Mind on Money: A welcome retreat from ESG standards emerges

While there is no doubt, some corporations have certainly committed acts which most would not consider to be in the “social good,” so have governments, charities, schools and every other institution on the planet. The larger and more complex an organization gets, the less accountable any one person becomes for the acts of the collective. This organizational anonymity is ripe for abuse. It’s just human nature.

The primary reason I take issue with the ESG movement, which essentially equates to a set of standards applied to corporate activity in the areas of environmental stewardship (E), social relationships (S) and governance (G) ethics is that it was never clear to me who anointed asset management companies as the wardens of the societal best interest when it came to these ESG matters.

I work with actual investors every day. I can tell you firsthand, the people who actually own the money invested with these asset management companies through their 401(k)s, pensions and mutual funds don’t share one set of standards when it comes to the myriad of societal issues attempting to being standardized through ESG. Their opinions and political philosophies vary as widely as their life experiences. Most of the investors I work with didn’t select any particular investment to carry their torch up the hill of virtue, they were simply seeking diversified, cost-effective access to financial markets.

Those investors who do have specific intentions that their investments reflect their specific social, religious or political values always had options to direct me as their fiduciary to find them investment solutions to help them achieve these goals, and there have always been a myriad of options for investors in this regard. Or in other words, anyone who positioned ESG type principles as central to their investment strategy, didn’t need ESG standards to do so.

Then it gets even more complicated. With the growth of passive investing, or index investing, mutual funds designed to track specific market indexes, mainly the S&P 500, began to grow and scale to sizes unimaginable just a few decades ago. According to mutual fund research company Lipper, the largest 14 mutual funds in the U.S. are all stock index funds of some flavor. To believe the investors in broad-based index funds through their 401(k)s selected these funds to implement some sort of societal influence is quite a stretch in my informed opinion. Index funds offer low cost, transparent, broadly diversified access to financial markets; that’s why investors and advisors use them.

So, when the investment companies offering these index funds began leveraging the assets they passively manage, by voting shares on behalf of investors to influence corporations to observe and implement the asset management company’s interpretation of ESG standards, to me a dark corner had been turned. Now, thankfully, it looks like the ship is beginning to right itself in the asset management industry.

In the past few weeks investment research firm Standard and Poors dropped ESG scores from its credit and equity analysis, mutual fund company Vanguard announced it would no longer participate in ESG activity and even the most fervent promoter of ESG, Blackrock, has stepped back from at least talking about ESG as central to its processes. And to put a cherry on the sundae, the ever-entertaining Elon Musk called ESG “the devil” not long ago. In my opinion it certainly had the capacity to be so. The great thing about a free market, is that eventually reason tends to prevail.

Now, real quick about last week. I’ve gotten too many requests to finish the RV story. My sister-in-law Jill’s husband Rob is a youth football coach. One of the parents of his players was a plumber with a side business working on RVs. This heroic individual, named Joe, rallied to our cause and came over at 10:00 at night to work on our smelly issue. Together, Joe and I (mostly Joe) fabricated a new bracket, resealed the black tank and repaired the system. We made it to Florida, the kids saw Mickey and the trip ended up being great. Thanks everyone for asking.