Wall Street and the overdue ‘green agenda’ market correction

[cartoon id="269388"] It's time to acknowledge that investments made based on ESG considerations – environmental policy, social justice concerns, and corporate governance issues – did not kick off the boom many Wall Streeters predicted it would. It probably never will. That's because investments in clean energy don't produce the returns investments in traditional forms of energy do. As a recent headline on a New York Times column explained, "In a Warming World, Clean Energy Stocks Fall While Oil Prospers." Green energy isn't inherently evil. The efforts of the Biden administration to force it on American are another matter. They may, for example, make the small investors who rely on asset managers to handle their portfolios poorer than they otherwise might be. As the Times reported on Nov. 4, the costs are clear: "The shares of a broad range of clean energy companies have been crushed lately, in a rout that encompasses just about every alternative energy sector, including solar, wind, and geothermal power." To the paper, that’s "stock market myopia." To the rest of us, it should be a warning that Biden’s “green agenda” is a financial flop. No surprise there. Investments in the green energy sector are risky. Remember Solyndra? The country’s biggest money managers do and are reversing course on ESG. BlackRock CEO Larry Fink told the Fox Business network he wouldn't use the term anymore because "it had been rendered toxic in too many quarters" by the efforts of these groups and others. He isn't wrong. Bloomberg reports that, since August 2022, investors have moved nearly $300 billion from ESG-targeted stocks into better-performing investments. That’s a sign the marketplace has turned against ESG, no doubt because, as a House Ways and Means Committee staff analysis cited by Chairman Jason Smith, R-Mo., at the opening of a Nov. 8 hearing on the issue said, the top 20 ESG investment funds "performed 18 percentage points worse than the stock market as a whole during the past year." The reality that ESG investing threatens small investors has hit home. No one should overlook that it's also hitting large funds that manage retirees' savings. Data published in 2020 by Boston College that Smith cited demonstrated that "pension funds with an ESG orientation lagged those of non-ESG funds by two basis points per year over a ten-year period." That marries up nicely to what Fink told the Wall Street Journal's Gerry Baker Gerry on his Free Enterprise podcast: "Everything we do is on behalf of our clients, and Everything we do is with the purpose of financial returns. There is not one thing we have ever done, whether it's ESG or any other issue, that is not in the pursuit of financial return." The recognition of that fact, coupled with the sunlight shown on the adverse consequences to investors from ESG highlighted by public policy groups like the Committee to Unleash Prosperity and the Competitive Enterprise Institute, has changed how investors think about ESG. So have reforms pushed by regulators in places like Texas and Florida that block its use as an investment strategy. The combined impact has cooled the ardor for ESG among the nation's largest asset management firms. BlackRock's support at corporate annual meetings for so-called social justice resolutions dropped from 47% to 22% to 7% over the last three years. In 2023, Vanguard backed only 2% of environmental and social resolutions compared to 12% the previous year. Fink, formerly an ESG cheerleader, would likely say the change in attitude reflects the realities of the marketplace. The asset management business is all about making money and managing risk. He and his colleagues noted the backlash and responded accordingly to the desires of investors now better informed of the risks involved with ESG by concerned pro-market public policy groups. Hopefully, Wall Streeters will remember the risks involved with ideologically aligned investments. Fink and others in the asset management industry statements of late should reassure investors and policymakers alike what they are for and what they are against. No one is suggesting people can’t consider ESG when investing their own money. Caveat emptor still applies. When it comes to managing "other people's money," the fiduciary responsibility asset managers have to produce the greatest possible return on their clients’ money must remain not just the paramount but the only concern. - Copyright 2023 Peter Roff distributed by Cagle Cartoons newspaper syndicate. Peter Roff is former U.S. News and World Report contributing editor and UPI senior political writer now affiliated with several DC-based public policy organizations. He writes for numerous publications and appears regularly on international television talking about U.S. politics. You can reach him at [email protected] and follow him on Twitter @TheRoffDraft.