2 days Ago By Peter Roff
Lenin used to tell his followers they would defeat capitalism because the capitalists, in their unchecked greed and avarice, would sell the communists the rope they would use to hang them. It never came to that, exactly. In 1989, the Berlin Wall fell.
With its collapse came a new phase in the battle between economic liberty and collectivism. What hasn’t changed, even now, is the use by collectivists to achieve social and economic justice aims by using the rules of the free-market system to try and bring it down. The latest iteration of this effort was the push by liberal organizations and labor groups to encourage major money management firms to utilize their shareholder voting power to make corporate America greener, more diverse, and inclusive and, as a direct consequence of that, focus on investment strategies that prioritized something other than maximizing returns for investors.
The idea that Wall Street had developed a social conscience was embraced by the business and political press, which viewed the push towards two goals – diversity, equity, and inclusion (DEI) and environmental, social, and governance (ESG) – as an indication global business leaders were finally acknowledging responsibilities they had previously overlooked. Some analysts went as far as to predict that with the Biden administration pushing for an accelerated transition to green energy by mandating a reduction in the use of fossil fuels in the national energy mix, these initiatives would create new opportunities to generate profits for investors large and small. All that happened in something of a vacuum.
These proposals were put forward without much opposition or scrutiny. That made it easy for union pension funds and other progressive groups and individuals with large portfolios to push an anti-growth, anti-capitalist agenda. Their success came at the expense of what used to be called “the little guy,” who didn’t know his life savings were being invested based on the priority of issues near and dear to social justice warriors rather than in pursuit of the highest achievable earnings.
Once groups like the Committee to Unleash Prosperity and the Competitive Enterprise Institute got involved in the conversation and exposed the cost to investors, Wall Street reversed course. To ensure they don’t turn around again, Kentucky Republican Rep. Andy Barr has introduced legislation requiring pension funds to invest solely based on financial objectives.
Even without the government acting, the biggest Wall Street firms are ending their support for DEI efforts in hiring and promotion and eschewing ESG investments in favor of what Barr and others want. Larry Fink, the man who built BlackRock into the financial powerhouse it is today and who was an early cheerleader for ESG, is now leading his industry away from it. Call it overdue recognition of a costly experiment that failed, Fink is now telling other investors and money managers that our global energy needs, for example, must be addressed “in a pragmatic way.
” That’s quite different from the net-zero-emissions goals he once endorsed as a future investor’s profit center. And a heavy blow to the aspirations of green activists, who had expected to use the regulations and obligations of public companies to their shareholders to win the victories they could not achieve in Washington. The Trump administration’s efforts to halt corporate ESG and DEI initiatives emerged full-blown shortly after the president took office.
His regulators are taking a whiplash to the proponents of these policies in the private sector, heightening the emphasis business has placed on getting things right. In his early 2024 letter to investors, Fink omitted any mention of ESG. In its 2024 SEC filings, BlackRock removed references to DEI and will not provide a breakdown of its employee demographics by gender and ethnicity moving forward.
The firm also plans to discontinue its ESG exchange-traded funds, having launched thirty such funds over the past five years. Its response to the message sent by the marketplace has led it to abandon DEI entirely. It has withdrawn from the Net Zero Asset Managers Initiative, which had investment firms committing to net-zero greenhouse gas emissions by 2050.
It has not acted alone. Other companies followed suit, a devastating setback for those arguing that a person’s ability to heat their home in winter and keep it cool in summer is contributing to the planet’s destruction. As small investors began to learn about the widespread use of these social investing strategies, they began to move their money.
Sunlight killed the beast. The market spoke and Wall Street listened. As Calvin Coolidge famously observed, the business of America is business, not the construction of elaborate, anti-free-market social policies and investment regimes.
The change is real. Of late, Share Action reports, prominent asset management companies have significantly reduced their support for environmental and social shareholder resolutions compared to years prior. The so-called “Big Three” institutional investors — BlackRock, State Street, and Vanguard — are exiting the DEI and ESG business, hopefully for good.
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