It’s Time to Release the Antitrust Hounds on ESG

By Robert Bork Jr.

The stock market’s recent rise and gentle subsidence has been something of a January-effect cliché. While the market flirts with historic highs, and happy talk about a “soft landing” is shared over cocktails, the U.S. economy continues to struggle against the weight of high national and consumer debt, reduced but persistent inflation, geopolitical turbulence … and lower investor returns from ESG funds.

Contrary to what you might hear, the corporate “social responsibility” movement centered around Environmental, Social, and Governance standards continues to inflict deep losses on American capital formation and the ability of millions of Americans –many of them former state employees – to save for their retirement.

This is true despite a Morningstar report that 10 U.S. equity managers representing four-fifths of the equity funds managed by the top 20 firms showed low or very low support for key ESG resolutions in 2023. Yet 15 large European asset managers “consistently show very high support” for such resolutions.” As if to prove this point, in mid-January shareholder activist group Follow This led investors owning 5 percent of Shell stock to target 95 percent of Shell’s carbon footprint – in other words, its core business.

BlackRock CEO Larry Fink did say, “I don’t use the word ESG anymore, because it’s been entirely weaponized.” But isn’t that just a statement about branding? Calling these funds “sustainable investing” doesn’t change their strategies. Or consider Inspire Investing, an asset manager which struck its reference to “faith-based investing” in environmental issues for eight large exchange-traded funds, but affirms it continues to pursue the same environmental goals.

A host of pro-ESG groups now proclaim that ESG is not dead, it is merely “evolving.” Great influence continues to be exerted by Big Proxy – the ISS and Glass Lewis duopoly. Add to that, a web of influential NGOs like Ceres and As You Sow, as well as the officers pushed on to boards and executives funneled into C-suites by this ESG cartel. The movement, including big fund managers, seems to be trending from public campaigns to exerting pressure behind the scenes.

It is understandable why ESG would want to rebrand, regroup, and work in quieter ways. ESG has harmed millions of investors relying on ESG-influenced funds for their retirement. In the down market of 2022, “sustainable” ESG funds market losses were 1.4 percent over those of the S&P 500. When the stock market posted gains in 2023, ESG funds still trailed the S&P 500 by 5 percent. Turns out that forcing companies to buy solar panels manufactured on China’s coal-fired electrical grid cannot match fat returns from traditional energy.

Investors, like commuters on the London Underground, are beginning to mind the gap.

A poll commissioned last year by the Antitrust Education Project found rising awareness of ESG and its pitfalls among registered voters. By a two-to-one margin, voters rejected ESG if it means lower returns. Independent voters with $50,000 or less to invest were even more skeptical of ESG. Earlier in 2023, the media gushed about surveys in which the vast majority of younger investors told pollsters they are willing to accept far lower returns in exchange for environmental and social benefits. By December, a Stanford University poll show less than half of Millennial and Gen Z investors said they were “very concerned” about environmental issues, down from 70 percent the year before – and less apt to trade market losses for social concerns.

Attitudes may change, but millions of American investors – count among them retired state workers, teachers, and law enforcement officers – remain stuck in lower-performing investments. Those who actively manage ESG funds pad their bottom line from management fees, but the movement is not kind to the ordinary investors who should be the sole concern of these fiduciaries. If you believe government has a duty to protect consumers, then someone should act to protect investors from the financial equivalent of lawn darts.

In December, Tennessee Attorney General Jonathan Skrmetti filed the first-of-its-kind consumer protection lawsuit against BlackRock. His case is expected to highlight the inconsistency between BlackRock’s statements about return on investment and commitment to environmental improvement. But consumer protection suits can only get you so far.

Another path was suggested when 19 red-state state attorneys general fired off a letter to big asset managers about ESG in August 2022, warning that “fiduciary duty is not lip service.” In October of that year, the AGs formally sought records on ESG practices and commitments. These actions seemed a prelude to a massive antitrust lawsuit. Where is it?

Given that the Sherman Act allows a plaintiff in an antitrust lawsuit to recover “threefold the damages by him sustained,” why don’t these red-staters take a page from the blue-state playbook and partner on class actions with the most successful trial lawyers? Though normally aligned with the left, surely many of plaintiffs’ attorneys would do their razzle dazzle best over the prospect of three-fold damages.

Or as the super-lawyer Billy Flynn crones in the musical Chicago, “Give ’em a show that’s so splendiferous, row after row will grow vociferous.”

Robert H. Bork, Jr., is the president of the Antitrust Education Project. 

Originally published at Real Clear Markets.