Experts say banks in the U.S. and around the globe are facing their most serious crisis since 2008. That’s focusing attention on a controversial strategy many financial institutions have been engaging in: ESG. It stands for Environmental, Social, and Governance. Some call it “woke investing.” It means pushing or even forcing others to support policy positions on issues like the environment. Now there’s growing backlash. That’s our cover story.
The following is a transcript of a report from "Full Measure with Sharyl Attkisson." Watch the video by clicking the link at the end of the page.
We start in San Francisco, home of the largest Environmental, Social, and Governance, or “ESG” mutual fund company, Parnassus Investments. It manages about $40 billion in assets.
Marian Macindoe heads ESG Stewardship at Parnassus.
Marian Macindoe: ESG is a way of investing that takes into consideration governance factors, environmental factors, and social factors into the investment decision-making.
To understand the conflict at hand, it helps to know a little background about “Environmental, Social, and Governance” investing.
As a term, ESG seems to have originated at the United Nations in a 2004 report, “Who Cares Wins: Recommendations by the financial industry to better integrate Environmental, Social and Governance issues.” It frequently boils down to big banks and investment firms using their power to support left-leaning positions on social and environmental issues like global warming. It rarely, if ever, equates to promoting conservative views.
Sharyl: So does a company have to make up its mind what kind of investors it wants and which ones it's okay not to have?
Macindoe: No, I think we all want the same thing, which is companies that can sustain and generate returns for the long term. We’re all on the same team.
Macindoe differentiates between what Parnassas does — searching for wise investments with places that follow Environmental, Social, and Governance principles — and something called “impact investing,” which may include pressuring customers into action.
Macindoe: “Impact investing” is when a fund is pursuing specific environmental or social objectives through their investments. “ESG investing” is about incorporating environmental, social, and governance risks and opportunities into decision-making to promote value.
She says Parnassus has advocated for new government rules requiring companies to report their climate change policies. But, she says, Parnassus doesn’t do impact investing, trying to change policies of investors. But many other companies do. And that’s a problem, says John Schroder.
John Schroder: I get your ability as an independently-owned company to push the policies that you like. Just don't force it down my throat.
Schroder is Louisiana’s state treasurer, managing a $64 billion cash flow. He noticed the Environmental, Social, and Governance hard sell, he says, shortly after he took office in late 2017. It arrived in the form of letters from Citibank and Bank of America.
Schroder: It was right after one of the horrific shootings in our country. And these banks wanted to basically force us to have certain policies in Louisiana.
Sharyl: What kind of policies were they suggesting?
Schroder: It was over gun licensing and permitting, and you had to be 21 to carry.
Sharyl: Was there an implicit or explicit threat that if you didn't do something, something would happen?
Schroder: No, I guess it’s not a threat as much as, "We'll do business with you if you do A, B, C."
Coercion also came from the biggest asset manager in the world, he says, and a fierce advocate of Environmental, Social, and Governance investing: BlackRock, led by CEO Larry Fink.
Larry Fink / CEO, BlackRock (January 17): We're one of the fastest-growing companies related to decarbonization.
Schroder: They were opposed to the fossil fuel industry, which is where Louisiana is probably almost the biggest industry we have in our state. You know, I met with my team. I said, "Look, all things equal, I don't want to do business with this company. There's got to be somebody else that we can go do business with that doesn't push the same environmental policy that this company pushes."
Schroder and his team made a big decision. They flipped the ESG script. Louisiana began requiring the big financial players to pass a test.
Schroder: We actually put out a questionnaire, and you answer a couple questions. And it's “yes” or “no.”
Louisiana’s questionnaire identifies three deal-breakers. Does the company have policies to boycott Israel, restrict firearms or discriminate against those who own them, or restrict business with anyone in the fossil fuel industry?
Schroder: Answer the questions. You answer the questions, you can negotiate with the state. You don't answer the questions, I take that as you didn't want to do business with the state of Louisiana.
When a company doesn’t respond with three “no’s,” Schroder takes the state’s business elsewhere.
Schroder: I mean, look, I moved $800 million in the last year.
If money talks, then the chatter is growing louder. The idea has caught on in Arkansas, Florida, Kentucky, North Carolina, Oklahoma, South Carolina, Texas, and West Virginia — all states looking to fight what they call “woke investing.”
Schroder: Combined, I think there's like seven states that have moved about $5 billion just out of BlackRock, and you'll see more and more. When we started moving money, that moved the conversation. And now people pay more attention to it.
Sharyl: But did someone place a call to BlackRock and go, "Just so you know—“?
Schroder: No. No, BlackRock was very clear on their position. And look, it's his company. You know, it's their company. They can have whatever policy they want, which is fine. I don't like their policy, so I don't want to do business with them.
Larry Fink / CEO, BlackRock (January 17): First time in my professional career, attacks are now personal. They're trying to demonize issues.
BlackRock and CEO Fink declined our interview request, as did some of the other big ESG players. But it’s clear they’re taking note.
Larry Fink / CEO, BlackRock (January 17): The backlash is public. We lost about $4 billion of flows from various states. But in long-term flows last year, we were awarded $400 billion. On the other hand, let me be clear. I’m taking this very seriously. We’re trying to address the misconceptions.
Fink has argued in public appearances that he's not against fossil fuel, which he says is a recognized necessity for decades to come.
When we visited Parnassus in San Francisco, Macindoe was about to head to a meeting on the East Coast with other companies to discuss what to do about the impact of ESG opposition.
Sharyl: What is your take on the backlash against ESG?
Macindoe: Well, I think it's unfortunate. I think that we have more in common than what divides us on these issues. Even if you don't believe in climate change, which I do, you can believe in climate change regulation, and the impact that that's going to have as we transition away, as a globe, away from a fossil fuel-based system into a system that has a broader mix of energy.
Sharyl: Do you see a time where that term, if it's gotten maybe out of context or been given sort of a bad connotation, whether deserved or not, that maybe companies will do the same thing but not call it that?
Macindoe: I think that's possible. I have seen companies changing the names of their reports to not say “ESG report,” to say “corporate responsibility report” or “impact report,” to get away from using those triggering words.
Whether financial companies are rethinking their strategies or simply the messaging, the epic clash over investment cash has taken a prominent place on America’s balance sheet.
Schroder: So they choose their policy on Environmental, Social, and Governance issues. I want that same ability afforded to me that they're taking. So if you're gonna boycott our businesses, then we're gonna boycott you.
Sharyl (on-camera): President Biden installed a rule urging private retirement plans to factor in ESG when deciding where to invest money for 150 million Americans. Congress tried to reverse that, but Biden recently used his first veto to keep the pro-ESG policy in place.
Watch story here.
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