ESG
OPINION OF THE WEEK: Who’s Worse For Wall Street: Bernie Sanders Or Anti-ESG Republicans?

Our US correspondent looks at the pressures for and against ESG investing, a topic that has yet to find full-throated acceptance in a number of countries. In the US, some in the political world have pushed back, concerned that investors' returns are being sacrificed for non-financial reasons. Others argue it is an essential part of good risk management.
I like Bernie Sanders. I wish more senators cared about economic
inequity, childhood poverty and expanding health care coverage.
But what I don’t like is when someone on my side distorts facts
to make a political point.
Sanders is currently promoting his new book It’s OK to be
Angry about Capitalism. In every interview I’ve heard,
he complains that three Wall Street firms – BlackRock, Vanguard
and State Street Global Advisors – manage $22 trillion in assets,
are major shareholders in 96 per cent of S&P 500 companies
and “control” an amount of money that is nearly equal to the
entire gross domestic product of the United States. This,
according to the independent senator from Vermont, is
“obscene.”
As chair of the Senate’s Health, Education, Labor and Pensions
Committee, Sanders is holding hearings on Wall Street greed. No
doubt there are plenty of juicy targets. But low-cost passive
indexing, the business model of BlackRock, Vanguard and State
Street, isn’t one of them.
As an avowed populist, Sanders should be celebrating, not
denigrating, the investing revolution “The Big Three” helped to
bring about.
Blue-collar power
Twenty years ago, investors were mostly stuck with brokerage
firms who charged high fees on commissions and weren’t
fiduciaries. Today, even blue-collar workers, who Sanders
constantly champions, can buy ETFs and funds from BlackRock,
Vanguard or State Street for less than a penny on the dollar that
enables them to participate in the market – just like the Big
Guys – and receive a nice return on their investment when the
market goes up, which, over the long term, it invariably
does.
And yes, Bernie is right: $22 trillion is a lot of money to be
concentrated in three companies.
But it’s precisely because BlackRock et al are so big that they
have the scale to offer their products to the public for such low
prices. As a result, millions of investors voluntarily purchase
tax-efficient funds which in turn buy shares in companies that
have a chance of earning money across broad asset
classes.
That’s why The Big Three own shares in nearly all of the S&P
500, Bernie: so the Little Guy has a better chance of making
money than if they still had to rely on Wall Street’s much more
dubious strategy of active stock picking.
Targeting ESG
Sometimes, though, Wall Street does it get it right. I would
argue that the movement to take into account environmental,
social and governance (ESG) factors when making investments is a
good thing and should be applauded. Millions of Americans
apparently agree; sustainable investing funds now total more than
$8 trillion.
So it seems really weird to me that a political party that
supposedly champions free markets is intent on limiting the
choices of where states can invest their money by passing laws
banning allocating capital to asset managers like BlackRock that
take ESG into consideration. On the national level,
Republicans want to change Labor Department rules so workplace
retirement accounts are restricted from ESG investing. They may
have reached peak hysteria this week when Representative James
Comer claimed that “ESG-type” policies contributed to Silicon
Valley Bank’s collapse.
Look, there’s nothing wrong with a healthy debate about the
merits of sustainable investing. To be sure, standards are
ambiguous at best, disclosure is often less than transparent,
methodology is inconsistent and performance results are far from
conclusive. And yes, some companies try to take advantage of the
trend by “greenwashing,” or trying to portray funds as socially
responsible when they’re not so much.
Shareholder profits vs stakeholder concerns
But looking at the Big Picture, it’s not as if BlackRock CEO
Larry Fink, a hardcore capitalist if there ever was one, doesn’t
have a point when he cites climate change as a factor that is
going to impact not just society as a whole but specific
investments as well.
An even broader question is whether investments should only be
about profits flowing to shareholders, as Florida Governor Ron
DeSantis and asset manager Vivek Ramaswamy argue, or whether
investments should also take into account the impact on what Fink
calls the “stakeholders,” who include employees, customers,
suppliers and communities.
It seems to me that the former point of view, considered in its
purest form, is pretty amoral. I doubt its proponents would say
it’s a good idea for companies to use slave labor to make a
profit, even though their 19th century counterparts had no such
qualms.
So if slavery isn’t a good idea, where do you draw the
line?
ESG advocates point to such factors as harm to the environment,
products that are harmful to public health and conditions that
could harm workers. They could also cite the preamble to the
US Constitution, which states that one of the reasons the
new government was formed was to “promote the general
welfare.”
You may or not agree with pro-ESG arguments, but aren’t
Republicans, who complain so loudly about “woke” campuses,
companies and media stifling free speech, cutting off debate and
dictating what investors can and can’t do by pushing for
restrictive laws?