The week of January 6, 2025: Tough times for the climate cartels, Canada, economics, congestion pricing, and much, much more.
The week of January 6, 2025: Tough times for the climate cartels, Canada, economics, congestion pricing, and much, much more.
One of the more nauseating aspects of the rise of environmental, social, and governance (ESG) investing and its symbiont, stakeholder capitalism, was the spectacle of large financial institutions rallying behind the climatist agenda, which is what that E was all about. They agreed to align their businesses with the (eventual) goal of net zero. Not only did this, in the case of participating banks and insurance companies, raise questions about collusive behavior, but it also appeared to be an attempt by a significant portion of the financial sector to put the pursuit of policies set by a powerful climate establishment ahead of the interests of the shareholders and clients to whom they owed a fiduciary duty. It was a form of corporatism, an ideology with only limited attachment to property rights and, all too often, democracy.
If voters wish to support the “race” to net zero greenhouse gases, they can do so by their personal behavior (no meat! No flights!) or by casting votes to that effect. Trying to speed toward net zero through c-suites rather than legislatures is an attempt to bypass democracy. Among those who have been attempting to do so have been groupings such as the Net Zero Asset Managers Initiative (NZAM). Still boasting on its website about its 325 signatories with $57.5 trillion in assets under management, it is a “formal partner of the UNFCCC’s Race to Zero Campaign.”
NZAM is:
[A]n international group of asset managers committed, consistent with their fiduciary duty to their clients and beneficiaries, to supporting the goal of net zero greenhouse gas emissions by 2050 or sooner, in line with global efforts to limit warming to 1.5 degrees Celsius; and to supporting investing aligned with net zero emissions by 2050 or sooner.
Signatories have committed to:
a. Work in partnership with asset owner clients on decarbonization goals, consistent with an ambition to reach net zero emissions by 2050 or sooner across all assets under management (AUM’)
b. Set an interim target for the proportion of assets to be managed in line with the attainment of net zero emissions by 2050 or sooner
c. Review our interim target at least every five years, with a view to ratcheting up the proportion of AUM covered until 100% of assets are included
And this is meant to be consistent with their “fiduciary duty to their clients and beneficiaries?”
Good luck with that.
Investment managers know that climate change will affect different companies in different ways. The idea that falling into line with the Paris targets will necessarily be in the interests of all or even the majority of their portfolio companies is ludicrous, especially if the immediate economic costs of the green “transition” outweigh any benefits, which are likely to be long beyond any realistic investment horizon.
And are the Paris goals even achievable? Dieter Helm, professor of economic policy at Oxford, one of Britain’s best known energy economists, and the reverse of a climate denier has his doubts:
There is no evidence that the growth in the concentration of carbon in the atmosphere is going to stop. There is so far no transition from fossil fuels to renewables, with renewables making only a dent in the increases in energy demand. Oil output is over 100 million barrels a day, coal is maintaining its markets, and gas is booming. Just as there was no transition from wood to coal, or from coal to oil, there is no transition from coal, oil and gas to renewables, even in electricity (Wood demand went up as coal output expanded, and coal went up as oil came on stream…) They have been complements not substitutes, and it is therefore not surprising that fossil fuels are still holding at 80% of the world’s energy.
More of the same, one more heave, has little chance of halting global warming at 2⁰C, and most likely will take us to 3⁰C or more. 1.5⁰C was never going to be achieved, and we are now passing this milestone…
Helm would tackle the climate “emergency” in an entirely different way, Bjorn Lomborg would take another route, others would try something else. The science, say some, is “settled,” but the right policy response most certainly is not. How will NZAM commitments to work towards Paris targets that are, in all probability, already out of reach benefit the clients of those who signed them?
NZAM was established toward the end of 2020. Stakeholder capitalism stalked boardrooms and ESG was all the rage. Oil and gas stocks promptly forgot their role and performed strongly in 2021 and 2022.
At the end of the latter year, Vanguard, the world’s second largest asset management group with (at the time: it has more now) $7 trillion under management, pulled out of NZAM.
The Financial Times:
Vanguard, which mainly manages passive funds that track market indices, said the alliance’s full-throated commitment to fighting climate change had resulted “in confusion about the views of individual investment firms”.
“We have decided to withdraw from NZAM so that we can provide the clarity our investors desire about the role of index funds and about how we think about material risks, including climate-related risks — and to make clear that Vanguard speaks independently on matters of importance to our investors.”
[Vanguard] will continue to offer products that use environmental, social and governance investing factors and net zero products to investors who want them.
Simultaneously, Vanguard pulled out of the Glasgow Financial Alliance for Net Zero (GFANZ), an umbrella climate finance organization set up by Mark Carney, a former central banker, an authoritarian on the make and now (maybe) Canada’s next prime minister. Carney was joined as GFANZ’s co-chair by another authoritarian, Mike Bloomberg. Carney serves as chairman of Bloomberg L.P.’s board.
The usual suspects were outraged by Vanguard’s move. Al Gore, promoted from the vice presidency to the chairmanship of Generation Investment Management, a prominent player in the sustainable investment ecosphere, did not like this sort of behavior, not one bit. Vanguard was not only“irresponsible and shortsighted,” but was out of step with the Zeitgeist. No! Not that! No one can have told Gore that being out of step with the Zeitgeist can be a smart investment strategy.
A few months later, Vanguard’s then CEO, Tim Buckley, gave an interview with the Financial Times to talk over the group’s decision (and which I discussed in a Capital Letter at the time). Among his comments:
“We don’t believe that we should dictate company strategy… 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.”
Buckley also made clear that he understood the profoundly political nature of ESG. Vanguard, he said, was “not in the game of politics.” Setting the ground rules for a green transition, he said, was for politicians and regulators. That was and is an important point. For advocates of ESG and/or stakeholder capitalism to complain about “political” attacks on their program is hypocrisy on stilts. As referred to above, both concepts have always been political. If it had truly been possible, as ESG marketers once claimed, to “do well by doing good,” then corporations and asset managers would have needed little prompting to do so. The enormous activist effort behind ESG and stakeholderism suggests that those responsible knew that the corporate and investment approach that they were pushing put politics over profit.
Buckley also said this:
“We cannot state that [environmental, social and governance] investing is better performance wise than broad index-based investing…Our research indicates that ESG investing does not have any advantage over broad-based investing.”
The Sierra Club was among the groups appalled by both by Vanguard’s withdrawal from NZAM and Buckley’s comments. It issued a press release quoting Roberta Giordano, campaign manager for Vanguard S.O.S, an activist group that it and others had backed.
Giordano:
Rather than hold its ground against ill-informed, climate denialist attacks, Vanguard caved to fringe far right pressure and left NZAM.
The “far right,” but of course.
Giordano also turned to that old argument of the intellectually desperate. Vanguard was on the wrong side of history: “Vanguard is either not ready or not willing to keep up with the times and step into the future.”
Millenarians such as those who infest the climate movement may like to pretend otherwise but history is random and takes no sides. One brief bubble apart, ESG appears to add little (if anything) of value for investors, although its promoters have nothing to complain about. And it has finally started to attract the legal, political, and investor criticism it deserved.
In 2023, Larry Fink, the CEO of BlackRock, said that he was no longer using the term as it had become too politicized, a strikingly dishonest way to describe an approach to investing that had been politicized from the very beginning.
But if Fink was going to stop talking about those three initials he was not (he said) going to abandon the approach that they represented:
But he said dropping references to ESG would not change BlackRock’s stance. The firm would continue to talk to companies it has stakes in about decarbonization, corporate governance and social issues to be addressed, he added.
On the issue of climate change, BlackRock has sought to strike a balance, continuing to invest in fossil fuel companies while nudging them to adopt energy transition plans. It has projected that at least three quarters of its investments will be with issuers of securities that have scientific targets to cut greenhouse gas emissions on a net basis.
Nevertheless, BlackRock has now extended its formal pullback from stakeholderism and ESG by following Vanguard’s lead and pulling out of NZAM.
According to Philipp Hildebrand, the group’s vice chairman, the reason for quitting is that its membership of NZAM had “caused confusion regarding the company’s practices and subjected us to legal inquiries from various public officials.” Both reasons make sense. The first echoed the comments made by Vanguard. The second reflected the fact that ESG’s opponents were taking to the courts and to congressional hearings to find out what was going on.
BlackRock had already been supporting markedly fewer ESG shareholders resolutions. The Financial Times reported that BlackRock’s support for shareholder proposals on ESG matters had fallen from 47 percent in 2021 to 4 percent in 2024, something that may reflect an increasingly aggressive stance by activist shareholders, BlackRock’s decision to lower its profile in this area or both.
So far as the former was concerned, the same FT report noted that “progressive groups have grown increasingly critical of the money manager’s position that its clients’ financial interests must take primacy unless investors have specifically asked to prioritize sustainability.” That this has angered progressive groups, to whom the ownership of the money obviously counts less than the uses to which it is put says a great deal about what needs to be said about ESG. It is not about investor return, and it was never about investor return, it was about steering the flow of capital away from sectors frowned upon by activists and toward areas that they favored.
Adding to the pressure on BlackRock, a U.S. federal court in Texas has found that American Airlines should not have hired managers that used ESG strategies for its 401k plan. BlackRock, which was one of those managers, was not a party to the case, but the judge criticized its management role because it was tainted by “ESG activism”. Looking at the facts of this case, I doubt the judgment will hold up, but it is a reminder of the extent to which the pushback against ESG has been gaining momentum.
In the months before BlackRock’s departure from NZAM, there had been departures from another group operating under the GFANZ umbrella, the Net-Zero Banking Alliance (NZBA). This is a group of large banks committed to aligning their lending, investment, and capital markets activities with net-zero greenhouse gas emissions by 2050, a shift designed (once again) to ensure the reduction of capital flowing toward companies in disfavored groups.
Departures include Morgan Stanley, Citi, Bank of America, Wells Fargo, Goldman Sachs, and JP Morgan and are undoubtedly connected with the threat posed by allegations that this alliance was looking like a vehicle for a collusive financial strangling of the oil and gas sector. Given the antitrust issues that could conjure up, it’s not hard to see why some banks had been concerned. It’s a big thing for a court to find that an asset manager had unacceptable reasons for declining to invest in a company or companies, it’s rather less of a deal to penalize a group of banks for unlawfully agreeing to cut lending to a particular sector. These banks might also have asked themselves how they were acting in the interests of their shareholders by making a commitment that could possibly imply turning away lending attractive opportunities.
Over a year before this, another member of the GFANZ stable, the Net-Zero Insurance Alliance (NZIA), was hit by a round of defections. NZIA members had committed to transition all operational and attributable greenhouse gas emissions from their insurance and reinsurance underwriting portfolios to net zero by 2050. Some U.S. members faced scrutiny — again for potential anti-competitive behavior — by state attorneys general, scrutiny made more unnerving by the fact that insurance companies are regulated at the state level.
These setbacks have now forced GFANZ, Carney’s umbrella group, to change its tune. New members will no longer be required to give the net zero commitments required in the past. Instead, the group has stated that it will admit “any financial institution working to mobilize capital and lower the barriers to financing energy transition to participate.” It seems as if it will be turning much of its attention to helping poorer countries finance their green transition and turn itself into what looks suspiciously like a talking shop:
GFANZ will transition to an independent Principals Group, led by CEOs and leaders from financial institutions acting to address barriers faced in mobilizing capital for the transition around the world – including sovereign wealth funds, financial institutions, and market participants in countries with longer transition pathways.
As encouraging as this retreat by the Carney folk may be, it would be premature to believe that, despite this and other victories elsewhere, stakeholder capitalism, ESG, DEI, and all today’s other affronts to shareholder primacy have evaporated. Support for them continues to flourish in Europe, in Davos, in the transnational bureaucracies, among activists, in the media, in the academy, and elsewhere.
Thus I turned to a 2023 article in Wharton at Work by Witold Henisz, PhD, Vice Dean and Faculty Director of Wharton’s ESG Initiative. Writing in response to Fink’s comment that he felt “ashamed” that he had gotten drawn into a highly combative discourse over ESG, Henisz observes:
[T]hat doesn’t mean [BlackRock] is backing down on its commitment to include environmental, social, and corporate governance (ESG) issues in its investment decisions.
Unfortunately, that’s fair enough. A number of the CEO’s pulling out of the net-zero alliances have been at pains to stress how important ESG is, to which the question remains, to whom? If such issues don’t affect the company’s bottom line, then those managers who are bothered by them have something to do at the weekend.
Suffice to say, that’s not how Henisz sees matters. But move on from his article to look at the left-hand column on the page carrying his article to find a series of links: Wharton ESG Essentials, Wharton ESG Executive Certificate for Senior Leaders, Wharton ESG Executive Certificate for Strategists, Wharton ESG Executive Certificate for Financial Professionals.
ESG is not going away. It is too ideologically congenial, it is too effective a pathway to power, and it is feeding far, far too many people.
Speaking of which, click over to the McKinsey website:
McKinsey brings a unique approach to ESG focused on value creation that involves benchmarking, strategy development, initiative design, program execution, investor and external communications, and reporting. Our capabilities are bolstered by unique, data-driven, and proprietary solutions supporting clients throughout each ESG journey.
Too many such journeys are still being made.
Note: Updated to correct the description of the American Airlines case.
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!). Featuring National Review Institute trustee, David L. Bahnsen (and, sometimes. guests) Capital Record, which appears frequently, makes use of another medium to deliver Capital Matters’ defense of free markets.
In the 202nd episode: Why are capital markets worth defending? For that matter, why is free enterprise worth defending? Can these things be done without a view of the world that accounts for reality, knowledge, and morality? David tackles these issues head-on in the 2025 launch of Capital Record!
Further reading:
“Financialization and Missed Boats”
In the 203rd episode: David does a deep analysis of the arguments for blocking the Nippon Steel acquisition of U.S. Steel and finds them . . . lacking. He unpacks the danger in calling things a “national security threat” disingenuously, and makes the case that the big beneficiary of blocking this deal is an Asian country, but it isn’t Japan.
The Capital Matters week that was . . .
Economics
Filling in for Jim Geraghty the Friday after the presidential elections, I wrote a Morning Jolt entitled “Milton Friedman’s Revenge.” I noted how Democrats proudly boasted about ignoring Friedman’s thought, to the applause of the media, and then enacted anti-Friedman policies, only to find that voters didn’t like them as much as they had hoped they would. Democrats jacked up government spending, supersized regulations, enacted industrial policies, and overall saw government as an all-purpose remedy to the supposed failures of the free market. Then, after a bout of inflation, voters threw them out of the White House. Maybe Friedman had some good ideas after all…
Samuel Gregg and Richard Reinsch have written an article for the most recent issue of National Affairs in which they argue for free markets against the recent bipartisan tendency to bash them. In it, they rely heavily on the thought of German economist Wilhelm Röpke, who stood up to the Nazis in his arguments for human dignity and liberty. After World War II, Röpke was instrumental in the market reforms that allowed West Germany to take off while East Germany suffered under decades of socialism…
Congestion Pricing
New York City’s new “congestion pricing” is becoming one of the most hated government policies in a city already full of well-hated policies. Is it actually a bad policy, though?
Canada
Since Trudeau took office and through to the third quarter of 2024 (the latest available data), cumulative real GDP per capita growth in nine years has been 1.7 percent in Canada versus 18.6 percent in the United States. When data for the fourth quarter of 2024 are published, the gap will almost certainly widen: Canada’s real GDP per capita fell for six consecutive quarters as of the third quarter of 2024, and is expected to have fallen again in the year’s final quarter. This means that Canadians, on average, would have 17 percent higher incomes today if Canada’s real GDP per capita growth had tracked with the United States under Trudeau.
Canada’s economic performance under Trudeau is even worse when you examine the details…
Environmentalism
The Endangered Species Act (ESA) doesn’t do a very good job at conserving endangered species. It does do a good job at providing environmental activists with a powerful tool to block construction projects they don’t like…
Wind Power
One of humanity’s great achievements has been the way in which we have been able to reduce our dependence on the weather. Reinventing electric grids so that they become reliant on wind and solar, particularly the former — a sad, steampunk technology without the looks — is a retrograde and potentially disastrous step…
Family Policy
“Family policy” doesn’t have to mean a bunch of new government programs. Politicians often talk about it that way, with proposals for federally funded child care, federally funded paid leave, federally funded baby bonuses, and more. But if what families need from the government is a growing economy with stable prices, communities safe from crime and disorder, and the space to form and join civic and religious institutions, then a lot of the same old stuff conservatives have been talking about for years will be the best family policy available. That’s especially true when the welfare state is already too big and the government’s ability to fund new programs is already too small…
Labor
In the wake of Donald Trump’s victory and his nomination of pro-union one-term House member Lori Chavez-DeRemer as secretary of labor, there has been some talk about how being more accommodating to unions could help Republicans, or that unions might be starting to move over to the Republican column. It’s certainly true that many union members are Republicans, and they have voted that way for decades. But it’s not true that unions as organizations are going to be friends of Republicans…
Price Controls
In the Morning Jolt yesterday, Jim Geraghty laid out several policy decisions California authorities have made that have exacerbated the damage caused by wildfires. As he wrote, there’s obviously nothing government can do to prevent them entirely, but policy decisions can make them more or less damaging, and California’s decisions have been criticized for years leading up to the past week’s devastation.
Another California policy decision will make recovery efforts from these fires more difficult than they otherwise would be: price controls on insurance…
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