Actions taken to counter the ESG movement are broadening as the biggest money managers in the world are being taken to task for pushing their political and ideological stances on companies. Some observers of the progressive investment phenomenon see it as a threat to democracy and national security and a violation of capitalism.
ESG stands for environmental, social, and governance. It’s also characterized as socially responsible investing (SRI) or sustainable investing.
As an example, popular Canadian money manager Wealthsimple offers to tailor SRI portfolios for clients by avoiding investments in oil or weapons companies, eliminating the top 25 percent of carbon-emitters in each industry, and ensuring that every stock in the portfolio has 25 percent women or at least three women on the company’s board of directors.
A key critique, says Wilfrid Laurier University professor and financial economist William McNally, is that by adhering to ESG, companies are determining public policy and not representing the broader will of the electorate.
“It’s terrible for the average Canadian citizen,” he told The Epoch Times.
Florida governor Ron DeSantis raised the concern on Aug. 19 of using ESG to bypass the democratic process to enact public policy.
“If you have the top Wall Street banks that collude to say: ‘We’re not going to finance a gun manufacturer, we’re not going to finance a company involved in border security,’ they have enough power where they’re effectively altering the policy of the country. And that is not a healthy thing. That is changing policy outside the normal constitutional process,” he said.
“And so I think it’s healthier for society to have businesses focusing on doing their core missions but not leveraging their economic power to try to advance a partisan political agenda.”
Stakeholders vs Shareholders
A lightning rod for the ESG’s criticism is BlackRock and its chairman and CEO Larry Fink, who in his 2022 letter to CEOs said, “Stakeholder capitalism is not about politics. It is not a social or ideological agenda. It is not ‘woke.’”
McNally says Fink is “borderline gaslighting” by engaging in stakeholder capitalism as opposed to shareholder capitalism.
“ESG is just stakeholder capitalism warmed over with a new name,” he said. “He’s forcing his political agenda on the companies that he [BlackRock] is investing in.”
A basic tenet of finance is that a CEO runs a company to maximize value for its shareholders—the owners of the firm.
“The stakeholder capitalism idea is that, ‘No, the company shouldn’t be run for the sole interests of the shareholders. We need to balance all of the stakeholder groups against each other and sort of maximize their collective welfare.’ But the problem is, that’s just not operational because so often their interests are in conflict,” McNally said.
He adds that this is “really undemocratic” and dovetails with what Nobel Prize-winning economist Milton Friedman wrote in a New York Times editorial in 1970.
