Has ESG been cast into the dustbin of history?

By Chris Talgo

Suffice to say, champions of Environmental, Social, and Governance (ESG) scores have had a tough summer.

First, BlackRock CEO Larry Fink, one of the foremost champions of ESG investing, disavowed the very term, saying, “I don’t use the word ESG anymore, because it’s been entirely weaponized.”

Apparently, Fink “saw the sign,” as Ace of Base might say.

Then, just a few weeks later, the first-ever lawsuit over ESG investing practices in a private company’s 401(k) retirement plan was filed.  The lawsuit, filed against American Airlines and Fidelity Investments, accuses Fidelity of offering several funds to plan participants that “pursue nonfinancial and nonpecuniary ESG policy agendas” and “have underperformed compared to other similar investment funds.”

Keep in mind that this lawsuit came soon after more than a dozen state attorneys general filed an investigation into asset managers such as BlackRock and Fidelity, claiming they are misusing “client assets to change portfolio company behavior so that it aligns with the Environmental, Social, and Governance (ESG) goal of achieving net zero by 2050.”

Over the summer, anti-ESG laws have also been enacted in several states, typically barring state pension plans from engaging in ESG investments.  As Alabama governor Kay Ivey put it after signing into law her state’s anti-ESG bill, “Alabama citizens, in no way, shape or form, want ESG influencing business in our state, and this legislation most certainly sends that message.”

Adding insult to injury, ESG funds have suffered from severe outflows over the past several months.  As Reuters reported in mid-July, “[e]quity funds with an environmental, social and governance (ESG) tilt suffered a large loss of investors in the three months to end-June, dragging the sector into a rare net outflow for a first half of the year, data showed.”

And then the ESG ball really dropped.  Or, as Ace of Base would say, ESG is currently “Living in Danger.”

According to recent reports from BlackRock and Vanguard, the two investment giants are rejecting ESG shareholder proposals on a massive scale.

For instance, per Vanguard’s Investment Stewardship U.S. Regional Brief, “During the 2023 proxy year, we saw a larger number of environmental and social shareholder proposals put forward for a vote at the funds’ U.S. portfolio companies: 359, compared with 290 in the 2022 proxy year. The funds supported just 2% of such proposals in the 2023 proxy year (down from 12% in the 2022 proxy year).”

Likewise, BlackRock recently reported in its 2023 Global Voting Spotlight that it “found many of the shareholder proposals to be overly prescriptive or unduly constraining of management, including some that sought to micromanage a company’s strategy, or change a company’s business model.”  As the report also notes, BlackRock outright opposed 742 of the record 813 proposals it voted on, including rejecting 373 (93 percent) of the social and climate proposals it issued proxy votes on.

As BlackRock notes, “[i]mportantly, most of the proposals on climate and natural capital and company impacts on people failed to acknowledge the improvements companies have made to their disclosures and practices.”

With autumn just around the corner and ESG on the ropes, I think it is only fitting to warn the American people, in the words of Ace of Base: “Don’t Turn Around.”  Keep up the fight against ESG.  Who knows, maybe once ESG is finally defeated, we can finally reach Ace of Base’s hope for a “Happy Nation.”

Chris Talgo (ctalgo@heartland.org) is editorial director at The Heartland Institute.