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Posted on 08/21/2025 7:32:29 AM PDT by MtnClimber
The return of a pro-energy Republican to the White House has corresponded with the bursting of the “ESG” bubble. ESG stands for “environmental, social, and governance,” and ESG funds invest with those principles in mind, not merely to maximize shareholder returns. Through the first quarter of 2025, U.S. ESG funds have seen ten consecutive quarters of net capital outflows. That’s a promising start, but we need to stay vigilant—ESG activism reduces economic growth, shrinks our tax base, and weakens our national security.
ESG funds do more than just invest in companies that meet environmental, social, and governance goals. They often strong-arm publicly traded corporations to subvert shareholder value in pursuit of nebulous concepts like sustainability, diversity, and “stakeholder” capitalism. Their goal is to effect social change outside the normal political process, one of several forms of policy adventurism I explore in my 2020 book, The Unelected: How an Unaccountable Elite Is Governing America.
Though investors have always chosen to allocate their funds according to principles beyond just maximizing profit, the organized focus on ESG factors is of relatively recent provenance. The ESG moniker traces to late 2004, when the United Nations Global Compact released a report seeking to “connect” social policies with financial and corporate action. By 2006, the UN had cajoled various large financial institutions and stock markets into signing its “Principles for Responsible Investment.” By 2018, more than one-fourth of U.S. capital in professionally managed portfolios was under the ESG umbrella.
Most investors intuitively understand that chasing priorities other than profit is likely to sacrifice returns over the long haul. But managers aggressively hawked ESG funds as a means of assuaging the guilty consciences of investors (who paid much higher fees in the bargain).
Meantime, a confluence of factors created the temporary illusion that socially focused investors could have their cake and eat it too, enjoying both a clean conscience and healthy returns. A sustained period of easy credit from the 2008 financial crisis through the 2020 Covid pandemic masked ordinary economic incentives. New regulatory pressures driven by the Paris climate accords and other interventions created government-driven investment opportunities.
Big technology companies’ stocks boomed. Though many of them had a voracious and growing appetite for energy, they happily signed on to ESG principles and were included in ESG funds. Then, at the height of the pandemic, demand for oil collapsed, along with its price, sending energy companies’ share prices downward.
Once the Federal Reserve began hiking interest rates to temper post-Covid inflation, ESG investing strategies collapsed, and funds following them began to underperform the market in 2022 and 2023.
To understand why, consider two energy firms that took radically different approaches to ESG activism. U.S. oil giant Exxon Mobil largely resisted ESG mandates. British Petroleum, meantime, was an early adopter of ESG strategies, running advertising campaigns that rebranded its initials as “Beyond Petroleum.” After its Deepwater Horizon rig spilled massive quantities of oil into the Gulf of Mexico in 2010, it doubled its wager on this strategy and moved aggressively toward “net-zero” climate emissions goals.
How have the two companies fared? From 2015 through 2025, Exxon has generated a 32.77 percent total return for its shareholders. Over the same period, BP has lost 24.03 percent of its value. This is not an isolated example.
It’s therefore no surprise that, in 2022, global capital flows into ESG funds dropped from $649 billion in 2021 to $157 billion the following year. American investors, on net, pulled more than $40 billion out of ESG funds in 2022 and 2023, another $19.6 billion in 2024, and another $6.6 billion in 2025, through May. BlackRock, the world’s largest asset manager and a self-declared ESG leader, saw its 2022 net income drop by 12 percent, even as U.S. energy stocks surged.
The ESG investing mania has largely subsided, but its legacy has been costly—and not only to Americans’ investment portfolios. As capital got diverted from profitable energy projects into “green” ventures with low returns and high political risk, drilling for new oil supplies slowed, refineries shuttered, and the United States remained vulnerable to global supply shocks. In 2023, the U.S. still imported 8.51 million barrels of oil per day. At an average price of $70 per barrel, that’s more than $217 billion in annual lost domestic energy value.
Note that even modest increases in domestic oil supply could have a favorable macroeconomic impact. Studies suggest that for every $10 increase in the price per barrel of oil, GDP growth is reduced by 0.1 to 0.3 percentage points. Higher energy prices hurt households, suppress economic activity, and widen our fiscal gap—all of which will increasingly matter as the nation grapples with a staggering $36 trillion national debt.
Energy isn’t just about power and money—it’s about geopolitical influence, too. Reliable domestic energy supply is crucial for insulating us from Middle East instability, supply-chain disruptions, and growing competition with China. “Stakeholder capitalism” cannot fuel an industrial comeback or win a geopolitical arms race.
Fortunately, the path back to sound policy is clear. Within days of taking office as Secretary of the Interior and head of the National Energy Dominance Council, Doug Burgum reopened federal land to drilling and launched a sweeping deregulation campaign to accelerate permitting for oil, gas, and critical minerals. Early this year, the Securities and Exchange Commission, which oversees stock markets, reversed Biden-era guidance that gave ESG activists the agency’s imprimatur to coopt corporate annual meetings with social-policy concerns not materially related to companies’ bottom lines.
But many of the policy shenanigans that buttressed the ESG investing boom remain in force. Among these are Biden-era Labor Department rules (set to be revised next year) that push retirees’ pension plans to invest in ESG vehicles. The SEC has also decided not to revisit Biden-era securities regulations that pressure firms to reorient their corporate governance around leftists’ climate-change concerns while litigation challenging those rules is pending.
The ESG investing mania has subsided, but advocates for sound investing markets and energy policy have plenty of work left to do.
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Larry Fink is the CEO of Blackrock and was named interim co-chair of WEF after Claus Schwab resigned. Fink is one of the driving forces of using ESG to force companies into his world view.
That’s exactly what it was designed to do.
ESG is in direct violation of fiduciary responsibilties and any manager pushing them should be prosecuted.
Doing that damage was/is the goal. It will continue, just like DEI programs in all companies.
You cannot make peace with rabid dogs.
bump
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