Our society is not only divided along political lines: the media, culture and even coffee shops have been demarcated between red and blue.
So it is perhaps inevitable that these fissures will reach the investment world.
I’m talking about the growth of so-called ESG investing, which stands for Environmental, Social and Governance, and the growing backlash against this trend. Battle lines are forming in the hitherto apolitical world of money management.
The roots of social investing go back decades, when activists called for pension funds to boycott investments in tobacco stocks and companies doing business in apartheid-era South Africa.
ESG was born in 2004 by Kofi Annan, Secretary-General of the United Nations, who asked leading financial institutions to help identify ways to integrate environmental, social and governance concerns into capital markets.
This call resulted in a global pact, “Who cares wins”, which included Goldman Sachs and Morgan Stanley as signatories.
A decade later, some institutional investors and money managers, including BlackRock, the world’s largest money manager with almost $10 trillion under managementbegan establishing support for shareholder initiatives and came up with ESG-focused investment products.
Members of the United Mine Workers of America (UMWA) and other labor leaders picket the union’s strike at the Warrior Met coal mine outside BlackRock’s headquarters in New York City, U.S., July 28, 2021. REUTERS/Brendan McDermid
To some extent, BlackRock and its cohort did this in response to pressure from the political left.
Now those same investment managers, BlackRock in particular, are facing criticism from the political right.
As you can see below, there has been a disparate flurry of activity from conservative politicians pushing back on ESG investment initiatives:
The story continues
This last article belongs to an eight-page letter AGs wrote to BlackRock CEO Larry Fink on August 4, complaining about his company’s ESG mandate and asking him to respond by yesterday.
“As a matter of policy, we do not comment on our engagements with lawmakers and regulators,” a BlackRock spokesperson emailed us.
The oil and gas industry and red-state politicians argue that the ESG movement is raising the cost of capital, making it more expensive to drill and make other business investments, and costing jobs in the process to the americans
When I asked a veteran national oil and gas CEO about this, they said, “The cost of capital has definitely gone up for the industry.”
“Bank capital is very scarce, especially for smaller companies,” said this CEO. “Many banks that used to participate in syndicates are no longer making new energy loans. The commercial loans that are available come with stricter underwriting standards. Part of that is ESG, but another is very recent investors, both banks and shareholders. memories of deep losses in the industry sector”.
ESG may cause some investors to avoid oil and gas stocks, depressing share prices and making it more expensive to raise capital from the public markets.
But oil and gas stocks as measured by P/E have been cheap for years. Exxon, for example, is selling at just over 10 times next year’s earnings, almost exactly the same as 13 years ago.
As for jobs, according to the industrial consultancy IBIS World, employment in the US oil and gas industry has soared to more than 324,000 as of this month, the highest by far in a decade.
Meanwhile, the energy sector has been the best performer in the S&P 500 this year. By a mile
As of Friday’s close, the energy sector is up more than 40% this year. The second best performing sector, public services, has increased by 10%. The S&P 500 is down 11% in 2022.
With BlackRock, Vanguard, State Street and the big Wall Street banks falling out of favor with red state politicians, Vivek Ramaswamya former biotech CEO and author of “Woke, Inc.: Inside Corporate America’s Social Justice Scam” saw an opportunity, creating Strive Asset Management, funded with $20 million from the likes of Peter Thiel, Bill Ackman and JD Vance.
Ramaswamy says the real problem [with ESG] is “the fiduciary breach at the heart of it, using someone else’s money to advance social and political perspectives through voting power and shareholder advocacy that the owners of the capital don’t really agree with “.
Strive, small compared to Wall Street’s giants, “will force companies not to focus on environmental issues, not to focus on social issues, not to focus on political or cultural issues, but to focus exclusively on products, products and services and therefore serve. period of its shareholders”.
Author Vivek Ramaswamy speaks at the Conservative Political Action Conference (CPAC) in Dallas, Texas, U.S., August 5, 2022. REUTERS/Brian Snyder
Bill McKibben, a Middlebury professor and longtime environmentalist, has a different perspective.
“This is the fossil fuel industry weaponizing its control of state governments,” he says. “It is to be expected. It will be interesting to see if the blue state treasurers etc. are up to the fight.”
Strive, which aims to make funds available to institutions, recently launched an Energy Index ETF (DRLL) that “offers a new “post-ESG” shareholder mandate for US energy companies“for retail investors.
Yes, “stockless” investment vehicles have been around for years, such as the VICEX fundand more recently the BAD ETF (DOLE), but they never generated much buzz, don’t mind coming back, and unlike DRLL they were not marketed as anti-ESG. That could change.
But to me, the world’s transition from carbon-based energy to other sources doesn’t lend itself to binary thinking. “We must ban all drilling!” or: “ESG is an infringement on my freedom that needs to be stopped!” they are points of view that will not bring us closer to any solution.
Facts: Climate change is real and we need to move away from fossil fuels. But we can’t do it overnight and we may need some incentives to do it.
It’s also possible to believe in climate change and invest in some drilling for now. And Jamie Dimon told clients this month.
“Why can’t we get it through our thick skulls, if you want to solve the climate [change]it does not go against the climate [change] for America to pump more oil and gas,” Dimon said.
Warren Buffett, who believes in climate change, has invested in oil stocks, notably Occidental Petroleum, where Berkshire appears poised to take a 50% position.
Is Buffett a mercenary or hypocrite to believe in science and buy oil and gas stocks? May be. It is also possibly an emotionless middle ground.
Behaviorists will tell you that some children, and adults too, have trouble with transitions and will act out as things change in front of them. I guess this also applies to energy transitions.
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This article appeared in a Saturday edition of the Morning Brief on Saturday, August 20. Get the Morning Brief delivered straight to your inbox every Monday through Friday at 6:30am ET. Subscribe
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