communication, the Commission acknowledges that companies should be allowed to cooperate to pursue genuinely green initiatives jointly. Thus, agreements restricting competition could be exempted if they brought benefits for customers that outweigh the harm caused—for instance, replacing non-sustainable products with sustainable ones and thus improving their longevity and increasing the value that consumers attribute to that product. Many issues remain, however—notably, the vexing questions of whether, how fast and under what conditions EU antitrust enforcers will be prepared to approve collective agreements that benefit the environment as a whole and that do not generate specific improvements for the customer class impacted by the agreement.”

On Wall Street and in the private sector

ESG off to a rocky start

According to Barron’s, ESG funds are off to a rocky start this year, trailing the markets, both domestically and globally:

“Funds that incorporate environmental, social, and corporate governance factors into their investment decisions, or ESG, have had a rocky start to the year.

Among the 170 funds with ESG mandates that focus on U.S. stocks, 40—less than a quarter—have outperformed the S&P 500‘s loss so far this year as of Friday, according to data from an investment research and analytics firm Morningstar. Forty-nine funds outperformed the index in all of 2021 and 73 in 2020. Only two sustainable funds have generated positive returns year to date.

The weakness goes beyond U.S. stocks. A recent analysis from Morningstar suggests that 34% of the firm’s ESG indexes, which include equities and bonds in various regions, outperformed their non-ESG equivalents in January. That’s lower than 2021’s outperformance rate of 57% and 2020’s 75%.”


Off to a rocky start, ESG continues to attract investors

Reuters notes the struggle to keep up with the market but also reports that the underperforming sector nevertheless continues to attract investors:

“Investors continued to flock to environmental, social and corporate governance (ESG) stock funds in January despite a slide in Big Tech hitting the funds’ performance, and as the market braces for more growth wobbles in the year ahead….

Data shared with Reuters by funds network Calastone, which tracks the trading of units in UK-domiciled funds, shows globally focused ESG stock funds took in a net $622.28 million from Jan. 1 to Feb. 3, compared with $543.56 million flowing to non-ESG stock funds.

Money kept flowing even though January was the worst month in over three years for the technology-heavy Nasdaq index and its tech constituents, favoured by ESG funds for their low emissions and high scores from ESG data providers….

The 10 biggest actively managed ESG funds tracked by Morningstar reported an average 9.2% loss in January, much steeper than the 5.3% drop in both the S&P500 and MSCI World indices.”



Economy and Society: Opposition to Federal Reserve nominee continues

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.

ESG Developments This Week

In Washington, D.C.

ESG-related opposition to Federal Reserve nominee continues

Responses to President Biden’s nomination of Sarah Bloom Raskin to serve as the Federal Reserve’s vice chairman for supervision continued last week. On February 1, the Competitive Enterprise Institute joined the American Energy Association to write a letter to Chairman Sherrod Brown (D, OH) and Ranking Member Pat Toomey (R, PA) of the Senate Banking Committee opposing Raskin’s confirmation. The letter–signed by Thomas J. Pyle of the AEA and Myron Ebel and John Berlau of CEI–noted the following:

“Ms. Raskin endorses using the powers of the Federal Reserve outside of its statutorily-defined role. Anyone confirmed by the Senate should be committed to executing the law, rather than to pursuing a personal vendetta against certain types of energy.

“As noted above, nearly 80 percent of America’s energy currently comes from natural gas, oil, and coal. Precipitous action to end financing for these industries would have dire economic consequences such as we are currently seeing in Europe.

“We urge President Biden to withdraw the nomination of Ms. Raskin, and if he does not do so, we urge the committee to vote against her confirmation. Congress has charged the Federal Reserve with maintaining a stable environment for the effective operation of the financial system, but this is very different from actually directing the flow of capital as Ms. Raskin would like to do. Ms. Raskin’s confirmation would be a recipe for financial instability.”

CEI also issued a news release offering further comment from its policy analysts:

Director of CEI’s Center for Energy and Environment Myron Ebell said:

“The Senate should not confirm Ms. Raskin to the Federal Reserve, where she appears eager to misuse the Fed’s considerable authority to try to destroy the coal, oil, and gas industries.”

CEI Director of Financial Policy John Berlau said:

“As late as 2020, Sarah Bloom Raskin called for the Fed to actively discriminate against oil, gas, and coal firms in its lending programs. If confirmed as Vice Chair for Supervision, she could force banks to deprive these sectors of financial services to the detriment of the economy as a whole. The Senate must reject her nomination and stand up for ordinary American consumers, investors, and entrepreneurs still reeling from the pandemic and the onslaught of inflation.”

On Thursday, The Wall Street Journal’s editorial board weighed in, joining those opposing Raskin’s nomination with an editorial suggesting that, in its views, the nominee is a risk to the economy:

“Markets and businesses have many risks to consider, but President Biden is giving them another: Sarah Bloom Raskin. His nominee for the Federal Reserve’s bank supervision job wants to use regulation to politically allocate credit in a way that would create political and systemic financial risks.

At her Senate confirmation hearing on Thursday, Ms. Raskin tried to walk back her public statements supporting climate financial regulation. “It is inappropriate for the Fed to make credit decisions and allocations based on choosing winners and losers,” she told the Banking Committee. Her denial isn’t credible given her long-time views….

Her statements underline her distorted view of the Fed’s mandate, which is to maintain stable prices and aim for full employment. She thinks it should include the political allocation of credit steered by regulatory policy and even emergency financial tools….

Ms. Raskin justifies punishing fossil fuels by saying she’s trying to reduce systemic financial risk. But the regulation she’s urging could be a leading cause of such risk. It would force banks to write down and liquidate fossil-fuel assets. It would starve companies of capital, which would increase the risk that they and their creditors fail. And it would push banks to make riskier green-energy investments so they could hold less capital and pay out higher dividends….

The Senate should send Mr. Biden a message that it doesn’t want a Fed that punishes industries employing millions of Americans because they’re unpopular on the left. Ms. Raskin is a danger to the economy and the Fed itself.”

ESG-related criticism of BlackRock’s Larry Fink 

On February 7, three weeks after BlackRock chief Larry Fink released his annual letter to CEOs, The Wall Street Journal published an op-ed by Vivek Ramaswamy, the author of Woke, Inc., in which he criticized Fink for, in his view, substituting his political purpose for those that should be the purposes of publicly traded corporations.

“Mr. Fink claims he wants CEOs to stay true to the purposes of the companies they run, while also demanding that they advance the corporate purposes that BlackRock favors. He can’t have it both ways….

Mr. Fink argues that he doesn’t foist BlackRock’s own values onto anyone, but simply encourages portfolio companies to adapt to the way the world is already heading: “Every company and every industry will be transformed by the transition to a net zero world. The question is, will you lead, or will you be led. . . . Will you go the way of the dodo, or will you be a phoenix?”

Yet Mr. Fink’s argument is circular. BlackRock is now the world’s largest asset manager, with $10 trillion under management. President Biden’s climate policies are heavily influenced by recent BlackRock alumni. Brian Deese, the firm’s former global head of sustainable investing, is now the director of the National Economic Council. Michael Pyle, BlackRock’s former global chief investment strategist, is Vice President Kamala Harris’s chief economic adviser. Wally Adeyemo, Mr. Fink’s former chief of staff, is deputy Treasury secretary. Mr. Fink’s claim that he is merely responding to the “transition to a net zero world” obscures his own firm’s role in catalyzing that transition….

If stakeholder capitalism is capitalism, as Mr. Fink says, then the public deserves to know why he’s so adamant on drawing the distinction. He should be honest about whether he wants BlackRock’s portfolio companies to pursue their own corporate purposes or the purposes that BlackRock favors.”

On February 4, RealClear Politics published a piece co-authored by Andy Puzder–the former CEO of CKE Restaurants, chairman of the board of 2ndVote Advisers, and a visiting fellow at the Heritage Foundation–and Stephen Soukup–the author of The Dictatorship of Woke Capital, a book critical of ESG. In the op-ed, the two argue that Fink’s perspective concerning stakeholders betrays an intention to, in their view, politicize capital markets and note that the BlackRock CEO has stirred anti-ESG sentiment among some state-government officials:

“The tone of [Fink’s] 2022 letter to CEOs is very different from his previous two, both of which pushed Environmental, Social and Governance (ESG) investment criteria and “stakeholder capitalism” relentlessly. As far as Fink was concerned, ESG, “sustainability,” and the agenda for what we have termed “woke capital” would dominate the markets for years, while he and his $10 trillion asset management behemoth would, in turn, dominate them. Fink was to be king of the stakeholder world.

But then something fascinating happened.

Shortly after Fink’s triumphant 2021 letter, Encounter Books published “The Dictatorship of Woke Capital.” The book turned out to be the tip of the proverbial iceberg, heralding a massive backlash that was already building against ESG, woke capital, and the hubris that animates top-down, anti-democratic efforts to undermine free-market capitalism for partisan ideological ends.

By year’s end, the resistance to ESG and woke capital had increased in size and variety. Everyone from shareholder activists to U.S. senators, state treasurers, legislators, and governors, as well as the former director of “sustainable investing” for BlackRock itself – were charting various forms of pushback against the newly woke masters of the financial universe….

Texas has enacted legislation banning companies that engage in political vendettas against oil and gas or gun companies from doing business with the state. Lt. Gov. Dan Patrick has asked the state’s comptroller to place BlackRock on this list of banned companies. West Virginia Treasurer Riley Moore announced that the Board of Treasury Investments, which manages the state’s roughly $8 billion operating funds, will cease doing business with BlackRock because it embraces “‘net zero’ investment strategies” that harm the energy sector, “while increasing investments in Chinese companies.”

“[T]o combat woke corporate ideology,” Florida Gov. Ron DeSantis and the trustees for the State Board of Administration voted to “clarify the state’s expectation that all fund managers should act solely in the financial interest of the state’s funds” and revoked “all proxy voting authority of outside fund managers,” including BlackRock. The board also voted to conduct a survey “to determine how many assets the state has in Chinese companies.”…

It’s certainly a positive development that some states are reacting to this attack on free market capitalism. But while necessary, none of these state actions is ideal. The better idea would be to get politics out of business, not to turn capital markets into a partisan or ideological battleground. Nevertheless, only by imposing real financial costs on Fink and his ilk is it possible to force the changes needed.”

On Wall Street and in the private sector

Will ESG suffer as markets grow volatile?

On February 3, Bloomberg reported that ESG funds have taken a hit from this year’s market volatility and might be in for even greater turmoil if the markets continue to be unsettled:

“Investors’ desires to do good are melting away in the market downturn. 

Inflows into U.S. exchange-traded funds with higher environmental, social and governance standards have dropped sharply in the past two months. ESG equity ETFs added about $1.2 billion in December and January combined, compared with roughly $10.8 billion in the same period one year earlier — an 89% drop-off.

Volatility has whipsawed markets as investors reprice stocks in the face of inflation risks and Federal Reserve hawkishness. The benchmark S&P 500 Index had its worst month in January since the beginning of the pandemic and the technology-heavy Nasdaq 100 has tumbled 11% from its November peak.

In such periods of turmoil, ESG investing can end up taking “a back seat,” said Victoria Greene, chief investment officer at G Squared Private Wealth. 

“It’s all well and good to be an ESG investor until you start losing money,” Greene said. “Your first priority is protecting your portfolio, then your second priority is your investment strategy, including ESG.”

Overall interest in ESG topics tend to taper off when markets face steep declines, as investors turn their attention to performance. Alongside each recent drop for the S&P 500, media mentions of ESG have tumbled….

Ultimately, consistent outperformance from ESG funds will be needed to sustain inflows, said Athanasios Psarofagis, ETF analyst for Bloomberg Intelligence. Just 29% of ESG ETFs beat the performance of the S&P 500 in 2021, compared with 57% in 2020, according to data compiled by BI. 

If the ESG sector “doesn’t as least keep pace with the market, investors might get fed up with it,” he said.”

Tighter monetary policy may well exacerbate ESG’s current woes, although Bloomberg tries to conclude on a more positive note:

“[I]n the long term, it’s right to be optimistic about the transition to clean energy because 80% of governments have made decarbonization commitments, up from less than 10% five years ago, said Marina Severinovsky, head of sustainability at Schroders North America. More companies are announcing voluntary net-zero pledges, regulatory pressures are increasing and consumer awareness is rising.

“This suggests a dominant investment theme for the coming decades, with capital moving at an unprecedented scale to fund innovations and renewable technologies,” she said.”



Economy and Society: ESG-related opposition to Federal Reserve nominee

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.

ESG Developments This Week

In Washington, D.C.

ESG-related opposition to Federal Reserve nominee 

On January 14, President Biden nominated Sarah Bloom Raskin to be the Federal Reserve’s vice chairman for supervision and, thus, the Fed’s chief regulator. Several business-affiliated groups have responded in opposition to the nomination over their perception of her views about climate change and the need to use the Fed to promote energy transition.

Among the first groups to take a public stance in opposition to Raskin was the U.S. Chamber of Commerce, which published the letter it sent to the Members of the Senate Committee on Banking, Housing, and Urban Affairs:

“The Chamber urges the Committee to raise several important issues with Sarah Bloom Raskin when considering her nomination to serve as Vice Chair for Supervision of the Board of Governors of the Federal Reserve System. This position enforces and helps develop the regulations that are the bedrock of competitive financial markets. Some of Ms. Raskin’s past actions and statements have raised concerns among the U.S. business community and merit the Committee’s scrutiny….

Ms. Raskin has been critical of the Federal Reserve for allowing oil and gas companies to access the emergency 13(3) facilities during the COVID-19 pandemic. She has also advocated for federal regulators to transition financing away from the fossil fuel industry in her writings and public comments.

·       Is it the role of the Federal Reserve to direct capital away from certain industries that are politically disfavored or direct capital towards industries that are politically favored?

·       Please explain her statements proposing to deny oil and gas companies access to the Federal Reserve’s 13(3) emergency lending facilities, including those explicitly authorized by Congress via the CARES Act?…

The Federal Reserve is designed to adhere to its statutory mandate and remain independent from political influence. Governors have a long history of collegiality and professionalism in how they interact with each other and of deferring to the Chair on setting the agenda for the Board. After the recent push by Board members at the Federal Deposit Insurance Corporation (FDIC) to usurp the Chair’s authority, we have serious concerns about similar politicization at the Federal Reserve. We encourage you to secure a commitment from Ms. Raskin to maintain the political independence of the Board and stay committed to its statutory mission.”

The day after the Chamber published its letter, the Western Energy Alliance also wrote the Senate Banking Committee opposing Raskin’s nomination:

“We are 41 trade associations representing millions of workers all across the country. We provide 70% of the nation’s energy that supports life-sustaining functions such as keeping Americans warm in the winter, getting them to work and school to better their lives, powering ICUs and enabling medical devices, and delivering food to the dinner table. Oil and natural gas provide the feedstock for thousands of products used every day, from anything with a computer chip to the COVID vaccines that have saved millions of lives across the globe. American oil and natural gas is developed under strict environmental controls with industry-driven technologies that make it the most sustainably produced in the world. Natural gas electricity generation is the number one reason our country has reduced more greenhouse gas emissions than any other over more than a decade. The world would truly be less healthy, safe, and environmentally protected without the energy we provide.

We strongly oppose President Biden’s nomination of Sarah Bloom Raskin as Vice Chairwoman for Supervision at the Federal Reserve, the government’s most influential overseer of the American banking system. She is a strong advocate for debanking the very industry that powers America. Her multiple public statements indicate an agenda at odds with the President’s goal of providing Americans with reliable, affordable energy….

Ms. Bloom Raskin’s favored policies would wreak havoc with the economy, as financial systems would be reoriented around subjective, political factors rather than firm principles of maximizing returns and capitalizing productive human endeavors that create value in the marketplace. A free market is the correct arbiter of value to real people, not activism. The fact that oil and natural gas are used in just about every facet of modern life speaks to their intrinsic value, and hence, their investment worthiness. Further, activists pressure investors and banks to make financial decisions that reflect a political agenda which they have been unable to achieve through the normal democratic process. Activists have been able to convince neither the American people nor the majority of their representatives in Congress to stop using oil and natural gas in the absence of a viable, reliable alternative, as it would mean fundamentally altering Americans’ healthy, safe, and prosperous lifestyles. As they are unable to convince Congress to pass laws that prevent Americans from using or producing oil and natural gas, activists such as Ms. Bloom Raskin are simply inappropriate for the Federal Reserve.”

As of January 31, twenty-four state financial officers released their own letter, addressed to the White House, expressing their concerns about Raskin and her environmental beliefs:

“A coalition of Republican state financial officers is pushing back against Sarah Bloom Raskin, President Biden’s nominee to become the Federal Reserve’s top Wall Street regulator, over concerns that her economic views on issues like climate change and the private banking sector are “radical.”

In a Monday letter addressed to the White House, 24 state treasurers, auditors and financial officers urged Biden to withdraw his nomination of Raskin as the Fed’s vice chair of supervision, warning that her past statements indicate she is “willing to place the growth and stability of the U.S. economy at risk to achieve her preferred social outcomes.”

A major point of contention for the state financial officers is Raskin’s stance on climate change and her view that it poses a systemic risk to the U.S. financial system. Raskin has previously argued that all financial institutions should re-evaluate their relationships with energy companies and has advocated for a push toward sustainable investments that do not depend on carbon and fossil fuels. If banks and other financial institutions do not take these steps to distance themselves from fossil-fuel companies, Raskin has said the Fed should penalize them….

Signatories included the financial officers from Nebraska, Arkansas, Missouri, Utah, Louisiana, Arizona, Florida, Georgia, Idaho, Indiana, Kentucky, Mississippi, North Carolina, North Dakota, Ohio, Oklahoma, Pennsylvania, South Carolina, South Dakota, West Virginia and Wyoming.”

Raskin is scheduled to testify before the Senate Banking Committee on February 2.

On Wall Street and in the private sector

ESG pioneer worries about a potential ESG bubble

Jerome Dodson, founder of Parnassus Investments, one of the world’s first ESG-only investment firms, is worried that the strategy he helped create has, in his view, turned into a bubble and laments that it appears to serve as a marketing tactic:

“Few people have benefited more from the boom in ESG investing than Jerome Dodson.

Almost four decades ago, Dodson founded Parnassus Investments — a little known firm outside of ESG circles — and watched it grow into the world’s largest money manager dedicated to environmental, social and governance factors. The 78-year-old retired in October after he and his family sold their stakes in the business.

Dodson lauds how ESG has over the years helped push corporations and investors alike to act on issues such as worker rights and environmental protections. But as more money piles into the strategy, many companies and investors are exaggerating their efforts and impacts, Dodson said.

The ESG bubble is “a little disconcerting,” Dodson said in an interview. “It’s good that more people are talking about ESG. But if you look at how some money managers determine if a company is socially responsible, it’s not very rigorous and they’re not really strict in their criteria. We have a lot of money coming in and they use ESG as a marketing tactic.”…

To counteract overstated claims, Dodson said investors need to be more rigorous in their analysis of companies by pressing them for specifics on the actions they’re taking on ESG issues, and disregard answers that are too general. Investors themselves should specify what standards they are using in their strategies, while regulators should require fund managers to provide more details about their ESG tactics, he said.

A deluge of money has flowed into ESG in the past several years, making it one of the hottest areas of investing. The enormous growth has prompted other current and former sustainability executives and academics to criticize ESG for having limited impact in tackling systemic environmental and societal issues.”

In education

Financial Times: “Business schools find sustainability is hard to teach” 

Over the last several years, media outlets have covered the increased demand for ESG education at business schools throughout the United States and Europe. Two weeks ago, one of those media outlets, The Financial Times, ran a piece describing some of the difficulties associated with educating about ESG:

“In recent years, there has been a surge in attention in business schools about environmental, social and governance (ESG) issues. This has reflected shifting attitudes among students, faculty and employers who have moved beyond a traditional focus on maximising financial returns for shareholders towards benefiting a wider range of stakeholders.

GIBS, for example, is one of more than 800 schools to sign up to the Principles for Responsible Management Education (PRME). This initiative, supported by the UN, aims to promote the teaching of sustainability in business and management schools so that graduates have the skills to balance economic growth with wider objectives such as the Sustainable Development Goals (SDGs) and climate change.

But despite the increased attention, academic leaders face tough challenges including how to define and prioritise the disparate skills and values associated with ESG; how to integrate them into teaching, research and operations; and the extent to which a failure to do so will undermine the future of business education….

Robert Strand, executive director of the Center for Responsible Business at Berkeley’s Haas business school, has observed growing calls by employers for skills such as analysis of ESG factors.  

The problem, he adds, is that the “faculty at most American business schools . . . need to catch up.”…

Yet there is disagreement and confusion about what constitutes responsible business education. “The words ESG mean different things to different groups. We have to understand how to measure it and hold people accountable,” argues Professor Glenn Hubbard, former dean of Columbia Business School….

Even for those who are more favourable to the new focus on responsibility, there remains strong disagreement about how it is taught and what knowledge will be displaced — if only so that students can successfully find jobs in a world that, in places, remains ambivalent to ESG. Business schools have become a microcosm of the broader debate within companies about how to define ESG and how far it simply represents superficial “greenwashing”.”

In the spotlight

Wall Street Journal three-part series on potential ESG downsides

Between January 24 and 26, the Wall Street Journal’s Streetwise column, written by financial journalist James Mackintosh, ran a three-part series on ESG and what are deemed to be the potential downsides associated with it. Mackintosh says the series will continue in various columns over the next few weeks and months.

In the first column, titled “Why the Sustainable Investment Craze Is Flawed,” Mackintosh noted the following:

“The financial industry has spotted an opportunity to make money by helping people feel good about themselves. Despite claims to the contrary, these investments don’t do much to make the world a better place.

ESG funds, as they are known, promise to invest in companies with better environmental, social and governance attributes, to save the planet, improve worker conditions or, in the case of the U.S. Vegan Climate ETF, prevent animals from being eaten. 

Money has poured into ESG funds as noisy lobby groups push pension funds, university endowments and some central banks to shift their investments. The United Nations-supported Principles for Responsible Investment says signatories have $121 trillion of assets under management; even assuming lots of double-counting, that is most of the world’s managed money.

Over the next few weeks, Streetwise will explore the explosion of ESG investing and why I think it is mostly—but not completely—a waste of time. I will also offer up some solutions and discuss how to use your money to make a difference, while understanding the inevitable trade-offs.”

In the second column–“ESG Investing Can Do Good or Do Well, but Don’t Expect Both”–Mackintosh wrote:

“The biggest and boldest claim of ESG investors is that investing based on environmental, social and governance conditions will not just improve our world, but make you more money. I have problems with both parts of the claim. The burgeoning market for green bonds shows the difficulties clearly, and stocks with a sustainability label aren’t so different….

The claim that investors will make more money investing in green bonds is patently absurd. Green bonds typically have a slightly lower yield than a standard bond from the same issuer. This locks in guaranteed underperformance for taking identical risks that the government or company will fail to pay the bonds back.

Worse, the rapidly expanding sales of sovereign green bonds of developed countries are doing nothing for the environment, and most corporate green bonds achieve nothing either.”

And in his third column–“Sustainable Investing Bubbles Can Change the World—and Sink Your Portfolio”–Mackintosh argued the following:

“If you want a company to do more of what it does, one way to accelerate its expansion is to buy its stock; get all your friends to buy its stock; persuade fund managers, Reddit readers and pension funds to buy its stock; and watch the price soar. Eventually the board will take advantage of the bubble you create to raise what is for the company very cheap money and invest it in the business. Job done.

Something like this happened to clean-energy companies, with a mini-bubble in their stocks that ended in early 2021. Unfortunately, there was a downside: While many of them raised cash to spend on clean-energy projects, investors who stuck with the strategy have watched the stocks plunge 45% from their peak.

A huge trend in global investing is environmental, social and governance investing, a topic that I’m taking a critical look at in a series of columns. One major aim of ESG investing is to starve dirty companies of capital and redirect the money to clean ones. In practice, that’s not happening, much. And if it does, it will probably be a bad investment, as the clean-energy bubble showed….

Bubbles give investors too much of what they want. The price then collapses. Investors who don’t flee in time lose big.

Another problem for ESG adherents is that without a bubble, the investing strategy doesn’t in fact encourage companies to do much more of what they want.”



Economy and Society: Responses to BlackRock CEO annual letter

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.

ESG Developments This Week

On Wall Street and in the private sector

BlackRock CEO Larry Fink on ESG

Last week, BlackRock CEO Larry Fink’s wrote his annual letter to fellow CEOs. This year’s letter was adamant about the importance of ESG, stakeholder capitalism, and sustainable investing but was also something of a response to critics. The CEO of the world’s largest asset management firmnow with officially more than $10 trillion in client assets under managementargued that sustainability is a financial, not political, value and that, in his view, stakeholder capitalism is capitalism at its finest. About stakeholders, he wrote the following:

“Over the past three decades, I’ve had the opportunity to talk with countless CEOs and to learn what distinguishes truly great companies. Time and again, what they all share is that they have a clear sense of purpose; consistent values; and, crucially, they recognize the importance of engaging with and delivering for their key stakeholders. This is the foundation of stakeholder capitalism.

Stakeholder capitalism is not about politics. It is not a social or ideological agenda. It is not “woke.” It is capitalism, driven by mutually beneficial relationships between you and the employees, customers, suppliers, and communities your company relies on to prosper. This is the power of capitalism. 

In today’s globally interconnected world, a company must create value for and be valued by its full range of stakeholders in order to deliver long-term value for its shareholders. It is through effective stakeholder capitalism that capital is efficiently allocated, companies achieve durable profitability, and value is created and sustained over the long-term. Make no mistake, the fair pursuit of profit is still what animates markets; and long-term profitability is the measure by which markets will ultimately determine your company’s success.”

About sustainability, Fink wrote the following:

“Most stakeholders – from shareholders, to employees, to customers, to communities, and regulators – now expect companies to play a role in decarbonizing the global economy. Few things will impact capital allocation decisions – and thereby the long-term value of your company – more than how effectively you navigate the global energy transition in the years ahead.

It’s been two years since I wrote that climate risk is investment risk. And in that short period, we have seen a tectonic shift of capital. Sustainable investments have now reached $4 trillion. Actions and ambitions towards decarbonization have also increased. This is just the beginning….

We focus on sustainability not because we’re environmentalists, but because we are capitalists and fiduciaries to our clients. That requires understanding how companies are adjusting their businesses for the massive changes the economy is undergoing. As part of that focus, we are asking companies to set short-, medium-, and long-term targets for greenhouse gas reductions. These targets, and the quality of plans to meet them, are critical to the long-term economic interests of your shareholders.”

About his position that BlackRock and others must continue investing in fossil fuels and traditional energy companies while the global economy makes the transition to zero-carbon, he argued the following:

“The transition to net zero is already uneven with different parts of the global economy moving at different speeds. It will not happen overnight. We need to pass through shades of brown to shades of green. For example, to ensure continuity of affordable energy supplies during the transition, traditional fossil fuels like natural gas will play an important role both for power generation and heating in certain regions, as well as for the production of hydrogen….

As we pursue these ambitious goals – which will take time – governments and companies must ensure that people continue to have access to reliable and affordable energy sources. This is the only way we will create a green economy that is fair and just and avoid societal discord. And any plan that focuses solely on limiting supply and fails to address demand for hydrocarbons will drive up energy prices for those who can least afford it, resulting in greater polarization around climate change and eroding progress.

Divesting from entire sectors – or simply passing carbon-intensive assets from public markets to private markets – will not get the world to net zero. And BlackRock does not pursue divestment from oil and gas companies as a policy. We do have some clients who choose to divest their assets while other clients reject that approach. Foresighted companies across a wide range of carbon intensive sectors are transforming their businesses, and their actions are a critical part of decarbonization. We believe the companies leading the transition present a vital investment opportunity for our clients and driving capital towards these phoenixes will be essential to achieving a net zero world.”

Finally, in response to critics who charge that Fink’s ESG goals are to advance his own political agenda and, thereby, to disenfranchise voters who might otherwise be expected to make the decisions about the climate and other policy matters, Fink aims to flip the switch, arguing rather that he’s trying to allow every voice to be heard:

“[W]e are pursuing an initiative to use technology to give more of our clients the option to have a say in how proxy votes are cast at companies their money is invested in. We now offer this option to certain institutional clients, including pension funds that support 60 million people. We are working to expand that universe….

We know there are significant regulatory and logistical hurdles to achieving this today, but we believe this could bring more democracy and more voices to capitalism. Every investor deserves the right to be heard. We will continue to pursue innovation and work with other market participants and regulators to help advance this vision toward reality.”

ESG opponent responses

Scott Shepard, the Director of the Free Enterprise Project at the National Center for Public Policy Research, which bills itself as the only full-service shareholder activist group defending traditional shareholder-business relations, wrote the following in response:

“We have reviewed Larry Fink’s 2022 letter to you and your peers, and we have reached two conclusions. Larry Fink doesn’t think that you as CEO or we as shareholders are very bright, or he wouldn’t make so many glaringly false assertions. And because of this, you will lead your company into true mountains of risk – reputational, legal, regulatory, legislative, and more – if you follow his lead.

Over the course of his fairly brief letter, Fink reveals that he doesn’t understand (or pretends not to understand) capitalism. He makes overtly absurd claims about the non-partisan nature of his demands to the corporations in which his clients have invested. He misunderstands his fiduciary duty. And he fails to recognize that his vision for the future is already failing, in the United States and all around the world.

It’s probably not fair to say that your fiduciary duty to your shareholders and your moral duties to other relevant parties require you to reject everything that Larry Fink says. But it is certainly true that you cannot simply rely on anything he says without undertaking your own full, objective, independent investigation.”

At National Review’s “Capital Matters” newsletter/online section, Andrew Stuttaford picks up the theme of misunderstanding or adopting what is referred to in the piece as the “wrong kind of capitalism”:

“CEOs clearly know how to talk the talk to an important investor. There’s nothing wrong with that. What is worrying is that more and more of them have actually come to believe in its more malign aspects. Why? They, and many of their colleagues in the C-suite, have realized that, in a regime where stakeholder, rather than shareholder, capitalism is the dominant ethos in the “private” sector, their rewards will be less dependent on delivering value to shareholders (who can be a demanding bunch) than in the past. Rather, they will be expected to pay increased attention to the somewhat nebulously defined aspirations of their almost as nebulously defined stakeholders. In practice, that means putting “their” companies’ capital, and the power that comes with it, behind a social, political, and economic agenda set by the state, various interest groups (unions, say, or NGOs, to take two examples), and, yes, business, a set-up that may not only offer them a pathway to (in many cases, even more) wealth but also to a degree of political power. And the latter comes with the advantage that it is largely free of conventional democratic control. That’s how corporatism works — and stakeholder capitalism is, as I have argued many (!) times before, a form of corporatism.”

At the Competitive Enterprise Institute, Richard Morrison wonders if Fink might be attempting to walk-back some of his previous rhetoric:

Larry Fink and his team at BlackRock seem to have heard the growing roar of opposition to politicized investing that is emerging in the United States. While his 2022 public letter to CEOs features a heavy focus on climate change and decarbonization (as in years past), it opens with a defensive insistence that the company’s approach to stakeholder capitalism is not political or “woke.” Such a statement would not be necessary if Fink and his allies were not feeling the heat from shareholder activists opposed to the embrace of progressive-left social policies that, contra Fink’s insistence, are inherently political. 

The rhetorical backpedaling is even apparent on Fink’s own favorite topic—climate. Over the past year, skeptics of climate policy (including the policy of a net-zero target for greenhouse gas emissions), have highlighted the problems with the aggressive policy path we see in, for example, the European Union. Energy reliability is falling and energy prices are skyrocketing. Traditional energy sources are being phased out without sufficient baseload capacity being developed to replace them.

This year’s letter—which seems like a response to such criticisms—contains several caveats that climate activists generally prefer not to acknowledge. Fink writes that, “green products often come at a higher cost today,” and acknowledges that “traditional fossil fuels like natural gas will play an important role” during the future energy transition, and that “governments and companies must ensure that people continue to have access to reliable and affordable energy sources.” Refusing to address continuing demand for fossil fuels “will drive up energy prices for those who can least afford it.” That’s a far more reasonable approach than the investing public has generally seen from institutions that place climate change at the top of their list of priorities.

In the States

Pushback against ESG in the states

In last week’s edition of this newsletter, we covered issues facing banks in Texas, some of whom claim, for marketing purposes, to be against investing in oil and guns but also claim, for the purposes of compliance with a new state law, that they do not discriminate in lending arrangements against oil and gas.

The aforementioned Texas law is not the only move being taken by governments against asset managers and banks that are, in their view, allegedly playing politics. Most notably, West Virginia State Treasurer Riley Moore announced last week that the state will no longer use a BlackRock investment fund “based on recent reports that BlackRock has urged companies to embrace “net zero” investment strategies”:

“State Treasurer Riley Moore on Monday announced the Board of Treasury Investments, which manages the state’s roughly $8 billion operating funds, will no longer use a BlackRock Inc. investment fund as part of its banking transactions.

Treasurer Moore said the decision was based on recent reports that BlackRock has urged companies to embrace “net zero” investment strategies that would harm the coal, oil and natural gas industries.

“As the state’s chief financial officer and chairman of the Board of Treasury Investments, I have a duty to ensure that taxpayer dollars are managed in a responsible, financially sound fashion which reflects the best interests of our state and country, and I believe doing business with BlackRock runs contrary to that duty,” Treasurer Moore said.

Treasurer Moore said this action is consistent with his belief that the state should not do business with firms whose corporate policies directly threaten West Virginians’ interests and livelihoods.

“BlackRock CEO Larry Fink has been outspoken in pressuring corporate leaders to commit to investment goals that will undermine reliable energy sources like coal, natural gas and oil under the guise of helping the planet,” Treasurer Moore said.”



Economy and Society: Shareholder group study argues ESG fund labels misleading

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.

ESG Developments This Week

In Washington, D.C.

ESG advocacy group releases its recommendations for federal regulatory action

Ceres, one of the largest nonprofit groups advocating for capital markets to take an active role in urging businesses to be what it deems more environmentally conscious, released its list of recommendations for federal agencies. The organization noted that the members of its investor networkto whom Ceres offers investment direction and guidance on climate change and other mattershave some $32 trillion in assets under management. Roll Call provided the details:

“Ceres last week publicly disclosed its recommendations to the Federal Reserve, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency and the U.S. Treasury Department, calling on the regulators to incorporate climate risk into their rule-making and policy frameworks….

Ceres urged the Fed to issue supervision letters on climate risk to banks and bank holding companies to acknowledge that climate change poses risks to the financial system and provide guidance to financial institutions on identifying and monitoring the risks. The group also calls on the U.S. central bank to review the largest bank holding companies to gain an understanding of how they are identifying and managing climate risk and coordinate a study with the OCC and FDIC, as well as New York and Massachusetts’ state financial regulators.

“These recommendations build on that momentum by identifying practical and familiar steps that these agencies can take within their existing authorities to make good on their commitments to take action on climate financial risk,” said Steven M. Rothstein, managing director of the Ceres Accelerator for Sustainable Capital Markets.

Federal Reserve Chairman Jerome Powell told the Senate Banking Committee this week that it is “very likely” that the agency will use “climate stress scenarios” to ensure financial institutions understand the potential material risks from global warming. 

That said, Ceres stressed the need for the agencies to work together and pursue interagency initiatives to optimize the regulatory response to climate change. 

“Short-term actions by each of the Financial Stability Oversight Council members individually is critical to address the risks to the financial system from climate change,” the organization said. 

“While individual agency actions are important, collective action can sometimes send a more powerful and consistent message to the financial services industry. The benefits from the government acting on a joint or interagency basis are clear. Such joint actions avoid conflicting or duplicative messages which create burden for industry and they can result in a more efficient allocation of resources by the agencies.””

Shareholder advocacy group’s ESG study reveals ESG fund labels confusing, misleading 

As You Sow, a nonprofit organization that aims, according to its website, to “promote environmental and social corporate responsibility through shareholder advocacy, coalition building, and innovative legal strategies,” recently shared with the Securities and Exchange Commission (SEC) a study that it sponsored and that purportedly shows that the ESG landscape at present is confusing, misleading, and in need of federal regulatory action. According to Bloomberg Green:

“Investing in ESG funds is like trying to navigate “the Wild West” as both regulations and enforcement fall short, according to Andrew Behar, the chief executive of As You Sow.

The shareholder advocacy group spearheaded a study that found 60 of 94 ESG funds failed to adhere closely to the principles of environmental, social and governance investing. The findings, which have been shared with the U.S. Securities and Exchange Commission, indicate that “one can’t tell the difference between a prospectus for true ESG offerings vs. greenwashing mutual funds and ETFs,” the nonprofit said Tuesday.

The researchers — a group of graduate students from University of California, San Diego — used data-analytic tools to establish that language in many funds’ prospectuses lacked clarity when disclosing why they held stakes in companies involved in areas such as fossil fuels, deforestation, firearms and weapons, prisons and tobacco. 

“We see funds with ESG in their names getting F’s on our screening tools because they hold dozens of fossil-fuel extraction companies and coal-fired utilities,” Behar said….

Representatives from As You Sow met with the SEC last week to share their analysis and make recommendations. The SEC has previously said it’s investigating potential misconduct related to flawed sustainability claims….

As You Sow wants the SEC to require that all prospectuses be produced in a “machine-readable” format to enable easy automated comparisons of the documents’ wording. If the regulator fails to do so, “we may be forced to file a petition,” Behar said.”

SEC in Texas probes banks over disclosures on ESG-related issues

According to a report published by Reuters on January 5, the Fort Worth, Texas office of the SEC is currently investigating disclosures made by banks in the state regarding their ESG policies. The banks in question do business with the Texas state government, which has laws on the books forbidding state entities from using banks that adhere too closely to ESG principles. According to the report, the Commission is looking for discrepancies between public statements and faithful compliance with state laws. As the wire reported: 

“The inquiry appears to relate to two Texas laws, enacted last year, banning state entities from working with companies that discriminate against firearms or fossil fuel companies, the sources said.

Amid pressure from investors and employees, banks have become active on environmental, social, and governance (ESG) issues, eschewing gunmakers, backing racial equity projects and pledging to phase out fossil fuel lending, sparking a backlash from Republican lawmakers who worry sectors of the economy may lose access to credit.

The SEC’s new Democratic leadership, meanwhile, has pledged to crack down on public companies that may be inflating their ESG credentials to attract investors and burnish their reputation, or which may be underplaying related risks.

In recent weeks, enforcement staff in the SEC’s Fort Worth, Texas, office sent letters to a number of banks that have acted as underwriters in the Republican-led state, asking them to substantiate ESG policies they have outlined in public disclosures, the same people said.

The SEC seems to be scrutinizing potential conflicts between what the underwriters have told investors versus Texas regulators about their policies on doing business with gunmakers and fossil fuel companies, the sources said….

Lenders who want to underwrite offerings of securities issued by Texas state and local governments have had to sign public certifications saying they do not “boycott” energy companies or have a practice, policy, or directive that discriminates against a firearm entity or firearm trade association.

Thirty-six companies have filed such certifications, according to the Municipal Advisory Council of Texas, a trade association which compiles and publishes the documents.

Among them are Barclays (BARC.L), Citigroup Inc (C.N), RBC Capital Markets (RY.TO), TD Securities (TD.TO), UBS Financial Services (UBSG.S) and Wells Fargo, according to certifications filed between September and November.

These lenders have pledged to cut their carbon footprints and achieve net zero greenhouse gas emissions by 2050, which will affect the companies they finance.”

On Wall Street and in the private sector

Survey shows Americans think workers, not climate, the number one ESG issue 

Just Capital, a nonprofit advocacy group that aims to influence capital markets, recently released the results of a survey it conducted assessing the issues that the American people think are in most desperate need of fixing in business. According to the advocacy group, the issue that most concerns peopleand that thus deserves a higher place in the ESG hierarchy of issuesis not climate change or zero-carbon transitioning, but the worker. CNBC reported the survey as follows:

“In the annual ranking of top U.S. companies on ESG metrics conducted by research nonprofit Just Capital, there were some major moves in 2022, both up and down the list. Meta Platforms dropped 691 spots due to concerns about spread of misinformation on Facebook and Instagram’s negative social influence, while Uber Technologies rose 825 places, to No. 41. Both were unusual circumstances, but Uber’s ranking may say more about the most important issue to the American public when it comes to environmental, social and governance issues: treatment of workers.

It is the No. 1 issue, but that’s not revealed in the fact that Uber vaulted into the JUST 100 — it’s because Just Capital took the unusual step of denying Uber the “seal” that the top 100 companies usually get.

Uber, along with Lyft and DoorDash — though neither made the top 100 overall like Uber — were placed “under review” by the ESG research firm in this year’s rankings because the data does not capture the fact that a significant proportion of their workforce is classified as independent contractors….

Martin Whittaker, CEO of Just Capital, says when the firm sets out to create the annual list of America’s “most just” companies, it wants to get it “as right as you can,” and it’s not confident that ESG is there yet with the contingent workforce model.

“When you have a whole business model built around contingent workers it’s hard to get data,” Whittaker said. “The full-time employees I’m sure are paid very well and get great benefits. And you get data on that. But we know its whole business model is based on a different relationship with workers, and we didn’t feel like we had enough data to accurately reflect that story. It’s the same for Doordash and Lyft,” he said. “We felt like it is an emerging systemic story and we didn’t feel like we really had a sufficiently strong handle on what it meant and how to measure it.”

Just Capital knows for sure that workers are the No. 1 ESG issue to the American public because each year it polls the public to create the weightings for its annual ranking, and for 2022′s list, worker issues were weighted at nearly 40%, compared to 10% for climate. A fair, living wage was the No. 1 issue overall. The second-highest weighted area, Communities (20%), is partially a workforce metric because it includes job creation.”

In the spotlight

Crypto vs. ESG, again

A longstanding perceived battle between supporters of cryptocurrencies and advocates of ESG and sustainability has erupted in fighting once again, this time on the battlefield of Wikipedia. At present, Wikipedia accepts donations made in a handful of cryptocurrencies, most notably, Bitcoin. Because of the energy used in the cryptocurrency mining process, some ESG advocates consider cryptocurrency, in their view, environmentally damaging. As a result, Wikipedia, which has promised to be environmentally sustainable, is being pressured by its own contributors to stop accepting crypto donations:

“Wikipedia is facing increasing internal pressure to stop accepting crypto donations. The site which was launched in 2001 has grown throughout the years to become the number 1 encyclopedia site on the internet, all the while remaining a free resource for anyone with access to the internet, and the reason it has been able to do this was because it relies on donations.

Wikipedia currently accepts donations in a number of cryptocurrencies, which began in 2014, but as these digital assets have grown and come under increased scrutiny due to its environmental impacts, there have been calls for it to discontinue crypto donations which “may not align with the foundation’s commitment to environmental sustainability.”…

The impact of bitcoin and other crypto mining on the environment remains a big debate to this day. It is estimated that crypto mining is the 33rd largest consumer of power in the world, ahead of a lot of countries. This has caused the rally against mining activities that are said to be damaging to the environment….

The proposal…calls into question the proof-of-work mechanism utilized by bitcoin and other cryptocurrencies which is a computationally expensive process and Wikipedia accepting crypto donations adds to the environmental burden levied by these transactions.

[The] proposal has sparked discussions across the Wiki community. Some have cosigned the message being passed by the contributor, although the debates around crypto donations continue.”



Economy and Society: Retiree advisers, AARP question Labor Department’s ESG proposal

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.

ESG Developments This Week

In Washington, D.C.

Predictions for the future of ESG

Late last month, as part of its end-of-the-year recap and start-of-the-year forecast, Roll Call provided a summary of the trends that it believes will drive ESG over the next several months. The paper singled out the Securities and Exchange Commission as the primary driver of ESG activity on the public/government side, and acknowledged that BlackRockthe world’s largest asset management firm, with almost $10 trillion in assets under managementwill drive events in the private sector:

“Activist shareholders may have the upper hand in holding companies more accountable on environment, social and governance issues next year, thanks to a combination of pressure from BlackRock Inc. and other institutional investors and proxy voting rule changes at the Securities and Exchange Commission.

BlackRock, the world’s largest asset manager, said this week it expects companies in which it invests to give more concrete details on climate-related risks and expand board diversity starting in 2022. In an update of its proxy voting rules, BlackRock said it will ask CEOs to explain how business strategies are resilient under “likely decarbonization pathways” and a scenario in which global warming is limited to 1.5 degrees Celsius.

Meanwhile, the SEC issued guidance and rules that will likely bolster activist, ESG-focused investors’ chances to get companies more focused on public policy issues and make it easier for shareholders to shake up corporate boards, as investment firm Engine No. 1 did in replacing three directors at Exxon Mobil Corp. in May….

BlackRock, which has about $9.5 trillion in invested assets, also said this week it wants U.S. corporate boards to reflect the increasingly diverse society and workforce. It said company boards should aim to reach 30 percent diversity of membership and have at least two directors who identify as female and at least one who identifies as a member of an underrepresented group.

The firm, which has stakes in thousands of companies around the world, said it may vote against directors who fail to demonstrate a strong commitment to mitigating climate risk and embracing diversity. The asset manager added it would support shareholder proposals on these issues if corporate executives are resistant to change, giving smaller activist investors more clout in the next proxy season.”

As for the SEC:

“Shareholders will likely be more empowered to bring forward stronger proposals thanks to recent guidance from the SEC.

Companies seeking to avoid shareholder votes on ESG issues face a higher burden to have the SEC grant their requests after the agency’s staff in November issued a legal bulletin on no-action requests under a provision known as Rule 14a-8 authorized by the Securities Exchange Act of 1934.

The agency, led by Gary Gensler, a Democrat, said it will be more likely to require companies to hold shareholder votes on public policy issues such as the environment and worker arbitration than it was during the Trump administration as part of its repeal of three legal bulletins issued between 2017 and 2019.

The SEC last month also adopted a final rule that will require companies to provide universal proxy cards in contested director elections, rather than making investors either vote for the company’s entire slate of directors or the dissidents’ slate. Although companies have until Sept. 1 to comply, some may opt in sooner rather than later or face pressure from shareholders to give them more flexibility in voting on directors….

The SEC is also working on other proposals, such as more guidance on reporting on material ESG issues and potential enforcement actions through a task force formed at the beginning of the Biden administration.

Companies and ESG investors are also waiting for the SEC to come out with its potential rulemaking on climate risk disclosure for public companies. That topic has been the main target of lobbyists’ advocacy on ESG issues this year for companies that support and oppose ESG.

“While the SEC has required climate-related disclosures since 2010, this represents an effort to significantly strengthen their relevance and expand the scope of credit risk assessments,” Marina Petroleka, global head of ESG research at the Fitch Group’s sustainability research division, said in an analyst note this month.”

Retirement advisor groups and AARP question Labor Department’s pro-ESG proposal

Last week, two large retirement-centered organizations discussed their reactions to the Labor Department’s proposed new rule on the use of ESG investment strategies in ERISA-governed retirement plans. According to Roll Call, both plan administrators and retirees themselves are leery of the changes proposed by Labor and concerned about their potential impact on retirement investments:

“The biggest trade group for pension professionals urged the Labor Department to clarify a proposed rule to allow retirement plan advisers to consider environmental, social and governance factors when selecting investments, saying it may increase legal risks.

The American Retirement Association, which represents more than 27,000 actuaries and plan administrators, as well as insurance professionals, financial advisers and others, said it’s concerned there could be added legal risks for advisers evaluating investment plans if they fail to consider the economic effects of climate change and other ESG factors.

“While nothing in the proposal gives fiduciaries license to pursue ESG objectives unmoored from or indifferent to an investment’s underlying economic merits, the ARA is concerned that the phrase ‘may often require,’ included in the required considerations, taken together with the Proposal’s preamble, strongly implies that fiduciaries not only have the option to consider ESG investments but should be considering climate change and other ESG factors,” the group said in a letter sent last month. 

Although ARA said it agrees with the proposed rule’s intent to ensure plan advisers can direct investments into ESG options more freely, the organization is concerned that advisers would have a new burden to show why ESG factors were not considered in selecting investments due to the safe harbor regulation. That creates a slippery slope for advisers overseeing larger plans, who view avoiding the risk of litigation as a top priority in demonstrating prudence when selecting plans, it said.

“We cannot emphasize enough how sensitive these stakeholders are to possible litigation risk,” ARA said. “This means that any language, reasonably read, implying, or even suggesting a particular course or fiduciary approach will be perceived as a directive and will be reacted to as such.””

Meanwhile, AARP (formerly known as the American Association of Retired Persons), a prominent retiree-advocacy group also expressed its concerns about the Labor Department proposal, questioning the viability of ESG in retirement portfolios:

“AARP, an advocacy group for people over the age of 50, asked the department to prevent plan fiduciaries from sacrificing ERISA-mandated considerations such as investment return or risk management so they can invest in ESG options. The organization, which has 38 million members, said the department should emphasize that the proposal does not establish a fiduciary standard that is less stringent than the statutory standard.

“As the Department recognizes throughout its proposal, the duty of loyalty is one of ERISA’s fundamental bedrock principles to protect participants and beneficiaries. The use of ESG factors in the selection of investments should be consistent with the duty of loyalty,” David Certner, AARP’s legislative counsel and legislative policy director, said in a Dec. 13 letter. 

“Indeed, these factors should be evaluated as a matter of course if they impact a fiduciary’s analysis of the economic and financial merits of a particular investment, competing investment choices, or investment policy, just like a myriad of other factors that may be material to investment value and risk and return,” he said.”

In the spotlight

Stanford paper describes the “Seven Myths of ESG”

Researchers at Stanford’s Rock Center for Corporate Governance recently released a paper detailing what they describe as the Seven Myths of ESG. According to Cydney Posner, who covers securities law for Cooley, LLP (a corporate law firm), “the authors set about debunking some of the most common and persistent myths about what ESG is, how it should be implemented and its impact on corporate outcomes, “many of which,” they contend, “are not supported by empirical evidence.” Among the myths identified are the following:

  • “Myth #1: We Agree on the Purpose of ESG”
  • “Myth #2: ESG Is Value-Increasing”
  • “Myth #3: We Can Tell Whether a Claimed ESG Activity Is Actually ESG”
  • “Myth #4: A Company’s ESG Agenda Is Well-Defined and Board-Driven”
  • “Myth #5: G (Governance) Belongs in ESG”
  • “Myth #6: ESG Ratings Accurately Measure ESG Quality”
  • “Myth #7: Mandatory Disclosure Will Solve the Problem”


Economy and Society: WSJ names ESG critique among best books of 2021

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.

ESG Developments This Week

Lawsuit challenges California’s board diversity mandate  

On November 29, the Free Enterprise Project, a program of the National Center for Public Policy Research that aims to keep politics out of capital markets, announced that it had joined a federal lawsuit filed against the state of California over the state’s new business diversity rules. A 2020 California law requires corporate boards of publicly held companies based in the state to have a minimum number of members from what it calls underrepresented communities. The National Center, which is represented in this case by the Pacific Legal Foundation, is suing to have the law struck down as unconstitutional. According to a press release from FEP

“All racism is racism. All discrimination is discrimination. Each American should be judged according to his unique merits and the content of his character,” said Scott Shepard, director of the National Center’s Free Enterprise Project (FEP). “Doing anything else is unconstitutional, immoral and divisive. Californians deserve better than legally-mandated New Racism, especially if it is promoted under the Orwellian guise of ‘antiracism.’” 

The lawsuit, National Center for Public Policy Research v. Weber, was filed in the U.S. District Court for the Eastern District of California on November 22. It seeks to overturn a state law passed in 2020 (AB 979) that amended California’s Corporations Code. The law requires that corporate boards of publicly held companies based in the state have a minimum number of members from “underrepresented communities,” defined as people of certain favored races or sexual orientations. It follows legislation passed in 2018 (SB 826) similarly requiring boards to have a minimum number of women.

“California’s quota doesn’t remedy discrimination, it perpetuates it,” said Anastasia Boden, senior attorney at Pacific Legal Foundation. “This law forces shareholders to cast votes based on immutable characteristics that people were born into and cannot change. The government should treat people as individuals, not based on immutable characteristics.”… 

“California’s political class has proven inept at running the state. Now they are heaping their unconstitutional ineptitude on the business community,” added National Center Executive Vice President Justin Danhof, Esq. “It may seem like a novel concept in 2021, but board members ought to be appointed for business purposes to help companies thrive. Selecting boards based on what someone looks like and who they prefer as sexual partners is not in the best interest of the shareholders of any company.” 

This suit follows a similar one brought recently against Nasdaq, which threatened corporations with de-listing from the exchange if they fail to meet certain board diversity demands. The National Center and its Free Enterprise Project are also involved in that effort, having filed suit against the SEC this past October: 

“In a similar ongoing case, FEP is seeking to strike down a quota rule recently implemented by the Nasdaq corporation and approved by the U.S. Securities and Exchange Commission (SEC). Nasdaq now requires companies listed on its stock exchange to either establish board quotas on the basis of race, sex and sexual orientation or explain why they have not done so. In the suit, FEP – represented by the New Civil Liberties Alliance – argues that the SEC lacks authority to approve the rule, and that Nasdaq lacks the authority to promulgate it.”

Congressman pushes for mandatory disclosures

On December 9, Congressman Juan Vargas (D-Calif.) participated in an online ESG forum hosted by The Hill. Among other things, Vargas reiterated his desire to see the passage of legislation designed to force companies to disclose ESG-related information as part of their annual disclosure process. While the SEC has signaled its interest in creating and implementing mandatory disclosure standards, opponents have questioned whether the agency has the authority to do so. Legislation such as that proposed by Vargas would remove one roadblock from the SEC’s plans: “Vargas said the SEC would determine the exact metrics to track under the bill.” The Hill has the full story:

“Vargas, speaking at The Hill’s The ESG Ecosystem event, said most large companies are reporting some of such metrics, but he expressed concern that the disclosures are selective without industry-wide reporting requirements.

“Let’s do it in an objective way, let’s look at everything,” Vargas told The Hill’s Steve Clemons. “The good, the bad, and the ugly.”

Vargas introduced the ESG Disclosure Simplification Act in February to mandate companies report ESG information to the Securities and Exchange Commission (SEC).

The bill passed the House with razor-thin margins in June, with all Republicans and four Democrats voting against the measure. 

“There’s a lot of Senate allies looking at this, and ultimately, I don’t know,” Vargas said of the bill’s fate.”

Exxon-Mobil faces new wave of ESG activism 

Last spring, Engine No. 1, a small hedge fund, challenged the managers and directors of Exxon-Mobil claiming that the company’s leaders were not doing enough to battle climate change. The hedge fund sought to replace three of Exxon’s directors with its own, more environmentally friendly candidates. With the support of the Big Three passive asset management firmsBlackRock, Vanguard, and State StreetEngine No. 1’s challenge was successful, and all three of its candidates were elected to the Exxon board.

And yet, the company is still not environmentally friendly enough for green and ESG activists, at least according to David Blackmon, writing at Forbes:

“Providing further proof – as if any were needed – that ESG investor groups can never be satisfied, ExxonMobil finds itself under renewed attack from activists for not doing enough even though it is on target to meet the 2025 goals it was previously pressured by the same activists to adopt.

A group calling itself the Coalition for a Responsible Exxon, or “CURE” (no idea where the “U” is derived) is angry that Exxon, while doing what it needs to do to meet its overall goals, including $15 billion in planned investments in green energy initiatives, failed this year to to set “segment-specific reduction targets for Exxon’s midstream and downstream businesses.” For that ostensible “failure,” CURE awards the company’s new board of directors – which includes activist members sponsored by fellow ESG activist group Engine No. 1 – a grade of D-minus for the year, and calls for the firing of CEO Darren Woods despite the company’s stellar financial performance in 2021….

CURE’s announcement came days after Exxon itself announced that its Esso Petroleum Company subsidiary had entered into a memo of understanding (MOU) with SGN and Macquarie’s Green Investment Group (GIG) to “to explore the use of hydrogen and carbon capture to help reduce emissions in the Southampton industrial cluster.” A release by the three prospective partners estimates that the potential annual demand for hydrogen from the cluster could be as much as 37 TWh by 2050, enough to meet the heating demand of 800,000 homes in Southern England. The Southampton cluster is home to Exxon’s Fawley Complex, the largest refining/petrochemical complex in the UK.

Joe Blommaert, president of ExxonMobil Low Carbon Solutions said: “Hydrogen has the potential to help provide customers with access to affordable, reliable energy while minimizing emissions. We are pleased to be part of this collaboration that includes a technical study to assess the potential for the Fawley facility to play a key role in both hydrogen production and carbon capture and storage solutions. With well-designed policy and regulations, hydrogen can help reduce the emissions of the Southampton industrial area that provides vital products for modern life.””

Blackmon continues, noting Exxon’s recent history of activism to fight climate change through various programsmostly carbon capture effortsbefore finally concluding that, in his view, it might never be enough for the activists:

“Exxon is already the largest capturer of carbon dioxide in earth, but the one thing we know beyond any doubt is that, no matter how many future projects it announces and executes, and no matter how many annual or decadal goals for emissions targets it meets, it will never be enough for activist groups like CURE. These announcements and achievements will always be met with new and expanded demands, bad grades for the board of directors and renewed calls for the firing of whomever happens to be serving as CEO at any given time.

It has all become so very tiresome and predictable.”

ESG: no better, but no worse?

A study recently conducted by researchers at Arizona State University purports to show that ESG investing doesn’t cost investors anythingor at least not very much. This marks a shift in the debate over ESG’s impact on investors. For years, ESG advocates have insisted that ESG can and will produce greater returns than other investment schemes. This report challenges that assumption and flips it on its head, making the case, instead, that ESG doesn’t cost investors very much. According to Institutional Investor magazine:

“Environmental, social, and governance investing poses little cost to investors, according to a study from researchers at Arizona State University.

In a paper titled “The Cost of ESG Investing,” ASU finance professors Laura Lindsey, Seth Pruitt, and Christoph Schiller found that even as interest in ESG mandates grows, ESG strategies have little to no impact on investment returns. 

In the paper’s main analysis, the trio constructed a portfolio that generated an annualized average return of 14.6 percent. When they implemented an ESG screen, meaning they removed stocks with “bad” (or lower than median) ESG scores and created an ESG-tilted portfolio, the annualized average rate of return fell to 12.5 percent. 

“It’s not statistically significant,” Pruitt told Institutional Investor. 

ESG screening also had little effect on the sample portfolio’s Sharpe ratio, a metric that helps investors understand an investment’s return relative to its risk. Before the ESG screening, the portfolio’s annualized Sharpe ratio was 1.46. After bad ESG stocks are removed in the screening process, the Sharpe ratio landed at 1.52. 

“The ESG-tilted portfolio is not doing significantly worse than the original portfolio, and that tells us that the cost of ESG investing is small,” Pruitt said. In this case, Pruitt said, cost means investors’ sacrifice of returns or Sharpe ratio in favor of ESG investing. 

“You don’t lose by implementing ESG,” he said.”

In the spotlight

Best Books of 2021

In its end-of-the-year roundup of the “Best Books of 2021,” The Wall Street Journal identified The Dictatorship of Woke Capital, an explicitly anti-ESG analysis by Stephen R. Soukup, as one of its Top-5 books in politics. In his summary of the book, the Journal’s Barton Swaim wrote the following:

“A great many Americans over the past several years have realized to their horror that American corporations are no longer, if they ever were, the broadly conservative and patriotic institutions of midcentury yore. Their managers are terrified of criticism by activist investors, and they often appear more solicitous of transnational NGOs than of their own investors. How did it happen? Stephen R. Soukup answers the question in “The Dictatorship of Woke Capital.” The book is a touch overwritten—Mr. Soukup makes no attempt to hide his dislike for the objects of his criticism—but it is an exceptionally useful presentation of the intellectual origins and present-day lunacies of woke capitalism. The most enlightening parts of the book deal with multibillion-dollar asset-management companies such as BlackRock and State Street. The leaders of these firms embrace a variety of radical ideologies—broadly known as “sustainability” and ESG (environmental, social, and corporate governance)—and routinely use their massive financial leverage to push publicly traded companies to alter their policies according to progressive political ideals. These same companies, meanwhile, are happy to invest in Chinese corporations under the control of a communist government that spurns all those progressive ideals. Which raises the question: Who’s dictating to whom?”