Should large institutional investors be finding and supporting profitable firms or adopting the tactics of left-wing pressure groups to force companies into adopting a particular political agenda? That’s the issue at the heart of a new open letter to BlackRock honcho Larry Fink that takes the influential CEO to task for the firm’s announced investment guidelines, which would put goals like climate activism ahead of shareholder returns.
While investing with an environmentalist flair may have been fashionable during flush times, the global recession we’ll all likely be facing due to the coronavirus pandemic is poised to usher in a more austere style focused on simple goals of staying in business and maintaining payrolls. Sacrificing returns in order to hit arbitrary “sustainability” targets was always a luxury, albeit one that was happily enjoyed by professional money managers who enjoyed cultivating their environmental, social, and governance (ESG) virtues with other people’s money.
In the current environment, that luxury will be too expensive for most investors. Today’s letter, led by Justin Danhof of the National Center for Public Policy Research and Bill Meierling of the Shareholder Equity Alliance, emphasizes what is at stake for ordinary Americans:
At this moment especially, all of us—including BlackRock—must be focused on the nation’s economic recovery. Investors, many of whom are terrified that their retirement funds have been lost or are at risk, need to be assured that managers of their assets are focused on those facets of business performance that are likely to produce a sustained return on investment and a return to financial normalcy. Extraneous political considerations serve only to sow confusion and exacerbate instability, when instability can least be tolerated. In unsettled environments such as this, true “sustainability” is demonstrated by robustness and resilience, not by highly politicized trends and fads.
Investment ratings agencies are actively assessing public companies on their ESG scores, including on whether they are doing enough to support agendas like the United Nations’ Sustainable Development Goals. This would be an unnecessary distraction form running a profitable business even if such goals were wisely decided upon and reasonably implemented. But that’s not necessarily the case.
My colleague Iain Murray wrote back in 2015, when the U.N.’s current agenda was being announced, that these goals are problematic and could do more harm than good to the living standards of the developing world residents they’re ostensibly helping:
The United Nations is soon due to replace its ambitious Millennium Development Goals with a new set of far more extensive and even more ambitious Sustainable Development Goals. However, the U.N.’s approach suffers from some major flaws. Instead of setting targets, the world should adopt strategies that have proven to deliver a healthier, greener, and more prosperous planet—strategies that also improve the resiliency of communities to whatever nature throws at them.
The U.N.’s approach is flawed because it focuses on simply announcing a slew of targets that are unlikely to prove achievable, especially as there are tradeoffs involved in meeting some targets over others.
Moreover, the U.N.’s emphasis on “sustainability,” as generally defined among development bureaucrats and NGOs, imposes significant burdens on developing countries’ freedom and ability to achieve the rapid increases in human welfare that were the target of the original Millennium goals.
With millions in the U.S. suddenly unemployed and the economic downturn around the world just beginning to be felt, big financial firms with sway over their industry like BlackRock should be focusing on fundamentals and returning the economy to some sense of stable functioning. Some of those unfashionable industries and companies may just have some fight left in them, if they’re not choked off by investment guidelines that isolate them and scare capital away.