Texas has identified 10 firms with which it will not invest because their ESG screened funds "immeasurably damages our state’s oil and gas economy." The firms affected are, almost without exception, European firms (Schroders PLC) with some American operations. The list of
348 individually banned funds and ETFs includes the Brown Advisory Sustainable Growth Fund (BIAWX) which is in my portfolio and all versions of the ESG-screen S&P 500. The link downloads an Excel spreadsheet. Tab one are the forbidden companies and two tab are the forbidden funds.
The largest move pursuant to that policy is
the newly announced decision by the Texas State Board of Education to pull $8.5 billion from BlackRock for suspicion that it's pursuing sustainable investments as a way of "privileging liberal goals." BlackRock argues that it factors in ESG metrics because they are financially significant data points. Illustrating what some might perceive as hypocrisy,
BlackRock and others also highlight the fact that they continue to invest heavily in the fossil fuel industry.
Fox News describes the withdrawals as "a stunning blow to the ESG movement."
In related news, as of 19 March 2024, the ESG-screened version of the S&P 500 has outperformed the full S&P 500 over the past year. And the past two years. Also the past three years, four years and five years (per Morningstar interactive chart of SNPE versus VOO.
Across multiple time periods, ESG screened funds with some US equity exposure (US centered, global, mixed asset) perform about as well as non-screened funds; that is, 51-55% have top half returns since inception, over three years, over five years ...
Comments
As a side note I'm astounded to discover that I had something in common with the state of Texas, that being an investment in BIAWX.
The lists do not make sense in the context of The Texas Permanent School fund which is an institutional investment fund supporting Texas schools, not a 401k or pension fund. While Blackrock managed some of their money they obviously did to use retail mutual funds to do so.
Blackrock has come under fire recently for abandoning it's "green" goals and not doing enough to stop funding oil companies etc, but Texas is obviously aiming at Larry Fink for having raised such concerns about Climate Change several years ago. His backing off isn't enough and now he is being picked out as a political target and to make headlines for Abbott and Paxton.
I doubt it is a coincidence that this comes just as Paxton's criminal trial for investment fraud is about to start.
Many other US firms, not on the list, have huge "ESG" commitments and funds, such as the seven Billion dollar Blackstone Green Private Credit Fund (the largest fund of it's type), and GMO Climate Change Fund, but they are not on the list.
I wonder if the mutual fund list is aimed at the The Texas teachers Retirement fund both a defined benefit plan and a 403b plan with mutual funds that people can choose.
The mutual fund list doesn't make sense either. It is only a fraction of "Climate Change Funds" available, and seems like it was selected by running a screen ( maybe at MFO?) for 0% energy investments, "ESG " in the name ( but there are dozens of funds not here) or based on M* Sustainability score or some such other marginal criteria.
As most fund companies have ESG funds, a complete list would eliminate almost all companies
Why didn't they prohibit investments in the entire families of those funds, like Vanguard and Fidelity, also? Maybe because they would be open to plan participants suits for not managing the retirement accounts in the most cost effective manner possible. Yale Hospital just had to cough up $1,000,000 in a class action suit for not negotiating downward a Fidelity fee.
The spreadsheet is very useful for screening for Climate Change funds. I own several.
Environmental, social and governance (ESG) investing boomed in 2020 and 2021 during the COVID-19 pandemic as low oil prices spurred more investors to diversify beyond fossil fuels, and as fund managers sought to appear more climate-conscious. The category started to fall out of favor in 2022 as conventional energy prices soared.
Political backlash against ESG led by Republican politicians in the United States, as well as suspicions of greenwashing involving claims that are not substantiated, have also tarnished the luster of ESG funds. "Greenwashing" refers to companies making false or deceptive claims about the environmental benefits of their products, services or policies.
Globally, funds classified as "responsible investing" recorded $68 billion of net new deposits in 2023 through Nov. 30, LSEG Lipper data showed. That was down sharply from $158 billion for all of 2022 and from $558 billion for all of 2021.
My take...too arbitrary...show me an ESG fund that invests in the likes of Google etc...and I will laugh out loud, listening in on your conversations, selling your information, making you a product...no way many ESG companies are true to the term ESG....not for me, no thank you.
CEO of Aramco (the largest oil company in the world) is a member of the Board of Directors of Blackrock. Similarly, keep track of the (state and federal level) activist politicians' employers (after they leave their political office). You know TX and their share of renewable energy production.
It is amusing that every investment forum I had ever visited has a distinct political bent. If investors focus on investments and are half as flexible and fluid as their leaders, many investors are likely to be wildly richer. But I am glad they do not, giving an opportunity for mispricing assets.
Many people don't realize that Texas produces the most renewable energy of any state!
Will banning the aforementioned 10 firms (and their corresponding ESG funds)
"immeasurably damage the state’s renewable energy economy?"
https://www.thisoldhouse.com/solar-alternative-energy/reviews/renewable-energy-by-state
I do not mean to say that "ESG" is hocus or "woke". Far from it. It certainly sounds reasonable well run companies in the "G" column will do better than poorly managed ones, although it is not clear most of the "G" fund managers know how to tell the difference, nor do they report their results.
There are dozens of companies thought to be good "G" selections until they aren't.
GE under Welch is a case in point. GE was a darling of Wall Street, until it wasn't and the financial manipulations were finally understood.
EQIX was just targeted today by Hindenburg Research for accounting irregularities which seem pretty real to me, but the stock is only down 3%
But most of these "G" managers seem not to care if earnings are reported in "non-GAAP" terms, or if the company issues gobs of stock options and then has to use piles of money on buy backs to avoid dilution, (justifying it as "tax efficient"), or when the stock drops below the CEO's option vesting price, repricing the options ( Looking at you Apple).
So maybe "G" managers are just looking for the least dirty shirt!
There are very good reasons to believe that rising sea levels, more intense storms increasing global temperatures etc will be bad for a number of companies. Even the GOP is putting gobs of money into renewable power etc. Texas is the poster child here.
But admitting that to voters would not be good for the brand.
There is also pretty good empirical data that companies that fostering a productive workplace, encouraging teams of people with broad range of skills and backgrounds and bringing people up through the ranks from a diverse variety of backgrounds do better than ones run in an autocratic method by the old guard. Creative managers can use the first methods to increase diversity without being forced to do so.
All of these "ESG" initiatives will be good for the bottom line and are recognised as such by Investment firms. They just don't have to slap a political label on them.
I wonder about the S & G in "ESG" mutual funds that charge unreasonable expense ratios.
I don't invest in ESG funds specifically b/c there's no guarantee the managers will stick to their guns. To wit: Parnassus kept WFC in PRBLX for *years* despite numerous 'G' scandals, lawsuits, and failures.
I seem to remember PRBLX being criticised for this and responding in some way, but it would be hard to locate now.
As far as financial shenanigans are concerned there are several funds that claim to look for it so as to avoid it. The one I remember from years ago was Robert Olstein who made a big deal out of being able "look behind the numbers" focusing on cash flow with a "forensic analysis"
OFAFX has not exactly blown out the lights.
"Some view ESG as a framework for assessing risk - the key to achieving a sustainable and just future. Others see it as threat to capitalism and cover for a liberal elite political agenda.
Live debate – ESG Now and in the Future: Is There Common Ground? – Wed April 3 with Andrew Behar
At As You Sow, we believe it’s simply good business. Is there a successful investor who doesn’t assess portfolio risk? Can a business survive without assessing and addressing supply chain shortages and worker needs? In a recent survey of 5,000 C-suite executives in 22 countries, across 22 industries, 76% say that sustainability is central to their business and drives better business results.
Yet the well-funded and centrally orchestrated anti-ESG crusade currently has 145 bills in 27 states, using the heavy hand of big government to tell investors and businesses how to think and what information they can use for decision making!
On Wednesday, April 3, 2024, the University of Arizona presents a debate bringing these opposing viewpoints to a live stage. National experts from business, investment, regulatory, and government sectors will delve into the multifaceted nature of ESG, presenting arguments for and against – and maybe even finding common ground.
Join us in Phoenix or watch the livestream event at 5:30pm Pacific & Arizona time / 8:30pm Eastern with As You Sow CEO Andrew Behar front and center in support of ESG.
The debate moderators are former White House press secretaries Ari Fleischer (G.W. Bush) and Robert Gibbs (Obama). Panelists are:
Andrew Behar, CEO, As You Sow
Kevin Hassett, 29th Chairman of the President's Council of Economic Advisers (Trump)
Sandra Taylor, CEO, Sustainable Business International
Kimberly Yee, State Treasurer of Arizona
You can register here
https://www.asyousow.org/community-calendar/university-of-arizona-center-for-the-philosophy-of-freedom-debate-series-esg-now-and-in-the-future-is-there-common-ground
Culp retired at Danaher/DHR, was called to fix GE, and some now say that he should now fix Boeing/BA. Will he ever get rest? (-:)
The McDonnell Douglas merger precipitated Boeing's descent.
McDonnell Douglas management increased outsourcing which led to declines
in both aircraft quality and employee morale. Various "accidents" (some preventable)
involving Boeing aircraft in recent years have tarnished this once fine company's reputation.
The notion that because you or I invest in a Blackrock ETF, we give our proxy to Larry Fink is absurd. And its anti-democratic.
(I only hold a toehold for sentimental reasons nowdays - I sold 95% of the position just as the 737 MAX fiasco started to tank the stock, so I thankfully got out quite nicely near the high)
As the acquirer, presumably, legacy Boeing management dictated what decisions were made as regards outsourcing. The acquired management team is usually not in a position to dictate how a business is run. If they were unhappy with any pre-merger MDD outsourcing, it would have been in their purview to bring outsourced functions back 'in house', no?
Anytime a process gets outsourced, its still encumbent on current management to ensure they have sufficient QC controls over the outsourced process. -- You can outsource a function, but you cannot outsource responsiblity!
Is the current BA CEO an engineer or a finance dude? I believe the latter. Perhaps too much current management emphasis on stroking Wall Street, not enough on getting the engineering right?
Every hour spent on DEI training is thousands of man-hours which could have been devoted to something else. Like QC.
https://en.wikipedia.org/wiki/Harry_Stonecipher
In a clash of corporate cultures, where Boeing’s engineers and McDonnell Douglas’s accountants went head-to-head, the smaller company won out. The result was a move away from expensive, ground-breaking engineering and toward what many called a more cut-throat culture, devoted to keeping costs down and favoring upgrading older models at the expense of wholesale innovation. It was McDonnell executives who unexpectedly ended up in charge of the combined entity, and it was McDonnell’s culture that became ascendant. “McDonnell Douglas bought Boeing with Boeing’s money,” went the joke around Seattle. Then-CEO Phil Condit was quoted telling reporters to ignore the talk that somebody had “captured” him and was holding him “hostage” in his own office. But Stonecipher cut a Dick Cheney–like figure, blasting the company’s engineers as “arrogant”.
The notion that because you or I invest in virtually any mutual fund, we give our proxy to ISS or Glass-Lewis is absurd. That's the elephant in the room, more so because this duopoly advises nearly all (90%) fund sponsors on how they should vote their proxies.
https://corpgov.law.harvard.edu/2023/01/30/the-controversy-over-proxy-voting-the-role-of-asset-managers-and-proxy-advisors/
Anti-democratic? The corporate world was never democratic. Dollars, not people (dēmos - "common people") hold the power. If you don't like the way Blackrock funds are being run, vote your fund's of directors out of office. See how much sway your paltry dollars have. Or mine.
ESG means different things to different people, in no small part due to the marketing efforts of financial management companies to muddy the waters. On one end of the spectrum is impact investing, where one invests in companies and technologies specifically to improve the state of the environment. On the other end of the spectrum is what Blackrock and others call ESG integration - considering risk factors like increased exposure to flooding due to a changing environment - among all the risk factors considered when deciding whether to invest in a company.
https://www.blackrock.com/lu/intermediaries/themes/sustainable-investing/esg-integration
That's just prudent investing. And good marketing - slapping a label like ESG (popular until recently) onto something that is standard operating procedure. Failure to consider all significant risk factors could be considered investment malpractice.
For example, last year Texas proposed SB 1446 that would have prohibited state pensions from investing with any management company that considered ESG factors. https://www.esgtoday.com/texas-anti-esg-investing-bill-faces-pushback-over-6-billion-cost-to-pensions/
Thanks for the Parnassus stuff.
I don't think most individuals spend much time analysing the funds they own, other than maybe reading the title, or following the advice of an advisor.
The prospectuses of the "ESG" funds I have read are usually so vague as to meaningless. At least some of the older "social impact" funds specifically said they would not invest in guns, nuclear power, etc. Then at least you sorta knew what you were getting.
Even funds labeled "climate change" have such variety it is impossible predict what they will consist of. Fidelity's "Climate Action" fund FCAEX is 36% pure tech, mostly chip companies (so green they are) and the big Seven. Vanguard's new fund VEOIX is much more focused on industrial firms that are working on grid development, solar, wind power etc.
But Fido is up 23% since the VEOIX start date in November. VEOIX is up 2%. Guess who is going to get the dollars?
Just looking at sectors, VEOIX isn't wildly different from GRID in its exposure to industrials, tech, utes, and consumer cyclicals. VEOIX does add a dose of materials.
The difference in performance is night and day. But people are still pulling money out of GRID.
We want the tech
Give up the tech
We need the tech
Gotta have that tech
Any excuse will do.
* Add> Looked a little closer at the portfolio page at M*, as opposed to the top holdings on the quotes page. VEOIX is doing something with cash. It doesn't seem to be helping
Net Short Long
Cash -4.04 26.19 22.14
https://pbs.org/video/boeings-fatal-flaw-azhye0/