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National Review
National Review
2 Sep 2023
Andrew Stuttaford

NextImg:ESG: Resolutions & Reporting

Unbelievably, it has been a whole month since the last Capital Letter dedicated to the ESG wars. In it, I noted that although some believed that ESG had passed its peak (there is some evidence of this) there was also a real possibility that it would live on, if less prominently advertised. Or maybe it will be renamed, perhaps as “sustainable investment.” ESG is too well established, too institutionalized, and too profitable for too many rent-seekers, to simply disappear. 

So what’s happened since? In that last note, I mentioned that BlackRock’s Larry Fink was now declining to use the term ESG, while reporting that he continued to believe in “conscientious capitalism,” whatever that might mean (in that context the way that BlackRock has structured voting mechanisms for its clients — a commendable exercise in principle — may be a bad sign, but that’s something that needs closer examination. And if the word ESG has been banished by BlackRock terms like, yes, sustainability (whatever that might mean) and decarbonization have not .

However, on August 23, the Financial Times reported that:

BlackRock’s support for shareholder proposals on environmental and social issues fell sharply for the second year in a row as it refused to back resolutions it deemed too didactic or pointless. The world’s largest money manager voted in favour of just 26 such proposals globally at companies’ annual meetings in the 12 months to June, equivalent to roughly 7 per cent of the total. That represented a significant decline from last year, when it backed 22 per cent globally, and the 2021 proxy season, when it voted in favour of 47 per cent.

The FT added that “[BlackRock’s] scepticism comes as the $9.4tn asset manager contends with sustained attacks from Republicans in the US accusing it of being too “woke.”

Don’t lose sight of that framing. By emphasizing how “Republicans” have been attacking ESG as “woke” (which, indeed, quite a number have done), the writers, Patrick Temple-West and Brooke Masters, were aiming to place the debate over ESG within the context of the culture wars, a grubby business that all FT readers are supposed to reject. As I noted in a Capital Letter last August, “it is far easier for defenders of ESG and stakeholder capitalism to frame the debate as another chapter in the culture wars than to address the serious threat to both property rights and to democracy that their efforts represent.” 

Underlying the attack on “woke capital” is the idea that company managements should stick to their core mission, which is to make money for their shareholders, an objective that will not generally be secured by pursuing a progressive agenda. Equally, the use of financial clout, whether by the C-suite or by asset managers, to push, say, decarbonization, is to use the power conferred on them by other people’s money to trespass on territory belonging to democratically elected legislatures. The wokeness is merely the symptom of a far more dangerous disease. 

This ought not to be hard to understand. Sadly, the Economist, a magazine that used to stand for classical liberalism, and thus, by extension, shareholder capitalism, but has long since succumbed to Davos liberalism, or, more accurately, corporatism, seems to be struggling with the concept. 

In a largely laudatory article about Larry Fink, the Economist’s Henry Tricks (its “Schumpeter” columnist) condemns rightwing critics of ESG as a “vituperative cabal.” And he too is irritated that democratically elected politicians have become involved in challenging a post-democratic technique that was circumventing them:

This year alone, Republican lawmakers in 37 states have proposed at least 167 laws targeting ESG (most have not passed). Some states have blacklisted firms like BlackRock from handling their investments. Call it defunding the climate police.

No, don’t. The police are a creation of the state, and in theory, are subject to democratic control. BlackRock’s climate enforcers are self-appointed vigilantes (a noun Tricks uses to describe those fighting for shareholder rights) accountable to whom exactly? As Charlie Munger, Warren Buffett’s longstanding right-hand man once asked (and to be fair, Tricks quotes this too): “who made Larry Fink emperor?”

The FT’s Temple-West and Masters:

BlackRock’s pullback also coincides with a jump in the number of ESG shareholder proposals made possible by a change in the Securities and Exchange Commission’s policies, which mean it is harder for companies to block them.

This year, a record 340 ESG proposals have already been voted on in the US, up from 300 in all of 2022, according to Institutional Shareholder Services, the proxy voting group. 

In a report on its voting record published on Wednesday, BlackRock said its support had fallen “because so many shareholder proposals were overreaching, lacking economic merit, or simply redundant”.

For example, BlackRock in 2022 voted in favour of Amazon having to produce a report on its use of plastic packaging. However, it voted against a similar proposal this year because it said the ecommerce group had started to disclose information. Other shareholders followed suit, with this year’s plastic packaging proposal garnering less than one-third of shareholder support versus nearly half in 2022.


BlackRock argued that its declining support for ESG proposals was reflective of a broader pullback among investors. The median support for these resolutions fell to 15 per cent in 2023 from 25 per cent in 2022 and 32 per cent in 2021, according to BlackRock and ISS data.

Temple-West and Masters noted that State Street, another of the big three asset managers, has also supported fewer resolutions. State Street too cited the impact of the SEC’s rules, as have a number of their peers. 

Temple-West and Masters describe this as a “drift away from corporate social responsibility,” an exaggeration in its own right, but which also rests on the assumption that ESG and corporate social responsibility are close to being the same thing. As a term of art, they may perhaps, but in the real world they need not be. Thus Milton Friedman maintained that the social responsibility of business was to increase its profits, but that was an idea with benefits that were social as well as economic. 

There is also another (possible) explanation that may help explain the shift in asset managers’ behavior, at least, the FT (September 1) reports, according to Barclays, a large British bank:

Companies’ ESG practices and performance have progressed over the course of the last five years, driven by pressures from a variety of stakeholders. For example, a greater proportion of companies have established net zero targets, linked executive compensation to ESG targets, established board-level ESG committees, and increased levels of diversity. Corporates’ increasing attention to Environmental and Social issues has provided management teams with a stronger argument ‘against’ shareholder proposals.

Put another way, they have thrown shareholders who care about economic return some way under the bus.

To take one example, linking a portion of management compensation to ESG-related objectives rather than to economic performance is a gift to freeloading managements at the expense of shareholders. 

The FT (August 27):

A growing number of blue-chip US companies are using environmental and social factors to decide bonuses for top executives, but investors are worried the metrics are being gamed to increase payouts.

Three-quarters of S&P 500 companies have disclosed that environmental, social and governance metrics contributed to executives’ pay, up from two-thirds of companies in 2021, according to data from The Conference Board and Esgauge, an ESG data analytics firm…

“We are sceptical of ESG metrics being used in compensation,” said Ben Colton, head of stewardship at State Street Global Advisors, which manages $3.79tn. “Oftentimes they are very subjective, fluffy and easily gamed.”

What a surprise. 

Combatting ESG is not just a matter of pushing back against efforts to take businesses further down this path, but to make those companies reverse those steps that they have already taken. 

At the time Temple-West and Masters were writing, Vanguard, the third of the big three asset managers, had not disclosed its record on shareholder proposals, but it has now. 

The Financial Times (August 28):

Vanguard backed just 2 per cent of environmental and social shareholder proposals this year because of a rise in the number of resolutions the asset management giant considered “overly prescriptive” and overreaching.

The tiny share of votes for such proposals during the 2023 proxy season was down precipitously from 12 per cent in 2022, it said on Monday.

Vanguard, with $7.2tn in assets, said many of the shareholder proposals this year went too far, for example by seeking “specific actions from companies including changes in company strategy or operations”, or were redundant.

Vanguard has already dissented from ESG orthodoxy as I discussed here and here, something that the writers of this FT article (Madison Darbyshire and Brooke Masters) flag. They note that Vanguard had quit “the main financial alliance that seeks to press companies to address climate change,” saying it preferred to deal with the issue independently.

True, but Vanguard’s CEO also said this a month or so later:

“We don’t believe that we should dictate company strategy,” he said, in his first public comments about the decision. “It would be hubris to presume that we know the right strategy for the thousands of companies that Vanguard invests with. We just want to make sure that risks are being appropriately disclosed and that every company is playing by the rules.”

In explaining its decline in support for ESG shareholder proposals, Vanguard also cited the impact of the SEC rules, but added that it “did not support proposals that went beyond disclosure and encroached upon company strategy and operations.”


“We continue to believe that the strategies and tactics for maximising a company’s and its shareholders’ long-term investment return should be decided by its board and management team.”

Well, good. 

Darbyshire and Masters note that:

The declining support for shareholder proposals is significant: together, BlackRock, State Street and Vanguard control between 15 per cent to 20 per cent of most large US public companies because of their huge index-tracking products and investment funds.

What’s also significant is that by citing the15-20 percent number Darbyshire and Masters imply that BlackRock, State Street and Vanguard are (or perhaps should be) applying ESG methodology to all companies in which they invest, not just when acting for the investors that have specifically chosen an ESG option. Given that ESG involves including non-pecuniary factors in the investment process, and given ESG’s questionable effect on performance, that would not, of course, be appropriate.

Perhaps I’m being unfair, but I am not sure that New York City comptroller Brad Lander quite gets that. In a Financial Times article dated August 28, he is quoted as saying that, “BlackRock has a responsibility to use its votes to send a clear and consistent message regarding the need to manage climate-related and human-capital related risks.” And that “clear and consistent message” would, I suspect, be in line with ESG’s progressive goals. 

What Lander forgets (or chooses to forget) is that those votes are not really BlackRock’s, but votes exercised on behalf of its clients to whom, unless specified otherwise by those clients, it owes a fiduciary duty to focus on economic return. It is no part of BlackRock’s general responsibilities to send a policy-related “message.” 

The two also write that the shift by the big three comes at a time “when investing based on environmental, social and governance factors has become highly politicized and asset managers have come under attack by Republicans.” But ESG is a profoundly political process. What has changed is that it has now become the subject of political debate.

There was however no snark about “politicization,” when the FT reported that “liberal-leaning US pension fund leaders and politicians have warned BlackRock and other big asset managers against backtracking on their commitment to environmental, social and governance causes.” 

The FT’s take on ESG ought to come as no surprise to regular readers, but in case anyone has any doubts about the matter, there’s always the paper’s Moral Money Summit in New York in October to check out (the nauseatingly-named Moral Money is a regular feature in the FT):

The environmental and social agenda is at a critical juncture with businesses and investors under increasing pressure to demonstrate progress on their goals. The demand for transparency and accountability is growing louder as many companies fail to fulfil their climate, governance and societal pledges, while concerns over greenwashing multiply. 

If there is such pressure or such a demand, it comes mainly from regulators, activists, rent seekers, and the committed. Ordinary investors, not so much. In a report dated August 14, the FT’s Patrick Temple and Madison Darbyshire noted that “sustainable or ESG investing boomed in 2021 to reach $3tn in global assets under management, up from $1tn in 2019, according to Morningstar. [But] more recently US investors have cooled on the strategy, withdrawing billions from sustainable and ESG funds.”

Bloomberg (August 3) :

Most Bloomberg terminal clients taking the survey expect ESG funds to underperform general market benchmarks in the next year, while a growing number say ESG is nothing more than a passing fad…

For example, almost 90% of 116 Bloomberg terminal clients who aren’t directly engaged with ESG expect the sector’s investment funds to lag behind market benchmarks in the next year, and 55% of 181 terminal clients who are engaged in ESG — and have more skin in the game — also are pessimistic…

The pessimism doesn’t end there. Almost 70% of those who aren’t involved directly in ESG say the investment strategy is nothing more than a fad, while just 18% of those who are engaged expect ESG issues to become more critical in business and markets, down from 25% in the earlier survey…

A small survey, but still. It’s also worth noting that the majority of respondents 

agreed “that the fiduciary responsibility of financial firms is more important than ESG.”

But back to the Moral Money summit: 

To make progress towards a more sustainable, equitable, and inclusive economy, the implementation strategies and the oversight of how they are being executed must be bulletproof. But how to ensure accountability for sustainability goals at every level? And faced with political backlash in certain US states, how can companies navigate fiduciary duties and continue implementing practices promoting sustainability and social equity?

How indeed?

Join the Financial Times at the 3rd annual Moral Money Summit Americas, where leading investors, corporates and policy makers will come together to discuss what needs to happen next to unlock the opportunities on the journey to a more sustainable, equitable and inclusive economy.

In-person pass only $1,049! 

Meanwhile, for those able to remember all those claims that ESG is a way of reducing risk, there’s this (via Morningstar):

ESG King Ørsted Crashes on Multi-Billion Write-Downs

Shares in the Danish renewables company plunge 20% on Copenhagen’s stock exchange after the firm flagged impairments worth 16 billion Danish Kroner in its US portfolio…

Oh well. 

Adam Smith 300

All year, the Adam Smith 300 essay series from National Review Capital Matters has been celebrating the tercentenary of the birth of the father of modern economics. Each month, a new essay has reflected on Smith’s legacy from a different perspective.

Now, we’d like you to join us in person to hear from some of the leading voices on Smith’s thought. January author Dan Klein of George Mason University and October author Anne Bradley of TFAS will talk with National Review Institute Rhodes fellow and Capital Matters contributor Dominic Pino about Smith’s continued relevance today. May author Samuel Gregg of AIER will give a keynote address, followed by a conversation with NRI trustee David Bahnsen.

Whether you’re already a Smith expert or only loosely acquainted with his works, this event is a unique opportunity to celebrate the life of the author of The Theory of Moral Sentiments and The Wealth of Nations. More than a mere symbol of free markets, Smith possessed deep insight into human interaction, and his analysis of what he called the “system of natural liberty” still holds up today. With free markets under attack, it’s important to return to intellectual foundations, and remember why William F. Buckley Jr. wrote in the mission statement for National Review that “the competitive price system is indispensable to liberty and material progress.”

If you are interested in attending, more details here.

The Capital Record

We released the latest of our series of podcasts, the Capital Record. Follow the link to see how to subscribe (it’s free!). The Capital Record, which appears weekly, is designed to make use of another medium to deliver Capital Matters’ defense of free markets. Financier and National Review Institute trustee, David L. Bahnsen hosts discussions on economics and finance in this National Review Capital Matters podcast, sponsored by the National Review Institute. Episodes feature interviews with the nation’s top business leaders, entrepreneurs, investment professionals, and financial commentators.

In the 133rd episode, David was joined by the former president of Marsh Advisory, Michael Poulos, for a trip around the horn, discussing the Covid impact on the economy (and public trust), the right defense of a market economy, and the challenges underlying the current state of affairs that often get missed. There is something for everybody here — from theology to economics to politics — and the takeaways may surprise you.

No Free Lunch

Earlier this year, David Bahnsen launched a new six-part digital video series, No Free Lunch, here online at National Review. In it, we bring the debate over free markets back to “first things” — emphatically arguing that only by beginning our study of economics with the human person can we obtain a properly ordered vision for a market economy…

The series began with a discussion with Fr. Robert Sirico of the Acton Institute. Later guests include Larry Kudlow, Dennis Prager, Dr. Hunter Baker, Ryan Anderson, Pastor Doug Wilson, and Senator Ted Cruz. 

Yes, the six-part series now has seven parts. 


The Capital Matters week that was . . .


Edward Ring:

The Salton Sea has been called the biggest environmental disaster in California’s history. Formed in 1905 when a canal diverting water from the Colorado River to farms in the Imperial Valley breached during heavy rains, barely a century later the lake is drying up. How to save the Salton Sea, or at the least, how to manage its decline, is a confounding challenge…

Electric Vehicles

Andrew Stuttaford:

If Bloomberg is indeed one of Big Climate’s media voices (it is), this story may indicate that some planners are thinking about the future of transport for those who live in the ‘burbs.

Spoiler: It’s not flying cars…


Andrew Stuttaford:

Argentina’s much smaller neighbor, Uruguay, has typically been rather better run (admittedly a low bar) than Argentina. Inflation there is now running at an annual rate of under 5 percent. Argentina’s is now galloping along at about 113 percent and set to rise still further. Unsurprisingly, the Argentine peso has crumbled against its Uruguayan counterpart.

And so…

Andrew Stuttaford:

One of the great books written about inflation is When Money Dies by Adam Fergusson. It tells the story of the inflation that hit the Weimar Republic in the early 1920s (and, indeed, the long run-up to it, which began during the First World War) and was written as a warning to Brits in the 1970s of what could lie ahead if they failed to get inflation under control (FWIW, I reviewed the book on its reissue here). Similarly, while the story of what’s currently happening in Argentina is interesting in its own right, it too can be seen as a warning.

And the news from Argentina is getting steadily worse.


Mark Jamison:

Merger guidelines play a vital role in providing clarity and predictability for businesses. By outlining how merger laws will be enforced, these guidelines have effectively lowered business costs and benefited consumers. The DOJ and FTC continually work to improve the guidelines to reflect improving economic understanding and the complexities of an evolving economy. Courts have similarly rejected simplistic rules and emphasized rigorous, case-specific analyses that prioritize consumer welfare.

However, the merger guidelines proposed by FTC chair Lina Khan and the DOJ’s Jonathan Kanter fail to uphold these principles…

Office Property

Andrew Stuttaford:

My guess is that productivity is taking a hit from WFH, and that this will get worse as the years go by. The old business of 2019, with its institutional culture, its water-cooler exchanges, its peer learning, and its client base, could survive “in exile” for a while, but over time that must fade. And even if those synergies and that cohesion can largely be revived with workers back at the office three to four days a week, productivity may still be sub-optimal as the temptation to treat the day(s) at home as not quite so, uh, intensive, kicks in. In an April report, the Financial Times’ Craig Cohen noted that in March, “Researchers at Stanford University and data analytics firm INRIX [had] published a study documenting the extraordinary boom in midweek golfing in the US.”


Dominic Pino:

You’ll never believe it, but an economic-development scheme centrally planned by a communist party is backfiring.

China’s Belt and Road Initiative (BRI) was supposed to be a masterstroke of geopolitics. China financed and built infrastructure projects in the developing world, buying third-world countries’ loyalty while enriching itself. It made a total of about $1 trillion in loans for infrastructure in poor countries in the past ten years.

Now, while the country’s domestic economy faces its own slate of crises, the BRI is also in trouble. It doesn’t appear to have purchased the geopolitical loyalty that China had hoped. And it’s losing a bunch of money, too…

Andrew Stuttaford:

The Beijing regime may announce a few changes (it is keen to encourage foreign capital flows into the country to help it out of its mess), but none of the problems Raimondo mentions are going away. They are intrinsic to the way that China is run, and that will not change. The only model for an enterprise looking to invest in China is (in my view) to borrow a lot from the approach taken by a CEO I spoke to back in the early/mid 90s with regard to his firm’s growing presence in Russia. The firm rented rather than bought, kept capital expenditure to a minimum, and its assessment of the risk/reward of going ahead included assuming that there was a non-negligible risk that any profits they made in Russia would have to be kept in the country and, worse still, that all the assets they had in the country would eventually (one way or another) be stolen…

Veronique de Rugy:

Andrew Stuttaford had a post last night on international investors bailing out of Chinese securities.

This morning on Persuasion, Blake Stone-Banks has a piece about the expats also leaving China….


Ken Blackwell:

It’s true that, in 2021, U.S. health-care spending grew to $4.3 trillion — nearly $13,000 per person, or 18.3 percent of GDP. And it’s also true that, in a recent report, the Congressional Budget Office (the nonpartisan agency within the legislative branch that conducts economic analyses) noted that prescription-drug costs have nearly doubled since 1980.

However, pharmaceutical interests are spending significant amounts of money to put the blame for these prescription-drug-price increases on pharmaceutical-benefit managers (PBMs) — the companies that manage America’s health plans — rather than the actual culprits that the CBO’s report seemed to uncover, the drug companies themselves…

The Debt

Veronique de Rugy:

Bottom line, we should be grateful that legislators engaged in real austerity after the war until the end of the ’60s, as opposed to the way they have behaved since, especially since the Great Recession.

Obviously, economic growth is super important. But it is not a solution to the U.S. government growing debt.


Dominic Pino:

Joe Biden’s nominee for secretary of labor is the current deputy secretary of labor, Julie Su. She has been serving as acting secretary since Marty Walsh left the job in March. The Senate is unlikely to confirm her because every Republican, Joe Manchin (D., W.Va.), most likely Krysten Sinema (I., Ariz.), and possibly a few other Democrats are opposed to her nomination. Rather than set up a vote that would fail, Senate Majority Leader Chuck Schumer hasn’t scheduled one.

So the Biden administration hatched a plan to make her secretary anyway: Just leave her be


Andrew Stuttaford:

Kevin Hassett was correct (and early) to forecast that “transitory” inflation would go higher than Americans were being told, and that it would be far from transitory.

Inflation is now significantly below its recent peak, but Hassett has been arguing that it is too soon to declare victory.


Dominic Pino:

It’s farm-bill time on Capitol Hill, which means a lot of money is about to go out the window. The largest components of the farm bill are agriculture subsidies and SNAP, the food-assistance program for low-income households. Over the next ten years, without reforms, the farm bill is projected to cost about $1.5 trillion.


Joseph Sullivan:

In their retreating desire to work, men distinguished themselves from women. In July, relative to the month before, the number of men not in the labor force because they don’t want a job increased by 122,000. That contrasts the number of women who are out of the labor force because they don’t want a job, which fell by 12,000. America’s swelling ranks of those who don’t have jobs and don’t want them is not a tale of everyone. It’s a tale of men…

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