The old saying goes “if you don’t like the weather around here, wait five minutes.” So it is with the anti-ESG movement – if you don’t like what you are hearing about it, wait a day or two. A sampling of articles from the past few days I found striking indicate that state anti-ESG policies:
- are working because they cost BlackRock – the most targeted firm – lost business
- aren’t working because BlackRock’s losses weren’t meaningful to the company
- are working because Vanguard reaped benefits after leaving the Net Zero Asset Managers (NZAM)
- may work as intended but cost taxpayers more than half a billion more in higher interest than would be incurred otherwise
Yes, it is confusing. Let’s start at the top.
BlackRock CEO Larry Fink said the firm lost about $4 billion in assets under management (AUM) as result of U.S. state anti-ESG laws. Keep in mind that is not fees/revenue, which are a much lower figure – although I couldn’t find how much that is. Florida pulled $2 billion in AUM from the firm, Texas Louisiana pulled $794 million, Missouri pulled $500 million, South Carolina pulled $200 million, Arkansas pulled $125 million and Utah $100 million. While Texas was a leader of this anti-ESG movement, I haven’t been able to determine how much – if any – Texas state assets have actually been withdrawn, especially given the exemption in the law for state pension funds.
Even so, as that same Reuters article states, $4 billion in AUM is meaningless in the grand scheme of BlackRock’s current $8.6 trillion under management – about 0.05%. Again, that figure doesn’t represent fees/revenue. Fink was quoted in ESGToday as saying:
“We lost about $4 billion of flows from various states, but in long-term flows last year we were awarded $400 billion. Just last year in the United States our clients entrusted us with an additional $230 billion. So you tell me.”
For BlackRock, it appears the whole thing was … a non-thing – certainly not enough of an impact for the firm to change its ways.
Turning to Vanguard, Bloomberg reported:
“Vanguard Group, which quit the world’s biggest climate-finance alliance [the Net Zero Asset Managers, NZAM] in December, was the only major ETF provider to post an increase in European assets last year thanks to its lower exposure to environmental, social and governance strategies, according to Morningstar Inc.”
Granted, according to Morningstar, BlackRock’s iShares AUM in Europe “are more than seven times the size of Vanguard’s ETFs” so in gross terms perhaps this is not quite as impressive as it may seem. However, it is the context that I think is important.
Finally, The Hill wrote
“State-level efforts to penalize companies for use of environmental, social or governance (ESG) goals in investments could cost taxpayers over $708 million, according to a study published by the nonprofit Sunrise Project…
In the study, researchers analyzed a Wharton School of Business paper on Texas’s anti-ESG law, which linked the state law to $532 million in higher interest payments on municipal bonds. Sunrise Project analysts extrapolated this to six other states – Florida, Kentucky, Louisiana, Missouri, Oklahoma and West Virginia – and estimated the same impacts would cost taxpayers a total of $708 million …”
The whole thing reminds me of this line of questions, answers and results.
What This Means
In my opinion, the anti-ESG effort is simply noise. Operating companies should not anticipate significant investor pressure to change direction or pull back on ESG programs. Financial services firms likewise should not fear their ESG initiatives regardless of political saber-rattling. I also suggest caution in thinking that anti-ESG investments are actually what they claim. The poster child of such funds – Strive Asset Management’s DRLL fund – paradoxically scored “a perfect 10” in one ESG assessment. Go figure.