Washington, D.C. – Green is the most important color on Wall Street. It’s been that way since the start. Making money is what brokers and traders and fund managers do, and they do it well.
As you may have noticed though, things are changing. Green is still important, just not the same kind. For some time now, the need to get the best financial return on investment possible has slowly been eclipsed by the need to underwrite and encourage proper social outcomes.
Some of the biggest men on Wall Street, like Blackrock CEO Larry Fink, have embraced this position, seemingly with great enthusiasm. To him and others like him, it’s a way to make money that’s also good for the country and the planet. (RELATED: ETHAN PECK: BlackRock’s Larry Fink Peddles The Left’s Radical ESG Agenda)
Whether he and money managers like him really believe that or are simply playing to the political concerns of some of their biggest clients like New York and California public employee pension funds isn’t clear. The drift toward making environmental, social, and corporate governance issues – which is where ESG comes from – as important as their firm’s fiduciary duty to produce the biggest return on investment is bad for the small investor.
When you invest in a fund, the fund buys stock. The voting rights associated with that stock are vested in the fund managers, not its owners. When the stockholders are asked to consider resolutions requiring gender and racial diversity in corporate management, blocking investments in the development of oil and natural gas resources, and other progressive notions it’s the firms who vote those shares by proxy.
A recently released study from the Committee to Unleash Prosperity that looked at how those proxy votes were cast on 50 egregious ESG resolutions put before the stockholders of companies in which the funds held a position found they are the ones driving the politicization of investing.
People are free to do what they want with their own money. Individual stockholders can vote as they please on shareholder resolutions. Before Joe Biden became president, fund managers had an explicit fiduciary responsibility to seek out the best possible return for their investors.
Thanks to Biden, those rules have been weakened, leaving small investors vulnerable. The CTUP study found that ESG investing has contributed to the flattening of the income stream for retirees and other investors who put their money in these funds. The ESG investing strategy does not produce the best returns.
This is no small thing. These firms own about 75% of all the publicly traded shares available in the United States. “More than half of the total investment in stock-based funds is allocated to passively managed ETFs and index funds, which simply mirror benchmarks such as the S&P 500,” the group said in its study. This gives them the power to set corporate policy by proxy votes in favor of intrusive, ESG-related resolutions.
The bigger the fund, the greater the ability of fund managers to use other people’s money to override the concerns of corporate boards and CEOs. They can and have used this power to keep banks from investing in energy projects, to push auto companies to go green, and to do other things that are not in the financial interests of the people whose money gives them this power. (RELATED: DANIEL MCCARTHY: Climate Science Makes A Bad Religion)
The only way the individual small investor has to fight back, to protect their investments to be sure they produce the maximum rate of return, is to keep an eye on what their fund managers are doing. If it turns out to be things they don’t like, they can exercise their freedom to move their money. And should.
A former UPI senior political writer and U.S. News and World Report columnist, Peter Roff is a senior fellow at several public policy organizations including the Trans-Atlantic Leadership Network. Contact him at RoffColumns AT gmail.com. Follow him on Twitter and TruthSocial @TheRoffDraft.
The views and opinions expressed in this commentary are those of the author and do not reflect the official position of the Daily Caller News Foundation.
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