Woke Policies Backfire on Wall Street

Commentary

The rapid rise and near dominance of the ESG (Environmental, Social and Governance) agenda in corporate board rooms and executive suites is one of the more remarkable business transformations of the 21st century.

ESG requires that directors and managers look beyond their traditional and singular focus on shareholder value creation, usually but not always found through profit maximization, to consider other non-financial “stakeholder” concerns such as the global environment, creating more “equitable,” “inclusive,” or “diverse” organizations, and “the greater good,” for both local communities and society at large, whatever that may mean.

To be sure, no business operates successfully over the long run without considering its impact on its employees, community, and environment. This form of corporate social responsibility is beneficial and necessary. No one wants to return to the polluted rivers, lakes, and air that characterized the 1960s and 1970s before environmental impact became a sustained focus of corporate America. However, in its stronger modern form, ESG has distorted investment decision-making and brought untold harm to America’s corporations and economy.

As a practical matter, ESG has devolved into a radicalized ideology that’s particularly focused on the fictional but widely accepted narrative of a looming climate change apocalypse. This ideology requires Western nations (but not “emerging” economies like China and India, which also happen to be among the world’s worst carbon and methane polluters) to eliminate carbon-fueled energy sources such as oil or coal from their economies.

In order to achieve this utopia, businesses and financial firms have been under enormous pressure from well-organized and well-funded climate activists to divest themselves of any activity related to traditional sources of energy. Many financial firms, including the world’s largest asset managers and investment banks, under pressure from ESG advisory firms and activists alike, now have policies in place that prohibit or at least strongly discourage investment or other business activity in areas such as oil, natural gas, coal, or related areas.

These policies often disregard the remarkable progress that American and Western European firms have made in recent years to make their production and manufacturing activities substantially cleaner, safer, and more efficient. They also disregard the practical reality that our economies will continue to rely on carbon-based fuels for the foreseeable future. Wall Street has adopted the ESG mantra, while the Biden administration continues to march headlong toward a catastrophic failure through misguided and dangerous energy policies targeted at the destruction of our greatest natural resource and source of economic strength.

Gun manufacturers and ammunition producers have fallen under similar bans, disregarding the fundamental protections of the Second Amendment to the Constitution.

However, over the course of the past two years, a remarkable shift has begun to occur. Powerful countervailing forces are beginning to resist the radicalized ESG agenda—whether in energy, firearms, or sexuality—adopted by both the federal government and Wall Street financiers. With over $5.6 trillion in assets belonging to 26 million American workers and retirees, state and local pension funds are among the largest customers of Wall Street. These states are beginning to fight back against the tyranny of ESG.

Take the case of Texas. Texas is the second largest state economy in the United States after California. Texas also happens to be the second fastest growing economy at over 8 percent in the third quarter of 2022. The state is the country’s largest oil and gas producer and has the sixth largest state pension fund.

Just last week, a financing arm of the State of Texas excluded Citigroup, one of Wall Street’s largest firms, from the banking syndicate underwriting a $3.4 billion offering in what will be Texas’s largest municipal bond offering ever. The decision by the board of directors of the Texas Natural Gas Securitization Finance Corp. followed the state attorney general’s recent determination that Citigroup, incidentally one of the largest recipients of American taxpayer largess during its near collapse and bailout during the global financial crisis, discriminates against the firearms industry. This is in violation of a 2021 Texas law barring state entities from contracting “with companies that discriminate
against the firearm or ammunition industries.”

The move comes just months after Texas banned BlackRock, one of the world’s largest asset managers, along with investment bank UBS and eight other European financial firms, from state business over these firms’ ESG-driven anti-fossil fuel hostility.

The result of this action was that by end-of-year 2022, Texas’s Teacher Retirement System, holding some $173 billion of retiree assets, confirmed it had divested all investments with these 10 firms. Other public pension funds in Texas, with an estimated additional $125 billion in assets under management, have followed suit.

Florida, no slouch itself as the nation’s fourth largest state economy, which is also growing faster than the national average, is similarly pushing back on the madness of ESG. Ron DeSantis, Florida’s governor, announced in August that the state’s pension and other investment fund managers must “invest state funds in a manner that prioritizes the highest return on investment for Florida’s taxpayers and retirees without considering the ideological agenda of the environmental, social, and corporate governance (ESG) movement.” Florida’s state pension fund is even larger than Texas’s at $186 billion. By year-end 2022, Florida had divested itself of $2 billion from BlackRock alone.

While less impacted by Wall Street’s denunciation of fossil fuels, Florida has particularly challenged the “S,” the social component, which seems less concerned about, for example, lessening poverty, crime, opioid addiction, or the mass illegal immigration worsening all the above social ills, to focus nearly solely on promoting a radicalized LGBTQIA+ agenda. In one notable case, DeSantis moved to eliminate Disney’s special tax status within the state as a result of Disney’s public opposition to Florida’s policies against childhood indoctrination regarding sexual orientation and transgenderism, and inappropriately explicit and gender-bending content at the company’s parks and in its media.

Texas and Florida are the largest and most notable examples. Many states, including Alabama, Arizona, Arkansas, Idaho, Kentucky, Louisiana, Mississippi, Missouri, Nebraska, North Dakota, Ohio, Oklahoma, Pennsylvania, South Carolina, South Dakota, Utah, West Virginia, and others are pushing back (pdf) on ESG in one form or another.

The Biden administration has sought to impose regulations requiring public employee retirement funds to make investment decisions based on ESG considerations rather than on maximizing investment returns for the workers and retirees who have contributed to 401(K) or similar retirement plans. In January 2023, 25 states sued the Biden administration, alleging that “the Department of Labor’s new rule allowing for the consideration of ESG factors in Employee Retirement Income Security Act (ERISA)-governed retirement investments increased portfolio risk and violated the law,” according to Ballotpedia. This litigation will play itself out, but it’s clear that the states have woken up to the Woke madness and are mounting a coordinated resistance.

We should cheer these states’ efforts to protect their economies and their citizens from the dangers of the radicalized ESG agenda now insinuated in our public companies and asset managers. Our nation’s future depends on it.

Views expressed in this article are the opinions of the author and do not necessarily reflect the views of The Epoch Times.