This has been a tough year for Environmental, Social and Governance (ESG) investing. Aside from increasingly harsh criticism like that above, ESG funds have suffered unprecedented withdrawals, their performance for investors has lagged the broader market and most elected officials who support it fared poorly in the recent election.
Illinois’ progressive establishment is undaunted, however. In Springfield, Washington and the City of Chicago, they continue to use billions of taxpayer dollars for investments they claim serve social justice goals. Those goals are being increasingly exposed as political, if not outright fraudulent, as seen in the unfolding FTX scandal.
ESG investment principles shun investments in sectors progressives deem undesirable such as guns, tobacco and fossil fuels in particular. They tend to favor tech companies, supposedly because they are environmentally friendly, though most Silicon Valley is far left.
But those scorned sectors have been the better investments this year, and tech companies have been hammered. Only 31% of actively managed ESG equity funds beat their benchmarks in the first half of 2022, compared to 41% of conventional funds, according to Refinitiv Lipper, as Reuters recently reported. So far this year, 19 of the 20 best-performing companies in the S&P 500 are either fossil-fuel producers or otherwise connected with fossil fuels.
Consequently, ESG funds “have been hit by unprecedented outflows in the market downturn, as investors prioritize capital preservation over goals such as tackling climate change,” wrote Reuters.
Predictably, the issue has become political since state and local officials invest trillions of dollars owned by taxpayers. Republican candidates generally oppose ESG investment of public funds, and five positions — in Kansas, Iowa, Missouri, Nevada and Wisconsin — flipped from Democratic to Republican in recent races for state auditor, controller or treasurer. Of the 50 directly elected positions, Republicans won 29 and Democrats won 19, according to a recent Roll Call report.
Illinois Treasurer Michael Frerichs, however, is among the Democratic officials not backing off on ESG. “We are in it for the long term” is the title of an open letter he recently signed along with 13 other Democratic state financial officers criticizing efforts to stop ESG use of taxpayer money. The letter is astonishingly hypocritical. It says those who want to ban ESG investment of public money are “blacklisting financial firms that don’t agree with their political views.” That, of course, is precisely what ESG does.
We’ve written often about Frerichs’ long history of using Illinoisans’ money for transparently political grandstanding, and those stories are linked below.
In Washington, Illinois’ Congressman Sean Casten has taken a different tack defending ESG. He has been trying to blacklist the State Financial Officers Foundation, a nonprofit that’s critical of ESG, by browbeating even the companies that support that foundation. That’s effectively an attempt to dictate to private sector companies what political positions they can take.
The foundation, Casten claimed in House hearings, “is a dark money group that has been weaponizing state treasurers and lawmakers against climate-related financial risk management by coordinating to cancel contracts and otherwise sever ties with financial firms that consider climate change in their business strategies.” Casten went on demand that Wells Fargo and JP Morgan end sponsorships of the organization.
In Chicago, just in the past year, both the city and its teachers’ pension fund formally moved to divest from all investments in fossil fuel companies. The city has also authorized borrowing expressly labeled as “ESG Bonds.”
The enormous harm being done by ESG investing is nicely summarized in a Friday op-ed by Utah’s attorney general.
ESG is jeopardizing an increasing amount of American investment assets. This includes the $20+ trillion dollars (more than the entire U.S. GDP) managed by BlackRock and other Big 3 funds and the nearly $6 trillion managed in state pension funds belonging to working class Americans. These investments are not only risky but often made without the full understanding or approval of their own beneficiaries or shareholders – many of whom would object to the progressive orthodoxy of net-zero environmentalism…. ESG as a movement is an ill-defined, elusive construct; a subjective standard masquerading as objective criteria. Not primarily merit-based, it thrives on coercion and cancelling.
That foolishness is made all the more infuriating when ESG investments are made not with one’s own money but with our money being managed by politicians.
Last but not least are the jaw-dropping admissions of Sam Bankman-Fried, the 30-year old founder of now-bankrupt FTX, which is shaping up as the biggest financial scam on record. FTX was the darling of the cryptocurrency world thanks, in no small part, to Bankman-Fried’s efforts to also make it a darling of the ESG crowd.
Bankman-Fried’s scam was powered by a pseudo-philosophy called ‘effective altruism,’ as Newsweek wrote, “of which he was the popular face.” Massive donations to progressive causes, commitments to zero-emissions and huge contributions to Democratic politicians drove the imaging for FTX’s initial, seeming success.
But it was all a fraud, which Bankman-Fried now admits. “You were really good at talking about ethics for someone who kind of saw it all as a game with winners and losers,” said a Vox reporter to Bankman-Fried, to which he responded, “ya, hehe… I feel bad for those who get fucked by it. By this dumb game we woke westerners play where we say all the right shiboleths so everyone likes us.”
He added, “ESG has been perverted beyond all recognition.”
But for ESG with Illinois taxpayer money, it’s full speed ahead.