How the ESG Movement is Shooting Itself in the Foot

Public pension fiduciaries may soon be looking to distance themselves from advisors leading them down the ESG path.

Reputational risk is the wonderfully vague term that is being used more and more to justify decisions to terminate a business relationship when an objective reason is unavailable. According to an excellent article in the Georgia Law Review, "Regulating Bank Reputation Risk," the concept of reputational risk really took off in the 1990s when federal regulators were looking for a way to incorporate subjective policy and social considerations when examining financial institutions.

The first phase of using reputational risk as a regulatory tool culminated in Operation Choke Point, which was a joint effort of the Treasury Department and the FDIC to target certain undesirable, but legal, businesses. The exposure of Operation Choke Point ended the direct use of reputational risk by regulators to force behaviors at individual banks, but the concept was so powerful it continued to incubate and expand. Today, large banks and big corporations are using the reputational risk tool to drive social-justice policies.

As pointed out in the Georgia Law Review article, the reputational risk tool heavily relies on the concept of stakeholder capitalism. Initially, the stakeholder in question was the regulator itself, but just as the power of reputational risk was becoming evident, so too was the role of stakeholders. The concept of stakeholder capitalism has continued to grow and now is an important element of the environmental, social, and governance (ESG) movement.

Like reputational risk, “stakeholders” is a subjective and malleable concept to drive social and political ends. The trick is to broaden the search for stakeholders to identify groups sympathetic to the political cause, but not so broad as to identify stakeholders who oppose, or are harmed by that political cause.

ESG will be the collapse of the free market system if it is not stopped. It is forced wokeism.

2 posted on 05/12/2022 3:46:09 AM PDT by MtnClimber (For photos of Colorado scenery and wildlife, click on my screen name for my FR home page.)

3 posted on 05/12/2022 3:49:09 AM PDT by CedarDave (Pfizer's boosters: You just turned your immune system's functionality into a subscription service!)

The solution to this ESG crap is simple. Make those who adhere to it liable to shareholders for breach of fiduciary duty.

If you are deciding what companies to invest in based on anything other than financial risk and return, you are breaching your duty to shareholders. Your duty is always to maximize returns.

Hell, plenty of lawyers would get behind this because they could make nice big profits suing the crap out of Blackrock, Vanguard, lots of Banks, Corporate CEOs, etc etc. Think of all those juicy class action lawsuits.

Environmental Social & Governance.

ie wokeism. So no investing in oil or gun companies or companies that don’t have X percentage of minority, transgender, left handed, disabled muslims in key leadership positions. In short, no investing in anything that Leftists don’t like.

Weasels like the CEO of Blackrock Larry Fink have used their positions and control of trillions of dollars of our pension money to impose this garbage on corporations. It is essentially unelected CEOs legislating from the boardroom.

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