Blue-chippers avoid ESG investing, realizing it’s a money drain

OPINION:

“Blue Chip Companies Are Ditching ESG Terms From Their Loans,” reads a Dec. 18 Bloomberg news headline. It’s become a trend this year as American investors and companies have realized that environmental, social and governance, or ESG, investing produces lower returns and represents a worldview divorced from real science and data.

That’s why ESG funds have seen eight straight quarters of withdrawals by U.S. investors, the latest coming in the third quarter of 2024, when ESG funds saw a net outflow of $2.3 billion, contracting by 1.4% overall while the rest of the market expanded.

Investors are starting to realize that, as highlighted in a recent House Judiciary Committee report, companies that focus on decarbonization have “decreased output and increased prices” for American consumers.

That puts corporations in a bind. They started following ESG because they face pressure not only from climate activists who demonstrate in front of company headquarters but also from what the report describes as a “climate cartel.”

This cartel is a network of major financial institutions, environmentalist nonprofit groups and organizations representing corporate members, all dedicated to pressuring U.S. companies into “decarbonizing” and achieving net-zero emissions, regardless of economic consequences.

One member of this group, Climate Action 100+, consists of over 600 asset managers and owners who intensify pressure on their portfolio companies to decarbonize, even going as far as to add or replace the board of directors if necessary.

Yet the U.S. has reduced carbon emissions by 18% since the beginning of this century, but through innovation rather than coercion.

As Diana Furchtgott-Roth, director of The Heritage Foundation’s Center for Energy, Climate and Environment, testified in a House Budget Committee hearing this fall, the forcible push for renewables under the decarbonization effort has weakened the U.S. economy, raised energy and transportation costs (especially for lower-income households) and voluntarily handed greater economic power to China.

Companies are also pressured, or at times decide on their own, to promote social agendas that do not improve profitability. To name a few, they implement gender quotas on the boards of directors, reduce sales of legal handguns and offer financial support for abortions performed out of state.

But if ESG is not aimed at maximizing profitability, what is its real purpose?

Michael Faulkender, chief economist at the America First Policy Institute, explains that the true objective of ESG may be to offer progressive activists a way to achieve political goals that could not be passed through the legislative process.

As more investors understand that the choice of ESG funds is political rather than economic, they have been pulling assets from institutions promoting ESG policies.

Among them, the Texas Permanent School Fund, which manages $56 billion to help fund public schools, withdrew $8.5 billion from BlackRock earlier this year, stating the company’s ESG leadership harms the state’s economy and the companies that make profits for the fund.

At the heart of the ESG issue are transparency and misrepresentation. Last month’s lawsuit filed by Texas and 10 other states accused BlackRock of “actively deceiving investors” by using non-ESG funds, which claim to “not seek to follow a sustainable, impact or ESG investment strategy,” to advance the climate agenda.

Its participation in decarbonization initiatives such as Climate Action 100+ and Net Zero Asset Managers, as well as its corporate reports, reveals its leadership commitment to a net-aero agenda for all assets. 

Investors should have the right only to have their money in ESG strategies if they specifically want to invest in them. This would enable investors to align their portfolios with their own goals — if they so choose — rather than having these decisions made by “asset managers” acting instead as activists.

It is time for all financial firms to prioritize investor choice, requiring informed transparency for ESG investments. The death knell for ESG signals a return to a more transparent and client-centered investment landscape.

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Austin Gae is a research associate at the Center for Energy, Climate and Environment at The Heritage Foundation. Renzo Rodriguez was a member of Heritage’s Young Leaders Program.