Imagine getting a call from your bank that your credit card is being canceled in 60 seconds because of the church you attend. Or your mortgage is being canceled because your bank doesn’t like the fertilizer you use in your garden. Or your internet access is being shut down because you asked your state lawmaker to save women’s sports. Welcome to the world of activist investing and banking, otherwise known as ESG.
ESG is an acronym for Environmental, Social, and Governance investing. It presents itself as a form of socially conscious investing, much the same as other values-based financial strategies. An example of socially conscious investing would be a Christian who decides not to buy stock in porn and gambling companies; or a savings and loan that declines to do business with a strip club.
What it is
ESG, however, is far more than an investment strategy. It’s a marketing ploy and a scam. But it is also a very dangerous framework being used to popularize, and eventually codify, many of the Left’s goals.
According to Mississippi State Treasurer David McCrae, ESG is “supposed to be a method of rating and evaluating how sustainable and ethical various companies are, but in practice, it is a political football that unjustly cherry picks winners and losers.
“One might think that Tesla, the world’s largest electric vehicle manufacturer, would earn a high ESG rating for its environmental stewardship. But it was kicked off the Standard and Poor’s (S&P) ESG Index earlier this year. … Yet, oil juggernaut Exxon holds a spot. It doesn’t quite make sense, does it?”
McCrae has been at the forefront of fighting ESG, recently working with other state treasurers and advocacy groups including AFA to block a Biden administration proposal that allows ESG into employer-sponsored retirement plans. The plans that these potential rules could affect have a combined value of $12 trillion, covering two-thirds of Americans.
“Whether you agree with the objectives or not,” says McCrae, “the fact is that ESG standards are being applied subjectively, often according to perceived political ideology rather than hard facts.”
The E in ESG indicates a targeted approach to investing in companies perceived to be environmentally friendly, but as McCrae points out, these standards can seem arbitrary.
The S embodies an even murkier set of values, but basically refers to how a company addresses social issues. S&P defines the S as a strategy aimed at minimizing the risk posed by people and institutions. For example, S&P cites Walmart’s choice to restrict gun ammunition sales. What is certain is that the S includes a strong emphasis on diversity and inclusion – both in hiring and in preferences for vulnerable customers.
The G – for corporate governance – sometimes gets overlooked, but applies to sound social management practices, with the caveat that such policies promote gender diversity and equity.
Why it’s dangerous
The dangers posed by ESG are concrete. McCrae is especially concerned about how it is affecting farmers and America’s food supply.
“ESG advocates want ag producers to change their practices to accommodate investors’ political wishes rather than taking the steps necessary to feed, clothe, and fuel the world,” he cautions.
“They can threaten large-scale cattle, hog, and poultry operations. They can wield political power to target timber or divert financing from agribusinesses that are helping farmers produce more food for cheaper.”
ESG practices – specifically the S – are also being used to silence and “de-bank” conservative organizations.
“At 10:29 a.m. on July 7, 2021,” recalls Jerry Cox of the Arkansas Family Council (AFC), “our credit card processor, a JPMorgan Chase company, unexpectedly sent an email saying it could no longer support our business. Sixty seconds later we were no longer able to accept credit card donations.”
After multiple phone calls, Cox was informed that the AFC had been designated a high-risk organization.
“To this day, we don’t know why,” he says.
Other family policy groups have been “de-platformed,” thus losing access to social media pages and internet servers used to communicate with the general public.
“When someone either has their account suspended or deleted entirely, the platform as a private business (Facebook, Twitter, etc.) is terminating the ‘contract’ between itself and the user,” explains John Horst of Xanesti Technology Services. This “de-platforming,” says Horst, can have financial consequences.
ESG is starting to suffer from a branding problem because it doesn’t deliver very good financial returns. But ESG funds do earn investment advisors a lot more money, in spite of being virtually indistinguishable from other funds.
When it gets more personal
“Last year, more than half of the largest ESG exchange traded funds lagged in the S&P 500,” observes the nonprofit Foundation for Government Accountability. “ESG funds have much higher fees than other funds even though a majority of the assets in ESG funds are invested in the same holdings as non-ESG funds.”
Assaad Razzouk, energy investor and climate change commentator, is more blunt: “Epic greenwashing is everywhere, eighty-seven percent [of ESG-focused funds simply] rebranded by adding words such as sustainable or ESG or green or climate to their names. None changed their stock or bond holdings at that point.”
For activists like Razzouk, the solution to ESG’s compliance problems is not less, but more, for example, in the form of globally accepted accounting standards and multinational rules to police investment products.
This is where the ESG scam gets interesting. As the adoption of ESG standards grows, ESG is becoming embedded in federal and global rulemaking. As cited above, the Biden administration has already issued a rule encouraging private retirement plans to adopt ESG standards. Likewise, the World Economic Forum is calling for ESG to be adopted by government regulators, investors and standards bodies.
The ultimate goal seems to be to transform ESG into a framework for social-credit scoring. Pioneered by communist China, a social-credit score denotes a system to “regulate the financial credit industry, enable government agencies to share data with each other, and promote state-sanctioned moral values,” reveals Chinese reporter Zeyi Yang in MIT Technology Review.
“Individuals or companies with bad credit records will be punished by having their information publicly displayed, and they will be banned from participating in government procurement bids, consuming luxury goods, and leaving the country.”
Toward this end, various entities such as the technology firm Diginex, are pushing for the adoption of personal ESG scoring. As pro-ESG investor/blogger Kyle Kroeger boasts: “While this may sound like tales out of China, it is a system that is, in fact, being implement[ed] in the U.S. and soon many other nations.”