Tag Archive for: CorporateESG

American Free Enterprise Chamber of Commerce Fights Wokeness, the Left’s ESG Agenda

Estimated Reading Time: 12 minutes

Editors’ Note: We are glad to see real competition arriving to counter the legacy “chamber of commerce”. Too often over the past few election cycles, what passes as representatives of free enterprise have sided with the Big Government Left.  Like other institutions, they seemed to have been captured by progressive socialist forces. As is necessary for so many other areas of life, new institutions will have to be founded to replace the old. This new organization you should be made aware of, especially if you work in business or are a business owner. You cannot expect any longer that the “old” Chamber of Commerce will reflect your interests or that of the free enterprise system.

 

American corporations are increasingly taking sides on political issues—and it seems they’re often embracing socialist ideas rather than the free market.

That led former Iowa Gov. Terry Branstad and others to create the American Free Enterprise Chamber of Commerce. The group launched earlier this year to put the focus back on pro-business policies and limited government—rather than woke ideas pushed by activists on the left.

Gentry Collins, CEO of the American Free Enterprise Chamber of Commerce, comes to the job after serving as the national political director at both the Republican Governors Association and the Republican National Committee. He spoke to “The Daily Signal Podcast” about the organization. A lightly edited transcript is below.

 

Rob Bluey: What led [former Iowa Gov. Terry] Branstad and you to start the American Free Enterprise Chamber of Commerce?

The liberal Left continue to push their radical agenda against American values. The good news is there is a solution.

Gentry Collins: One big idea, which is that free people and competitive markets have solved more problems, achieved more big dreams, and created more progress and more prosperity than any other system in all of recorded history. And yet, despite those facts, we’re losing a generational battle for the idea that this is the way of the future in America.

And so, we’re committed to making sure that American free enterprise is something that every generation in America can embrace, and that while we’re working on that, that today’s small businesses maintain access to the marketplace where there are more threats than any time in living memory.

Bluey: I’m so glad you talked about it in that context of somebody like myself who has kids and sees the challenges that we’re up against in terms of educating the next generation.

Why is it that so few people understand the truth about free enterprise and the success that it has led in terms of reducing poverty and hunger worldwide in so many countries that otherwise wouldn’t be prospering if it weren’t for the entrepreneurial spirit of the business community?

Collins: I think in part because my generation and older maybe haven’t done our jobs, we took it for granted. [Former President] Ronald Reagan famously said that freedom is never any more than one generation from extinction, it has to be fought for and defended and handed onto the next generation. And I’m not sure that my generation has done that job.

And so part of the mission of the American Free Enterprise is to change that and to put it back on track and to tell this story. I would frequently say the most powerful secular story in all of human history is the story of American free enterprise.

So think about this. Historical evidence shows us that from the beginning of recorded history all the way until 1900, that global human life expectancy was never more than a rounding error away from 30 years old.

For 5,000 years, global human life expectancy stuck at 30. Within those 30 years, every system, political economic system around the face of the globe, led to deprivation and subjugation in its various forms. Until when?

Until one single American century, defined by the idea that we’re all created equal, that the government drives its just power only from the consent of the governed, and that we all have an equal opportunity to access the marketplace, to compete, to demand better in our lives, that set of ideas more than doubled global human life expectancy in one single American century.

And within the doubling of that life expectancy, we will now lose more of our poor, not our rich, we’ll lose more of our poor, for the first time in world history, to diseases of excess than we will diseases of deprivation, heart disease, diabetes, obesity, and so forth.

And as big a problem as those may be, that is one heck of an achievement. That is the fruit of American free enterprise. It’s the fruit of this political and economic system. And we have not told next-generation voters that.

One more thought on it, if I may. During that American century that saw such a rise in shared progress and prosperity, never before seen, one ideology scaled three different times to compete with the American century, and it was socialism. First in Germany, and then the Soviet Union and in China. Combined, they murdered 100 million people during the American century. But for the various forms of socialism on the face of the planet last century, we might have been at 83 for global life expectancy instead of 73.

We have not told next-generation American voters and consumers the story of the power of American free enterprise, and we’ve got to change that.

Bluey: Now, as a chamber of commerce, tell us a little bit about how you’re organized, what you’re doing, and who some of the members are that are supporting you.

Collins: Yeah. So, we’re organized as a 501(c)(6), a trade association, that is open to any American business.

And our pricing reflects that, where $99 a year, anybody can afford to join, anybody who shares our values and wants to fight for free enterprise and equal access to the marketplace, maintaining equal access to the marketplace at a time when there are real threats to that in our economy. And so, American businesses of all sizes, but priced in a way that any business can play on a level playing field.

Many other trade associations have a very complicated pricing model, where the big guys get to come in and write a big check and then dictate to the rest of the membership what we believe. And we’ve turned that around. Our model is 180 degrees from that.

We’ve come out with a Free Enterprise Bill of Rights. We’ve made very clear to our members and the public in general what we believe are the foundational principles of American free enterprise, what does it mean to open the possibility of another American century? We’ve promised our members that we’ll fight for those things and only those things, and it’s on that basis that we’ve built our membership.

Bluey: I’m glad you mentioned the Bill of Rights. You have 10 principles that are part of it. You don’t have to go through all 10, but what are some of the key things that you have identified for your members and some of the things that you’ll be out there advocating for?

Collins: There are a variety. Just from a foundational perspective, the right to fail, the right to succeed, the right to operate your business without onerous level of either taxation or regulation.

A fair playing field, one set of rules for all of us, foundational to American free enterprise, and something that not only have we been migrating away from for years, but that migration away from that one set of rules for all of us seems to have increased in the COVID period.

A fair and sound banking system and a whole variety of others, but those are some of the foundational principles that we’ve laid out for our members.

Bluey: Some of the stories that I’ve read about your organization have painted a contrast between it and the U.S. Chamber of Commerce. Can you talk about some of the differences, maybe not only with that group, but others that may be in the same kind of marketplace?

Collins: We’re in the business of advocating for American free enterprise and we’re not built to compete with any one other organization. I will say broadly, though, that there are a number of organizations that are based here in Washington, D.C., that seem to have been more concerned with what their biggest members, writing very big checks, think about issues rather than foundational principles.

And so we are built specifically to be in a place where foundational principles are what we maintain fidelity to, starting not just with an ideological belief in those principles, but with an operational structure that doesn’t incentivize us to take a look at our big members and say, “Well, we’re going to follow you on an issue even though it compromises on our principles a little bit.”

At $99 per year, per member, not only can anybody afford to participate, but we’re not giving people an opportunity, financially speaking, to sort of compromise on our principles.

Bluey: Speaking of some of those big corporations, we have seen in not the too distant past several of them take steps that I think some conservatives and those who believe in the free market have been concerned about. Whether that’s the embrace of ESG—environmental, social, governance—or woke policies and diversity equity inclusion. You can go down the list of acronyms that the Left has embraced.

What’s your position on those issues and what do you say to those big corporations that may be taking more of a socialist track as opposed to the free market?

Collins: Our position is that everybody ought to be free to compete on a level playing field. And to the extent that ESG and other approaches like it are in the way of a free, fair, open marketplace, then those are things that we’ve got to deal with. And so we’re working aggressively to deal with them.

Now, I want to be careful here. We are not in the business of telling any business how to operate, but what we are very much in the business of is saying that you can’t stand in the way of smaller entrance to the marketplace.

And I think a lot of this ESG agenda, among other things, is designed to crowd out new sort of innovative upstarts that may do it a little better, a little faster, a little cheaper. And I think some of the big guys are using ESG as a way to crowd out the small competitors.

Bluey: It certainly seems like that’s the case. And as we know, as history teaches us, some of those small competitors will themselves become a big giant corporation and disrupt the market.

Collins: And we want to help them disrupt the market, so let’s remove the artificial barriers that some of the legacy players are trying to put up.

Bluey: China obviously poses a significant threat to the United States. I’ve seen you mention that in some of your materials. How are you approaching some of the challenges posed by the Chinese Communist Party?

Collins: No. 1, by calling them out publicly.

No. 2, by tying some of what the big banks are doing on ESG to this very question, that to transition our energy economy to something that relies on rare earth, for example—among other examples, by the way, but we’ll highlight that for a moment—really is shortsighted, not only for all of the other reasons that you might talk about on ESG, but in this case, because it empowers the Chinese communists.

People who have not contributed to the global economy, what we have, who have subjugated their own people, continue to subjugate their own people, who steal intellectual property from American businesses, who crowd us out of the marketplace unfairly.

Those are practices that we call out every day.

By the way, as you may know, our chairman, Terry Branstad, former U.S. ambassador to China, who saw this and lived it firsthand, as is true of anybody who’s been around a communist regime, the closer you’ve seen it, the more convinced you are that it is the wrong pathway. And so our chairman himself is very committed to calling this out.

Bluey: Certainly, Gov. Branstad has significant experience with China, and so hopefully a great asset to your organization.

You mentioned earlier a lot of the organizations, trade associations that are based here in Washington, D.C. You’ve purposefully organized in the Midwest, in Iowa specifically. Why is that important?

Collins: Look, the middle of the country is overlooked and ignored too often in this town. I love Washington. I lived and worked here for more than a decade. There are a lot of things to love about it. But it has a way of drawing people into a certain kind of groupthink, to a sort of an establishment way of thinking that doesn’t understand and then overlooks and downplays the contribution of the great middle of the country.

And I don’t just mean Iowa, my home state, or the Midwest, I mean the middle and the broadest possible way, the middle geographically, the middle economically, the middle ideologically in many ways.

And so we have very intentionally not come to D.C. to form this organization, but stayed at home in Iowa to be close to the middle of the country, to understand, to be in the midst of that every day, to understand their concerns, their hopes, their dreams, and what stands in the way of achieving those hopes and dreams.

And so our view is that by being in Des Moines, we’re a little bit closer. We’ve got a finger on the pulse in a way that is hard to do here in Washington.

Bluey: Do you expect to be engaging not just in those national issues that we’re debating here in Washington, but also in state capitals?

Collins: We expect to engage anywhere barriers to entry to the marketplace emerge. And so I think right now the biggest threats are coming from Washington, D.C., but certainly they come from the states as well.

Or say that more positively, I think there are some states where we’ve got more forward-looking elected leadership that may go on offense on some of these issues rather than just being on defense. So certainly we expect to be active in the states as well.

Bluey: What kind of reaction have you received from Capitol Hill to the creation of the organization?

Collins: The reaction has been overwhelmingly positive, particularly with leadership that has been looking for an alternative. An active, but principled voice for American small businesses has been missing from the debate and it’s been welcomed with open arms.

Bluey: And tell us a little bit more about your team. You’ve recently brought on some big hires, some people with significant experience, not only here in Washington, but who have a vast policy background. Who are some of them and what do you have planned in the short term?

Collins: Our organization is small and lean. Our overhead is very small. We’ve kept it very small and intend to do that. Everybody that’s joined us to help with policy and policy advocacy maintain their own practices.

People come to our operation because they believe in the cause. They believe in the principles that we’ve laid out. They see the need for better advocacy for American free enterprise and small businesses in particular.

But we’ve been gratified by the response. There are a lot of folks that have been around national policymaking that see this as a problem and want to contribute to a solution, so we’ve been very pleased to have a number of them join us.

But again, they’re joining us not on the basis of coming into a full-time salary or being paid a big number, but rather on the basis of belief in the mission and being ready to roll up their sleeves and help.

Bluey: Weeks before the election, obviously, we don’t know what the ultimate outcome is going to be and what the makeup of the next Congress will look like, but there could be a potential opportunity to put forward a pro-growth, a pro-business agenda, particularly in the U.S. House, possibly the U.S. Senate.

Any particular policies that you’re looking at, at the national level, that you think could really supercharge our economy again and get us out of this situation where we’re experiencing record levels of inflation and pain on the American people each and every day?

Collins: Let me answer that in a couple of ways.

One, there are very clearly policy priorities that can help put us back on track, whether it’s recommitting ourselves to American energy independence, whether it is dealing with the weaponization of the federal government in several agencies, including the [Securities and Exchange Commission] and the [Federal Trade Commission], probably most notably weaponized to enforce an ESG agenda that could not pass at the ballot box, that wouldn’t even pass in the normal course of things in the economy.

Pushing back on those things in a variety of ways from a policy perspective, I think, are important objectives.

But let me just say that if we have a conservative majority in one or even both chambers of the Congress, we’ll still be dealing with an administration that has been responsible for weaponizing the federal government to enforce ESG priorities.

And so I think it’s important for free marketeers, for conservatives to be looking at, how do we use a new majority in the Congress to raise these issues in a way that’s relevant in the lives of everyday Americans? How do we make clear in the public discourse that the rise of ESG and weaponizing the federal government to enforce ESG priorities is directly responsible for the pain that they’re feeling at the grocery store and at the pump and at the bank, and in a whole variety of other ways economically in their lives?

I don’t think we’ve done that job fully, and I think that will be part of the job of a new conservative majority.

Bluey: It’s so important, the storytelling aspect, as you indicated, of connecting the dots and helping the American people see how the policies that are enacted here in Washington, D.C., or some cases, but the administrative state in Washington, D.C., and the regulatory state affects the lives of everyday Americans.

Finally, Gentry, share a little bit more about how an organization or a business could become a member of the American Free Enterprise Chamber of Commerce and some of the benefits they get as a result.

Collins: Yes, easy, amfreechamber.com, you can sign up there. It’s $99 a year, and there are a whole variety of benefits. Since we’ve been talking about issue advocacy and policy, we’ll start there.

One, principled advocacy. As you indicated earlier, our 10-point, Free Enterprise Bill of Rights is right there on the website, so exactly what we’re for and why. And so our advocacy will be built around those principles and only around those principles.

Outside of the advocacy realm, there are a number of business tools that are available to our members, from banking services for those who have faced various kinds of debanking issues to merchant payment processing, where there’s been, I’ll say, a small epidemic of businesses that have been deplatformed from merchant payment processing services over the last number of years.

Not only can we help remedy that for legally operating businesses in America, but we can compete on rates as well. I think most small businesses that become members find that even if they don’t face a deplatforming threat, that there’s a competitive advantage to the rate structure that we can offer small businesses.

When you aggregate a number of small businesses, the purchasing power turns out as pretty significant, and so we’re able to save small businesses quite a lot of money on those, as well as providing a principled approach to public policy.

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This article was published by the Daily Signal and is reproduced with permission.

The Scam Called ESG

Estimated Reading Time: 3 minutes

What is this thing called ESG?  It stands for Environmental, Social, and Governance. Sounds great, doesn’t it? What could possibly be the harm of seeking to promote these virtues in our corporations? I mean, seriously, who doesn’t want companies that seek to emulate these values? I will be the first to admit that when I first heard of it, it sounded like a good idea. How can it be bad?

The main problem lies in their root: they are all completely subjective measures. There is no empirical methodology for applying these value scores to a company. It begins with a failed investment banking analyst who is tasked with scoring companies on these values. Why ‘failed’? Because if they were any good at evaluating industries and companies, they would still be doing it.

And since ESG is subjective by its nature, the movement has been hijacked by the left and its subjective values. A company that mines coal with US labor gets a poor score, while a solar panel manufacturer in China that uses slave labor and is owned by a dictatorship gets a high score. How does that make any sense?

Let’s begin by looking at the energy industry. By their own admission, almost every ESG analyst will state that an energy company is ‘bad’ because they employ fossil fuels for the bulk of their energy creation. Thus, all of the major banks in this country will no longer offer credit and financial services to these firms (they want to preserve their own ESG scores). Almost all oil drilling and exploration on public land have been terminated because using fossil fuels will destroy the environment. By starving the industry of capital and reducing production on public lands, ESG will create its own energy crisis.

The new definition of ESG is this:  Energy Shortages Guaranteed.

In the world of the ‘woke’ ideologues who promote this line of thought believe it is better to have places like Venezuela and the Middle East supply our oil than it is to get it here. This is in spite of the fact that the USA has greater oil reserves than almost any other nation on earth. We also are much cleaner producers.

Moreover, if fossil fuels are such a danger to the earth, why does Venezuelan or Saudi oil get a pass? Does the earth know the difference? Are these countries not part of the global ecosystem?

The solution to this self-inflicted energy crisis is to encourage the use of electric vehicles (EVs). It may come as a surprise to learn that EVs are not all that ‘green’. The most obvious example is fueling these EVs. Charging your Tesla overnight is the energy equivalent of having 15 refrigerators running in your kitchen overnight. There are other, less obvious, reasons for promoting the use of EVs: the most practical is that it reduces your ability to travel independently – you can only travel to places that will make charging stations available (currently limited to the most populous areas). And, by the way, where will the additional power to fuel these vehicles come from?  Our energy grid is currently at capacity and has trouble maintaining current demand and it is mostly derived from fossil fuels.

Bear in mind also that the very people who decry the use of fossil fuels almost all fly on private jets for their travel needs. When do you suppose President Obama or Leonardo De Caprio last took a Southwest flight? Remember that flying on a private plane pollutes 5 to 14 times more than commercial jet travel per passenger. Yet these ‘woke’ proponents of ‘green’ policies still preach to us about reducing our energy footprint while they ignore it completely. And by the way, if global warming, the ice caps melting and climate change are going to flood the world’s shorelines, why do they all live on oceanfront properties? But I digress…

Back to ESG. At its core, it is simply another way for our leaders to control things. If it were an honest measure of ‘goodness’ it would excoriate any firm doing business with the nation of China – one of the worst human rights violators on the planet.

While it is only in its nascent stages, ESG is still nothing more than a social credit score applied to businesses. Who makes up these scores? What are the criteria? And how long will it be before employees of companies are scored on their ESG evaluations? How long will it be before we all are tagged with a social credit score?

ESG (Environmental, Social and Governance) in America = Extreme Shortages Guaranteed

Estimated Reading Time: 4 minutes

Energy growth, electricity AND the products made from oil derivatives—manufactured from crude oil and the fuels to power ships, planes, militaries, and space programs—are directly linked to prosperity and well-being across the globe.

Today, most of the energy the world consumes is from hydrocarbons, with crude oil being the dominant source of transportation fuels. Today, crude oil is the ONLY source for the oil derivatives manufactured from crude oil that makes more than 6,000 products for society.

President Biden’s US Energy Information Administration (EIA) projections are that world energy consumption of crude oil, coal, natural gas, electricity from renewables, and nuclear will grow by 56 percent between 2010 and 2040. Without any replacements or clones to what fossil fuels can provide the EIA forecasts that fossil fuels will continue to supply nearly 80 percent of world energy use through 2040

President Biden and Sacramento leaders, from Governor Brown, Schwarzenegger, and now Newsom, have supported reductions of in-state oil production. And all remain supportive of Biden’s pledge that “we are going to get rid of fossil fuels.”

Another way to interpret Biden and Newsom’s pledge for an all-electric world:

  • Biden and Newsom are oblivious to the reality that everything that needs electricity is made from the oil derivatives manufactured from crude oil. In an all-electric world with JUST wind and solar electricity from breezes and sunshine, there will be nothing to power.
  • Biden and Newsom believe that the products and fuels manufactured from fossil fuels are supporting lifestyles and economies, are dangerous and polluting, and are causing dangerous climate change.
  • Biden and Newsom believe that all the infrastructures developed in less than two centuries, from the products manufactured from crude oil, are not needed by future societies, such as medical, electronics, communications, and the many transportation infrastructures such as airlines, merchant ships, automobiles, trucks, military, the space program.
  • Biden and Newsom believe that an all-renewable electricity system from unreliable weather conditions, WITHOUT the products and fuels from fossil fuels, can work to support a modern economy.

America is in fast pursuit toward achieving President Biden’s stated goal that “we are going to get rid of fossil fuels.” Today, Biden supports and encourages banks and investment giants to collude to reshape economies and energy infrastructure with their Environmental, Social and Governance (ESG) divesting in fossil fuels movement. ESG is an extremely dangerous precedent as the American people never voted to give banks this sort of control over our country.

With no known replacement for crude oil, Biden and the ESG believers need to be careful about eliminating “all” 3 fossil fuels! America continues to contribute to China’s domination by divesting in crude oil, the same oil that changed the world after 1900, guarantees shortages and inflation in perpetuity of products supporting societies and economies.

It seems obvious that the efforts to cease the use of crude oil may be the greatest threat to civilization. Attempting to attain a decarbonized world like the one that existed in the 1800’s and before, could result in billions of fatalities for the eight billion on earth from disease, malnutrition, and weather-related deaths, versus the projections of millions of fatalities from changes in climate.

The world leaders are experiencing a “dangerous delusion” of a global transition to “just electricity” that eliminates the use of the fossil fuels that made society achieve so much in a few centuries.

There were almost 700 oil refineries as of January 2020, but as a result of continuous regulations and permitting delays and the worldwide support of the ESG to divest in fossil fuels, the right operating model and level of integration will be crucial for survival and sustained profitability of refineries.

Consequently, one in five oil refineries are expected to cease operations over the next five years. One in five is 20 percent, or almost 140 refineries expected to be shuttered worldwide, resulting in a 20 percent decline in the products manufactured to meet the ever-increasing demands from society. With the reduction in manufacturing capabilities, shortages and inflation in perpetuity are likely the new norms!

As of 2021, there were eighty-eight new facilities in planning or under construction in Asia and Europe is set to see an addition of twelve petroleum refineries. The amount of oil fed through refineries in Asia has significantly increased in the past three decades as demand for petroleum products surged in developing countries such as China and India. China is on track to succeed the United States as the country with the greatest oil refinery throughput.

Today, America’s energy policies support being held hostage to unstable Petro-powers and the vagaries of foreign crude oil supplies to meet America’s demands.
The key challenge is meeting the growing demand for energy in an environmentally friendly and safe manner. Energy supplies are crucial to economic growth in both developed and developing countries to power businesses and homes, connect communities across boundaries, provide safe water, move commodities, and ultimately promote human and economic development.

While renewables continue to underperform in the generation of electricity, subsidies continue for wind and solar power plants based on “nameplate ratings”. Wind and solar should be penalized when they cannot deliver that for which they have been permitted. And while America promotes the “nameplate farce” of wind and solar, crude oil continues to be targeted for elimination along with coal and natural gas, even though oil is seldom used for generating electricity.

The unintended consequences of attempting to rid America and the world of crude oil usage are being realized in supply shortages and soaring prices resulting from the elimination of products and fuels manufactured from crude oil that support:

  • Asphalt for roughly sixty-five million miles of roads in the world
  • Tires for the 1.4 billion vehicles in the world
  • Fertilizers to feed the world on this increasingly resource-stretched and crowded earth.
  • Medical supplies that are primarily made from oil derivatives
  • Jets that comprise more than 50,000 for military, commercial, and private sector.
  • Merchant ships that comprise more than 53,000 that move products throughout the world
  • Vehicles that are mostly made of plastics
  • Renewables of wind turbines and solar panels that are made from oil derivatives

Simply put, the goal to “electrify everything” is a de facto energy tax on low- and middle-income citizens that could add more instability to already proven unstable power grids.
It is mind-boggling that America continuously perpetuates greater reliance on foreign countries for the products demanded by society, and for the exotic minerals and metals to support wind, solar, and EV batteries. America is successfully pursuing ESG, i.e., Extreme Shortages Guaranteed and inflation in perpetuity that is associated with unreliable supplies to meet ever-increasing demands.
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This article was published by CFACT, Committee for a Constructive Tomorrow and is reproduced with permission.

ESG Financial “Leaders” Live In La-La Land

Estimated Reading Time: 2 minutes

This week, I virtually attended “The ESG Leadership Forum 2022” co-hosted by the Wall Street Journal Trust and Nasdaq. Panel discussions covered everything from accelerating the energy transition to how to model climate risks into climate strategy to getting to net-zero with tips on how to “actually deliver” on ESG promises.

Speakers earned an “A+” in leadership lingo and managerial theory, but a big “F” in reality. There was a creative high point where win-win was reimagined as wind-wind to describe one company’s “winning” approach to wind energy. (Get it?) In their defense, it is winning from the C-suite perspective. These companies are guaranteed to reap the benefits of government-backed dividends promised by President Biden through trillions of mismanaged taxpayer dollars. 

In reality, however, we the taxpayers will be stuck with the consequences of the ESG movement, and, most notably, the “path to net-zero,” which is both damaging and delusional. It is behind efforts to shutter reliable and affordable energy—mainly coal, oil, and natural gas—and replace it with less reliable, more expensive alternatives. The arbitrary deadlines to reach this goal are forcing the early closure of energy sources without adequately replacing them. As a result, our degraded energy grid now regularly delivers blackouts and brownouts, especially during heat waves and cold snaps when we the regular people consume it the most. This isn’t because of climate change. It can be attributed to poor planning and blind allegiance to ESG principles that constantly overpromise and underdeliver.  

As Team Biden implements its whole-of-the-government effort to shutter U.S. oil and natural gas, ESG investing is maximizing its effect. Government-mandated red tape, coupled with leasing bans, has increased operating costs. At the same time, ESG investors are limiting access to the very capital these companies need to upgrade, expand, and ultimately keep up. The resulting oil market imbalance of suppressed supply is the leading reasonfor the high costs we pay at the pump. The strained natural gas supply, which accounts for 37% of electricity production, has led to the largest 12-month increase in over 40 years and is why one in six families is now behind on utility bills. 

Adding insult to injury, this will have no impact on the climate. Some reports found that a net-zero U.S. would reduce temperatures by only 0.137 degrees in 2100. Recall that a warming temperature is the purported key driver of the change these financial gurus are fighting. 

The real problem is that these ESG elites are in charge of trillions of dollars of investments and their decisions—even the damaging and delusional ones—have a broad reach. They should not be celebrated, but rather held to account—starting with the fire-fire approach. (See what I did there?)

That is fighting fire with fire. Leading this is Strive Asset Management, a company that offers investors the ability to partake in good old-fashioned planning, where maximizing value takes precedence. Strive CEO Vivek Ramaswamyeven has the audacity to let those that reap the benefits of his fund’s returns use their own money to be the change in the world they want to be.

Americans are starting to wake up to the ESG fraud. To find out more about ESG, what it is, and how states are starting to rightfully push back, check out our comprehensive communications kit on ESG Investing.

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This article was published at Independent Women’s Forum, and is reproduced with permission.

The Rise of ESG, Replacing Profits with Paternalism, and Strategy with Standards

Estimated Reading Time: 5 minutes

The movement for creating systemic change in the economic system is growing. Traditionally, investments in entrepreneurial ventures were based on expectations for a favorable return given the risks involved. Businesses were expected to perform at their best to ensure shareholder value, and to do so they needed to cater to consumer needs, efficiently leverage resources, and effectively manage their operations.

Presently, however, businesses are expected to have a social impact – and it is this impact that is being positioned to matter most. More than production, more than consumption, and even more than shareholder value.

For-profits are increasingly embracing the concept of conscious capitalism and stakeholder integration, which the likes of John Mackey and Sir Richard Branson have not only championed but built movements around, calling on businesses to have a “Higher Purpose” and commit to creating a “better world”.

At face value, this sounds like not only a good thing but a strategic move given that consumer preference leans toward firms that aim to have a social impact rather than simply sell a product.

R. Edward Freeman, the proposed father of Stakeholder Theory, asserts that firms must align the interests of all stakeholders while doing what they can to avoid tradeoffs. His 1984 publication, Strategic Management: A Stakeholder Approach, spurred on a mission to transform business practices toward more noble pursuits.

From Villain to Social Guardian

In 1987, the World Business Academy was launched dedicated to the proposition that businesses can’t be trusted since the corporate realm was “behind every major problem.” A change needed to occur.

This negative notion of the impact of business attracted others to come up with their own stance on the matter. John Renesch coined the phrase “conscious capitalism,” John Elkington promoted the Triple Bottom Line – representing people, planet, and profit, and Michael Porter developed the concept of shared value, which proposes the meeting of a social need with a business model.

To be sure, many have stressed the role of business in society to be more than just about making money, and forms of corporate social responsibility (CSR) have both expanded and evolved in response.

When the concept of CSR first came about, it was applicable to larger firms that had the ability to utilize their wealth and success for giving back – by volunteering, giving to charities, and even partnering with NGOs. However, CSR is no longer about giving back, or even paying it forward – it is about engagement with social issues – and this is now expected of all firms.

The Push for SDGs and Rise of ESG

The pressure to do good is not only based on reputational concerns from private actors but derived from a broader, more politically charged global movement.

In 2000, the Millennium Summit took place in New York City at the United Nations, and was the largest gathering of world leaders at that time. The purpose of the Summit was to determine the ongoing role of the UN and propose new goals for creating a better world.

As a result of the Summit, public officials signed the Millennium Declaration, which outlined eight Millennium Development Goals (MDGs) to be achieved by 2015. And given that a primary focus for the UN was eradicating poverty, engaging with the financial sector became a crucial component.

At the bequest of the UN Secretary-General at that time, Kofi Annan, a study was commissioned to make the business case for corporate commitments to social initiatives, and in 2006 the UN called upon countries to become signatories to its Principles for Responsible Investment (PRI). For those who signed on to the PRI, the standards proposed required firms and capital markets to take part and do more for the global good.

After 2015, the MDGs morphed into the Sustainable Development Goals (SDGs), and the PRI prompted the creation of ESG frameworks. Both the Sustainability Accounting Standards Board (SASB) and the World Economic Forum (WEF) promoted efforts for instituting “a globally accepted system for corporate disclosure” to track the progress of the SDGs and pressured financial firms to implement ESG metrics as proof for doing their part.

The adoption of ESG standards, however, is truly problematic given that value and virtue are difficult to measure and there will always be tradeoffs – whether Freeman likes it or not.

A troublesome matter for businesses serving societal goals rather than marketplace needs is the complexity of catering to all stakeholders at once, and the subjectivity of what is meant as being ‘good’ or when ‘good’ does or doesn’t apply.

For instance, prior to the pandemic, regulators aimed to limit the use of single-use plastics, but such stipulations were suspended in response to COVID-19 safety concerns. Recycling centers shut down and plastic production ramped up. This was what was needed, and therefore good for society.

The Real Problem with Rating Systems

Divergent interests and incentives create push-pull effects in the market, and while it is important to be aware of the impact and opportunity costs involved, it is also important to let market mechanisms play out. Instead, however, firms are being coerced to abide by assessments and compliance measures ,and this will only create bottlenecks for production processes over time given that anything new or different will need to first be approved or verified. And Branson’s booming B Corp movement and Mackey’s Conscious Capitalism cohort are aiding in this process.

Adhering to the on-high expectations from verifiers such as the B-Team, who claim that our “economic model is broken” despite the great advancements we can see before our eyes, is not only bad for business but bad for progress.

Experimentation and diversification, according to Ludvig Von Mises, are the best combination for advancement, and new product offerings are a benefit to society in and of themselves when firms act ethically and serve the wants and needs of consumers. However, innovative pursuits will likely be supplanted by incremental improvements which adhere to the standards of external dictates and will garner endorsement from appraisal agencies.

Businesses shouldn’t need a stamp of approval from a certifying agency, especially since sales will signal when something of worth is being offered, and if profits decline organizations must work to understand why. Nevertheless, attaining the B Lab logo or being a partner in the conscious capitalism campaign has a strong appeal for those looking to gain social capital and appease industry elites and political pundits – and these initiatives are not only gaining traction, they are joining forces.

The Rebranding of Business and Centralized Control

Just recently, the Imperative 21 Network was launched to “RESET” our economic system, and both the B Team and Conscious Capitalism are listed as two of the primary stewards for this initiative.

The Network represents “more than 70,000 businesses, 20 million employees, $6.6 trillion in revenue, and $15 trillion in assets under management” and the goal is “to shift the cultural narrative about the role of business and finance in society”. And the shift is certainly underway given that in 2019, the Business Roundtable, made up of a group of 180 CEO’s of America’s largest companies, declared that business must aim to improve the status of all stakeholders and play a larger role in society.

With all this in mind, it is no wonder ESG took a stronghold in the investment community, and it is unnerving to see how easily the business world succumbed to power players.

But what is more worrisome is the fact that certifying agencies and assessment measures inevitably embolden regulators. Take for example the organic agricultural sect, whereas the certifying bodies were initially self-regulated and self-certified, having been established by the farmers themselves. However, as sales increased for organically labeled foods, so too did the number of certification bodies involved. The emergence of various organic labeling schemes confused what each label stood for and, over time, it became necessary to address the processes of certification and establish a more standardized and regulated system.

And the same will likely be true for ESG. Right now, there are a diversity of ESG frameworks with fees ranging from thousands of dollars to several million, and credibility concerns are on the rise and generating interest from monitoring agencies.

Given that ESG was formulated within the UN system to further the UN’s SDGs and hold PRI signatories accountable, it seems rather clear which ESG framework will win out in the end – the Global Reporting Initiative (GRI). The GRI is partnered with the UN and was founded with assistance from the UN Environment Programme and, coincidentally, it is currently the most widely used framework (implemented by 73% of the world’s top 250 firms).

Therefore, it seems likely that any standardized framework will be based on the UN’s postulates when all is said and done, and this will have all transpired in front of our eyes and by use of our own pocketbooks.

*****

This article was published by AIER, American Institute for Economic Research, and is reproduced with permission.

The ‘ESG’ Scam Rates Slave-Using Chinese Firms Higher Than Clean American Energy Producers

Estimated Reading Time: 5 minutes

A firm in China that uses slave labor has a better ESG score than an American firm that pays landowners who freely sell their mineral rights.

 

Expecting publicly traded companies to do more than simply return shareholder value — their fiduciary responsibility — is a fairly new development in Western capitalism. The idea that corporate leadership and shareholders should explicitly care about environmental, social, and corporate governance (known as ESG) issues beyond how they might affect the bottom line has been around for only about 30 years.

But now, ESG investing has become a big driver in steering capital to corporations deemed to be good stewards of subjective principles. By 2025, financial management firms that claim to invest with ESG principles are projected to account for $50 trillion of a total global value of $140.5 trillion — more than a third of managed investments.

But is ESG investing trustworthy? Does it really do what it claims to do?

MSCI is one of the world’s largest investment support services firms, with $2.1 billion in revenue. It offers an ESG rating service. I noticed that my Charles Schwab account recently started to display MSCI’s ESG ratings alongside that of the more traditional rating services — services focused on a company’s profitability.

Comparing U.S. and Chinese Companies’ Ratings

Curious, I looked into the rating of a firm I own some stock in Texas-based Brigham Minerals (NYSE: MNRL). Brigham looks for land that could produce oil and gas, and owns mineral and royalty interests in 7,909 oil wells and 688 natural gas wells in West Texas, New Mexico, Oklahoma, Colorado, Wyoming, and North Dakota. MSCI rates Brigham Minerals as a B, the sixth lowest of seven ratings that range from AAA to CCC, labeling it a “laggard” in the industry with an overall score of 2 out of 10.

I previously wrote about ESG investing’s blind spot for China three years ago in Fox Business, pointing out that investment firms playing in the ESG space were also bullish on China — a nation with terrible air and water pollution (the “E”), horrendous human rights abuses (the “S”), rampant corruption, opaque accounting standards, and rule of law only at the forbearance of the Chinese Communist Party (the “G”).

Not expecting the financial industry to have changed for the better, I looked up three China-based energy companies and compared them to Brigham Minerals. They were Xinyi Solar Holdings (OTC: XISHY), China Resources Gas Group (OTC: CGASY), and China Coal Energy Company (OTC: CCOZF). All three beat the American energy company in their overall rating.

Buying Into CCP-controlled Enterprises

Now, it’s important for investors to understand that you really can’t own shares in a Chinese corporation. When you buy shares in a corporation based in China, you’re really buying American Depositary Receipts (ADRs) that represent shares issued by companies in the People’s Republic of China. As such, your ownership rights are more theoretical than real and are subject to the whims of the Chinese Communist Party.

Further, many Chinese firms that have ADRs traded in the United States are themselves subsidiaries of state-owned enterprises — meaning that if you buy these ADRs, you are directly investing in an entity fully controlled by the Chinese Communist Party.

As an example, China Coal Energy is 58.36 percent owned by China National Coal Group, a state-owned enterprise. China Coal Energy owns 12 coal mines, 13 coal-processing plants, five coking plants, four coal mining equipment manufacturing plants, and two mine design institutes. They’re really into coal.

That makes sense, as coal is China’s largest source of energy — with the PRC having on the order of five times the size of the U.S. coal powerplant fleet in operation or in construction. MSCI rates China Coal Energy as “BB” — one step better than Brigham Minerals, with an environmental rating of 4.7 of 10 compared to Brigham’s 0.8, a social rating of 4.2 compared to Brigham’s 3.5, and a governance rating of 2.2 compared to 6.4 for the American firm. Overall, China Coal rates 3.1 out of 10 compared to 2 for Brigham.

China Resources Gas Group mostly invests in natural gas pipelines. It’s a subsidiary of China Resources Holdings Company, a state-owned company. The company got its start in Hong Kong as Liow and Company in 1938. Its purpose was to raise funds and purchase supplies for the People’s Liberation Army, then fighting the Nationalists in the Chinese Civil War — and, occasionally, the Japanese as they pressed their attacks into China.

By the 1960s, due to grain shortages caused by Maoist policies, the firm was used to import vast amounts of “capitalist grain” to stave off mass starvation. MSCI generously rates China Resources Gas as an “A” — the third-best of seven grades, with better grades than Brigham in both the environment, 7.7 to 0.8, and social, 7.6 to 3.5. Only in governance does China Resources Gas fall short, earning an “average” rating of 4.6 to Brigham’s 6.4. China Resources Gas nets an overall rating of 6.3 to Brigham’s 2.

Xinyi Solar Holdings should be problematic for MSCI — after all, China’s solar power industry, a global juggernaut, is a heavy user of materials produced by slave labor in Xinjiang, a Muslim-majority region formerly known as Turkestan where the Chinese communist government has been engaged in a grinding genocide. MSCI even has a corporate statement against “modern slavery” on its website, claiming that the firm “is committed to protecting human rights globally… Specifically, the Firm strongly opposes slavery and human trafficking and will not knowingly support or conduct business with any organization involved in such activities.”

This is at odds with MSCI’s ESG rating of Xinyi Solar — an “A” — with scores of 8.1 for environment (heavy metal pollution aside, apparently), 5.6 for social, and 2.6 for governance. Overall, Xinyi scores a 6.1 of 10 compared to 2 for the Texas firm.

That a firm in China that relies on slave labor for key portions of its supply chain has a better social score than an American firm that pays landowners who freely sell them their mineral rights betrays an upside-down ethic where freedom is slavery and ignorance is strength. Of course, that hasn’t stopped 174 institutional owners from investing in Xinyi Solar, among the largest being JP Morgan, Invesco, and Vanguard.

Counter to ESG Goals

This leads to one last, odd ESG story. Texas lawmakers, concerned about how banks and financial institutions aggressively implementing ESG investing rules were beginning to starve Texas’s energy industry of capital, passed a law in 2021 to address the problem. Senate Bill 13 prohibited Texas’s pension and investment funds (worth about $300 billion) from investing in “financial companies that boycott certain energy companies.”

But figuring out what companies those might be turned out to be a somewhat complicated process. So, the Texas state comptroller, charged with implementing the new law, turned to… MSCI. The problem was that MSCI is guilty of pushing ESG to the detriment of domestic energy produced in Texas, forcing Texas to modify its contract with MSCI to avoid violating the new law.

Ben M. “Bud” Brigham, founder and executive chairman of Brigham Minerals and other energy companies, has been an ESG skeptic for years. He tells me that “companies innovating in free markets strive to create value for their owners which benefit all the legitimate stakeholders. This is empirically validated in America, where we enjoy unprecedented levels of clean air and clean water compared to other major economies. In contrast, ESG investing — a relatively subjective exercise — often represents the influence of illegitimate stakeholders, and therefore ends up being irresponsible, destructive, and counter to its stated goals.”

So, here’s the bottom line from the self-righteous global elites: Chinese-government-owned coal, fine; Chinese slave-provisioned solar power, good; Chinese state-owned natural gas, better; American domestic natural gas and oil, terrible.

*****

This article was published by The Federalist and is reproduced with permission.

ESG: Is This Green Iron-fist Fantasy a Major Cause of Inflation and Economic Destruction?

Estimated Reading Time: 4 minutes

Is rich people’s greentopian fantasy causing middle-class misery? The answer is yes, according to analysts such as Marlo Oaks, Utah state treasurer, and longtime investment manager. In fact, Oaks says he knows a major reason why increasing fuel prices, which drive up costs across the board, are so high:

Supply is being choked off by “woke” capital investors who favor green dreams over fossil-fuel practicality.

Making his case, the Utah official states that in 2015 there were 59 funds globally among institutional investors that raised $46.6 billion for oil and gas projects. Yet note what happened during the next six years:

By 2021, there were only 11 funds and $4.6 billion raised — a drop of more than 90 percent.

Oaks fingers as the culprit something called ESG. What is ESG? Standing for Environmental, Social, and Governance, it is, technically and ostensibly, “the measurement of the impact (both positive and negative) that a business has on the environment and on society including an assessment of the governance practices (or lack thereof) that impact all stakeholders,” explains Certainty.

But in practice, avers Oaks, it’s not so innocuous. In fact, he states that the only logical explanation for the drastic 2015-2021 fossil-fuel investment collapse is ESG. “People have decided that they do not want to participate in the fossil fuel industry and so are cutting off capital,” he says.

The Utah treasurer made his comments on an edition of Tucker Carlson Today, a relevant excerpt of which was played yesterday evening on Tucker Carlson Tonight. Host Carlson introduced the topic, stating that the idea behind ESG “is to push corporate America left and punish companies that disagree with the orthodoxy.”

One of the entities/people responsible for this — mentioned during the Carlson segment — is multinational investment management corporation BlackRock and its chairman and CEO, billionaire Larry Fink. The New American reported on Fink’s “woke capital” schemes in the February article “Unseen Dark Hand: The Man Who Uses YOUR Money to Make Corporations Go Woke.”

As for Oaks, making the case that ESG is largely responsible for rising prices, he told Carlson:

So if you think about value-based investment strategies, historically there’s been socially responsible investing, yes, and impact investing more recently. So socially responsible investing is really the idea that you avoid certain companies that you don’t want to participate in; so it might be tobacco, firearms, gambling [because they’re contrary to your values].

…Okay, and then on the other side is impact investing, where you’re looking for innovation to solve a problem. So it might be cancer, for example: If you’re worried about cancer or interested in that, you might look for companies to invest in that have innovation that can help solve that problem.

ESG is an outgrowth of socially responsible investing, and instead of just avoiding companies, ESG actively engages with companies and engages with the market to drive a political outcome.

In other words, ESG-oriented puppeteers such as BlackRock don’t just refrain from investing in oil and gas projects, but actually, pressure other companies to not do so.

Carlson then pointed out that because the money used to apply this pressure is in big state retirement funds nationwide — investment funds in which retirees and people on fixed incomes have their money — millions of Americans are unknowingly and inadvertently financing this economic destruction. Oaks agreed, and said:

In fact, today’s inflation really starts with ESG because, if you think about … why gasoline prices are so high, a lot of it is a supply issue. And the reason that we don’t have enough supply in this country, one reason why, is we don’t have enough capital going in to oil and gas projects.

So in 2015 there were 59 funds raised globally among institutional investors; 46.6 billion dollars was raised. Six years later, in 2021, 11 funds were raised — 4.6 billion dollars — a drop of over 90 percent in the face of improving economics in oil and gas. The only explanation … that makes sense is ESG:

People have decided that they do not want to participate in the fossil fuel industry and so are cutting off capital.

There is an active drive, and we’ve heard it from this [Biden] administration, to cut off capital to the fossil fuel industry. It’s very troubling.

Carlson then pointed out that when Oaks says “people have decided,” at issue is really “a very small number of people who make these investment decisions. So it’s not the people who are participating in the fund at the retail level.” It’s puppeteers such as Larry Fink, stated Carlson (video below).

It gets even worse, though, according to Vivek Ramaswamy, founder of Strive Asset Management. Speaking on CNBC’s Squawk Box last week, he accused massive ESG-oriented entities of an anti-trust violation. Ramaswamy stated that not only do these companies collude in a way that causes rising, budget-busting gasoline prices, but they apply their greentopian standards only to the United States and Europe. Thus are they stifling our energy production to the benefit of foreign corporations such as PetroChina. And what is one of PetroChina’s major shareholders?

BlackRock.

So these woke firms are essentially saying, “ESG for thee, China for me,” states Ramaswamy (video below). Note, too, that China is our world’s biggest polluter by far.

So it’s the spirit of (pre)1776: MASA — Make America Subjugated Again. The only real question is, if these puppeteers were purposely trying to destroy the U.S., what would they do differently?

*****

This article was published by The New American and is reproduced with permission.

What are ESG Scores?

Estimated Reading Time: 4 minutes

And why are so many advocates of liberty deeply concerned about them?

 

Klaus Schwab and a growing list of powerful global economic and political elites, including BlackRock CEO Larry Fink and President Joe Biden, have recently committed to a global “reset” of the prevailing school of economic thought. They seek to supplant the entrenched “shareholder doctrine” of capitalism, which—as Milton Friedman famously espoused over 50 years ago—holds that the only purpose of a corporate executive is to maximize profits on behalf of company shareholders.

To replace shareholder capitalism, Schwab, Fink, Biden, and a legion of their peers have promulgated a nouveau “stakeholder doctrine,” commonly referred to as “stakeholder capitalism.” This approach, which aims to harness the growing clamor for more socially conscious corporate decision-making, authorizes, incentivizes, and even coerces corporate executives and directors to work on behalf of social objectives deemed by elites to be desirable for all corporate stakeholders—including communities, workers, executives, and suppliers.

Environmental, social, and governance (ESG) scores—a social credit framework for sustainability reporting—are being used as the primary mechanism to achieve the shift to a stakeholder model. They measure both financial and non-financial impacts of investments and companies and serve to formally institutionalize corporate social responsibility in global economic infrastructure.
Environment, social, and governance scores are theoretically supposed to incentivize “responsible investing” by “screening out” companies that do not possess high ESG scores while favorably rating those companies and funds that make positive contributions to ESG’s three overarching categories. A company’s ESG score has become a primary component of its risk profile.
Who Are the agents responsible for this shift, and what have they done to bring it about?

Although there have been many ESG frameworks developed over the past decade, in the past three years alone, three major documents and compacts have been signed by a coalition of corporate governors, political elites, central bank directors, international organization representatives, and other powerful individuals. Together, they have had a substantial impact on the global economy and the shift to ESG.

In August 2019, The Business Roundtable (TBR)—comprised of 181 of the most powerful corporate executives in the United States—officially revised its conception of a corporation’s purpose to “promote an economy that serves all Americans.” The companies these CEOs represent hail from nearly all sectors of the U.S. economy, including major financial institutions, media conglomerates, technology firms, defense contractors, pharmaceutical companies, and myriad others.

Many of these executives are likely unaware that their  ESG ideas come dangerously close to the social credit system run by the Chinese Communist Party. It applies to corporations instead of individuals, but the principles are the same. Nor do they likely recognize that their policies result in starving the fossil fuel industry of capital, thus contributing to soaring energy costs to consumers and rampant inflation. Besides Biden, think of these leaders when you fill up your tank!

For businessmen to betray the principles of private ownership of capital, and free enterprise, and buy into the agenda of a particular political party, marks quite a change in the role of business in society. Heretofore, with the exception of tax-free foundations funded by businesses (think of the Ford Foundation), corporations rarely have been so politically active outside of election activities. This is causing evolutionary tension with our political parties. The Democrat party increasingly has become the party of Big Money and Big corporations, while the Republican party is increasingly less friendly to Big Business and sides more with small business people and consumers.

A case in point is the state of Florida. Previously quite friendly to Walt Disney, state leaders took affront when that giant corporation that had received special favors from the state, decided it would take it upon itself to interfere directly and publicly with legislation that would restrict the teaching of transgender ideology to those in kindergarten through the third grade. The result was the loss to Walt Disney of the Reedy Improvement district, which gave that corporation almost the power of self-government.

You will note in the map provided, that Arizona has down well on this front, largely due to Republicans in the legislature.

If the upcoming elections go badly for Democrats and the Green New Deal, Republicans need to keep in mind that Big Business has not been their friend. The result should be a reexamination of the relations of business to government. Special favors, subsidies, and tax breaks, all need to be eliminated. Republicans should strive to eliminate regulations and barriers that reduce competition.  It is bad enough to have socialism constantly foisted upon us by Democrats. It is quite another to expect that from Big Business. Republicans will have to deal with “Business Roundtable” types within our own ranks.

Vote with your dollars as well and try to avoid doing business with corporations that betray your trust and the economic system that made this country great. More than half the country identifies as conservative so make these companies pay whenever you can. True, it takes some work to find substitutes, but where you can, hit them in the pocketbook. But it is easy in some cases to avoid buying shoes for example from Nike, buying anything from Disney, buying a car from GM, and turning off the NBA is quite easy. Some choices, like the NBA, are not even “necessities” in the normal course of life and can easily be dismissed. Find money managers other than BlackRock, and move your checking account away from Chase and other large banks, to smaller independent banks. It can be difficult finding substitutes on occasion but where you can, avoid doing business and avoid buying the stocks of companies in the Business Roundtable, or at least directors of the Roundtable.You can actually make spending your money a political “lifestyle” choice.  It is fun and you will feel good about doing so.

Corporate leaders will soon get the message.  If you go woke, you will go broke.  Other than the transgender craze, nothing has been more woke than ESG.

 

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This article is adapted from materials published by The Heartland Institute and is reproduced with permission.  However, the opinions are that of the author.

A Musk Inspired Anti-ESG Takeover Wave?

Estimated Reading Time: 5 minutes

It’s fun to see memes suggesting that Elon Musk should buy Alphabet, Amazon, Coca Cola, Disney, Meta, Netflix, YouTube, and so forth, but of course he cannot afford all that. But we can. By we, I mean value investors. Musk’s purchase of Twitter has validated my critiques (see hereherehere, and here) of ESG-based investment (environment, social, governance), which despite its weak financial record currently constitutes about $2.7 trillion globally. And it has demonstrated the potential power of anti-ESG funds, which I have called Friedman Funds, after Milton.

An anti-ESG Friedman Fund would, firstly, short companies overvalued due to capricious or government-dictated ESG metrics and buy companies undervalued due to said metrics, and, secondly, buy controlling interests in potentially valuable companies that are going broke, or at least earning less than they could, because they went woke, as Musk and his investors recently did.

The goal of the fund would be to earn above-average risk-adjusted returns, period.

The effect of the fund would be to increase financial market efficiency and economic productivity by punishing deviations from rational valuations and rational business decision-making processes.

The first approach is widely called value investing. Although understood in general terms by investors since at least the 18th centuryBenjamin Graham popularized and quantified the approach in the first half of the 20th century. The gist is to buy stocks when their market price falls below their rational value and to sell or short them when their market price exceeds their rational value. Value investors tend to buy and hold, ignoring daily price gyrations so long as the market price remains near rational value, the price toward which the stock will gravitate in anything approaching an efficient market.

A stock’s price might deviate somewhat from its rational value because investors like or hate the company because of what it makes, or how it makes it, or who runs it, or something its executives say or do. In other words, the shares of presumably “good” companies can gain from a “halo effect,” while shares of allegedly “bad” companies sometimes languish due to a “devil’s horn effect.” Some investors overestimate the importance of those various soft factors on other investors, causing them to value the stock higher (halo) or lower (horn) than the rational investor does.

ESG funds and ESG ratings – given regulatory teeth by the Securities and Exchange Commission directly, or indirectly through bond rating agencies – could produce significant halo/horn effects that value investors could exploit for their own gain while reducing financial system fragility in the process. Because ESG represents politicized and largely subjective concepts, ESG ratings can diverge significantly from reality. Unless checked by value investors, they could easily lead to bubbles (too much investment in certain assets, like dotcoms or mortgage-backed securities) or anti-bubbles (too little investment in certain assets, like fossil fuels). 

ESG bubbles could be particularly costly because the overinvestment might go into companies that actually hurt the environment or the downtrodden. As scholars like Ozzie Zehner, author of Green Illusions, have been arguing, and as Michael Moore tried to explain to fellow progressives in his 2019 documentary Planet of the Humans, very few “green” technologies provide net environmental benefits because they are inefficient, rely on tax subsidies, need rare earth metals to work, have major environmental side effects, and so forth. Similarly, as recently pointed out by Harvard Business Review, ESG ratings are not correlated with better environmental or labor regulatory compliance! 

Moreover, many social justice initiatives at major corporations, like many government programs, aid Democrat politicians but do little or nothing to help American Indians, blacks, Hispanics, women, or the poor. Once exposed, ESG darlings could become dogs overnight, hurting investors and potentially sparking a financial crisis.

The second approach that a Friedman Fund could take is typically frowned upon. According to the so-called Wall Street Rule, investors who do not like management decisions should sell instead of raising a stink. It’s a good rule of thumb because corporate management is usually well-entrenched. Most stockholder proposals fail because managers dominate corporate elections due to their control of the proxy mechanism and employee-owned shares.

A few simple rule changes, like cumulative voting, secret ballots, proxy mechanism reform, and larger board member and executive stock holdings, would make it easier for individual shareholders and institutional investors to pressure management to maximize long-run stockholder returns by making more rational business decisions, like not alienating their median customer to please vocal extremists.

Until then, Friedman Funds have to be willing to purchase underachieving companies like Twitter through stock market purchase of controlling stakestender offers, or proxy votes. Yes, such tactics are often derided as “corporate raiding” but the poor state of corporate governance can render such raids economically necessary. In the 1980s and 1990s, the takeover of poorly performing corporations by funds led by corporate raiders like Carl Ichan and leveraged buyout firms like Kohlberg, Kravis, Roberts reinvigorated the US economy by forcing rational changes at stagnating or inefficient companies.

It was no accident that the classic film on corporate takeovers, Other People’s Money, hit theaters in 1991. Its famous climax pitted Lawrence “Larry the Liquidator” Garfield (played by Danny DeVito) of Garfield Investments against Andrew Jorgenson (played by Gregory Peck), head of the failing New England Wire and Cable Company, the biggest employer in a small Rhode Island town. At the company’s annual stockholder meeting, Jorgenson argued, like every other adherent of the “stakeholder” theory of the corporation, that “a business is worth more than the price of its stock. It’s the place where we earn our living, where we meet our friends, dream our dreams.”

After being derided by Jorgenson as a greedy, big-city corporate raider who “builds nothing” and is basically committing “murder,” Garfield retorted:

This company is dead. I didn’t kill it. Don’t blame me. It was dead when I got here. It’s too late for prayers. For even if the prayers were answered, and a miracle occurred, and the yen did this, and the dollar did that, and the infrastructure did the other thing, we would still be dead. You know why? Fiber optics. New technologies. Obsolescence. We’re dead alright. We’re just not broke. And you know the surest way to go broke? Keep getting an increasing share of a shrinking market. Down the tubes. Slow but sure.

You know, at one time there must’ve been dozens of companies makin’ buggy whips. And I’ll bet the last company around was the one that made the best goddamn buggy whip you ever saw. Now how would you have liked to have been a stockholder in that company? You invested in a business and this business is dead. Let’s have the intelligence, let’s have the decency to sign the death certificate, collect the insurance, and invest in something with a future. …

Me. I’m not your best friend. I’m your only friend. I don’t make anything? I’m makin’ you money. And lest we forget, that’s the only reason any of you became stockholders in the first place. You wanna make money! You don’t care if they manufacture wire and cable, fried chicken, or grow tangerines! You wanna make money! I’m the only friend you’ve got. I’m makin’ you money.

Take the money. Invest it somewhere else. Maybe, maybe you’ll get lucky and it’ll be used productively. And if it is, you’ll create new jobs and provide a service for the economy and, God forbid, even make a few bucks for yourselves. And if anybody asks, tell ’em ya gave at the plant.

Granted, Musk’s play on Twitter is somewhat different. Unlike buggy whips, microblogging isn’t a doomed industry yet. But clearly Twitter, despite its sizable first mover advantage, was losing market share to direct competitors like Parler, as well as newer “social media” concepts like Clubhouse and Mastodon, because it was alienating many customers with its over-the-top censorship of demonstrably true “misinformation” and opaque account shutdowns and throttling. That is what Musk meant when he told Twitter’s board that he could unlock the platform’s value in his offer letter. And it turns out that Twitter was overstating the number of its users by over a million, too!

Many other companies also appear to underperform their potential in the name of progressive politics. When executives and board members earn big salaries but own little stock, they have strong incentives to downplay the importance of share prices while catering to tiny but vociferous and even vicious progressive cabals. If incentives cannot be better aligned between management and stockholders from within, then somebody from the outside, like Larry the Liquidator, Musk the Magician, or Friedman Funds, must step in so that the economy doesn’t suffer the large costs associated with underutilized assets.

Thanks to occupational licensing rules (e.g., Series 65), sundry regulations, and other startup costs, I cannot start a Friedman Fund myself. But I can, and would, invest in an ably led one, as would many others interested in making Adam Smith proud by reducing economic irrationality by profiting from it.

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This article was published by AIER, American Institute for Economic Research and is reprinted with permission.