Our society is not just divided along political lines — media, culture, and even coffee shops have become delineated between red and blue.
So perhaps it is inevitable that these fissures would come to the world of investing.
I’m speaking about the growth of so-called ESG investing — which stands for Environmental, Social, and Governance — and the growing backlash against this trend. Battle lines are being formed in the heretofore apolitical, clubby world of money management.
The roots of social investing go back decades, when activists called for pension funds to boycott investments in tobacco stocks and companies that did business in apartheid-era South Africa.
ESG was birthed in 2004 by Kofi Annan, secretary general of the United Nations, who asked major financial institutions to help identify ways to integrate environmental, social, and governance concerns into capital markets.
This call resulted in a global compact, “Who Cares Wins,” which included Goldman Sachs and Morgan Stanley as signatories.
A decade or so later, some institutional investors and money managers, including BlackRock, the world’s largest money manager with nearly $10 trillion under management, began establishing the support of shareholder initiatives and stood up investment products that focused on ESG.
Members of United Mine Workers of America (UMWA) and other labor leaders picket about the union’s strike at Warrior Met Coal Mine, outside BlackRock’s Headquarters in New York City, U.S., July 28, 2021. REUTERS/Brendan McDermid
To a degree, BlackRock and its cohort did so in response to pressure from the political left.
Now, those same investment managers, BlackRock in particular, are facing criticism from the political right.
As you can see below, there’s been a disparate flurry of activity from conservative politicians pushing back against ESG investment initiatives:
The latter article pertains to an eight page letter the AGs wrote to BlackRock CEO Larry Fink on August 4th, complaining about his company’s ESG mandate and asking him to respond by yesterday.
“As a matter of policy, we don’t comment on our engagements with legislators and regulators,” a BlackRock spokesperson emailed us.
The oil & gas industry and red state politicians argue the ESG movement is raising the cost of capital, making it more expensive to drill and carry out other business investment, and in the process costing Americans jobs.
When I asked a veteran domestic oil and gas CEO about this, they told me: “The cost of capital has certainly gone up for the industry.”
“Bank capital is very scarce, mostly for smaller companies,” this CEO said. “Many banks that used to participate in syndicates are no longer doing any new energy lending. What commercial lending that is available comes with tighter underwriting standards. Part of this is ESG, but another is investors’ — both banks and equity holders — very recent memories of deep losses in the industry sector.”
It may be that ESG is causing some investors to shun oil and gas stocks, depressing share prices and making raising capital from public markets more expensive.
But oil and gas stocks as measured by P/Es have been cheap for years. Exxon, for instance sells at a hair over 10 times next year’s earnings, almost exactly the same as 13 years ago.
Meanwhile, the energy sector has been the best performer in the S&P 500 this year. By a mile.
Through Friday’s close, the energy sector is up over 40% this year. The next best performing sector, the utility sector, is up 10%. The S&P 500 is down 11% in 2022.
With BlackRock, Vanguard, State Street, and the big Wall Street banks falling out of favor with red state politicians, Vivek Ramaswamy, a former biotech CEO and author of “Woke, Inc.: Inside Corporate America’s Social Justice Scam” saw an opportunity, creating Strive Asset Management, funded with $20 million from the likes of Peter Thiel, Bill Ackman, and J.D. Vance.
Ramaswamy says the real problem [with ESG] is “the fiduciary breach at the heart of this, using someone else’s money to advance social and political perspectives through voting power and shareholder advocacy that the owners of capital actually disagree with.”
Strive — tiny compared to the Wall Street giants — will “mandate companies not to focus on environmental issues, not focus on social issues, not to focus on political or cultural issues, but to exclusively focus on products, products and services, and thereby serve their shareholders period.”
Author Vivek Ramaswamy speaks at the Conservative Political Action Conference (CPAC) in Dallas, Texas, U.S., August 5, 2022. REUTERS/Brian Snyder
Bill McKibben, Middlebury professor and longstanding environmentalist, has a different perspective.
“This is the fossil fuel industry weaponizing their control of state governments,” he says. “It’s to be expected. It’ll be interesting to see whether the blue state treasurers and so on are up to the fight.”
Yes, “sin stock” investment vehicles have been around for years, such as the VICEX fund, and more recently the B.A.D ETF (BAD), but they never generated much buzz, nevermind returns, and unlike DRLL weren’t marketed as anti-ESG. That could change.
But to me, the world’s transition from carbon-based energy to other sources doesn’t lend itself to binary thinking. “We need to ban all drilling!” or: “ESG is an infringement on my freedom that must be stopped!” are viewpoints that won’t get us closer to any solutions.
Facts: Climate change is real and we have to move away from fossil fuels. But we can’t do it overnight and might need some incentives to do so.
“Why can’t we get it through our thick skulls, that if you want to solve climate [change], it is not against climate [change] for America to boost more oil and gas,” Dimon said.
Is it mercenary or hypocritical of Buffett to believe in the science and buy oil and gas stocks? Perhaps. It’s also arguably an unemotional middle ground.
Behaviorists will tell you that some children — and grownups, too — have trouble with transitions and will act as things shift in front of them. I guess this applies to energy transitions as well.
—
This article was featured in a Saturday edition of the Morning Brief on Saturday, August 20. Get the Morning Brief sent directly to your inbox every Monday to Friday by 6:30 a.m. ET. Subscribe
Follow Andy Serwer, editor-in-chief of Yahoo Finance, on Twitter: @serwer
TORONTO – Canada’s main stock index was down more than 200 points in late-morning trading, weighed down by losses in the technology, base metal and energy sectors, while U.S. stock markets also fell.
The S&P/TSX composite index was down 239.24 points at 22,749.04.
In New York, the Dow Jones industrial average was down 312.36 points at 40,443.39. The S&P 500 index was down 80.94 points at 5,422.47, while the Nasdaq composite was down 380.17 points at 16,747.49.
The Canadian dollar traded for 73.80 cents US compared with 74.00 cents US on Thursday.
The October crude oil contract was down US$1.07 at US$68.08 per barrel and the October natural gas contract was up less than a penny at US$2.26 per mmBTU.
The December gold contract was down US$2.10 at US$2,541.00 an ounce and the December copper contract was down four cents at US$4.10 a pound.
This report by The Canadian Press was first published Sept. 6, 2024.
TORONTO – Canada’s main stock index was up more than 150 points in late-morning trading, helped by strength in technology, financial and energy stocks, while U.S. stock markets also pushed higher.
The S&P/TSX composite index was up 171.41 points at 23,298.39.
In New York, the Dow Jones industrial average was up 278.37 points at 41,369.79. The S&P 500 index was up 38.17 points at 5,630.35, while the Nasdaq composite was up 177.15 points at 17,733.18.
The Canadian dollar traded for 74.19 cents US compared with 74.23 cents US on Wednesday.
The October crude oil contract was up US$1.75 at US$76.27 per barrel and the October natural gas contract was up less than a penny at US$2.10 per mmBTU.
The December gold contract was up US$18.70 at US$2,556.50 an ounce and the December copper contract was down less than a penny at US$4.22 a pound.
This report by The Canadian Press was first published Aug. 29, 2024.
The crypto market has recently experienced a significant downturn, mirroring broader risk asset sell-offs. Over the past week, Bitcoin’s price dropped by 24%, reaching $53,000, while Ethereum plummeted nearly a third to $2,340. Major altcoins also suffered, with Cardano down 27.7%, Solana 36.2%, Dogecoin 34.6%, XRP 23.1%, Shiba Inu 30.1%, and BNB 25.7%.
The severe downturn in the crypto market appears to be part of a broader flight to safety, triggered by disappointing economic data. A worse-than-expected unemployment report on Friday marked the beginning of a technical recession, as defined by the Sahm Rule. This rule identifies a recession when the three-month average unemployment rate rises by at least half a percentage point from its lowest point in the past year.
Friday’s figures met this threshold, signaling an abrupt economic downshift. Consequently, investors sought safer assets, leading to declines in major stock indices: the S&P 500 dropped 2%, the Nasdaq 2.5%, and the Dow 1.5%. This trend continued into Monday with further sell-offs overseas.
The crypto market’s rapid decline raises questions about its role as either a speculative asset or a hedge against inflation and recession. Despite hopes that crypto could act as a risk hedge, the recent crash suggests it remains a speculative investment.
Since the downturn, the crypto market has seen its largest three-day sell-off in nearly a year, losing over $500 billion in market value. According to CoinGlass data, this bloodbath wiped out more than $1 billion in leveraged positions within the last 24 hours, including $365 million in Bitcoin and $348 million in Ether.
Khushboo Khullar of Lightning Ventures, speaking to Bloomberg, argued that the crypto sell-off is part of a broader liquidity panic as traders rush to cover margin calls. Khullar views this as a temporary sell-off, presenting a potential buying opportunity.
Josh Gilbert, an eToro market analyst, supports Khullar’s perspective, suggesting that the expected Federal Reserve rate cuts could benefit crypto assets. “Crypto assets have sold off, but many investors will see an opportunity. We see Federal Reserve rate cuts, which are now likely to come sharper than expected, as hugely positive for crypto assets,” Gilbert told Coindesk.
Despite the recent volatility, crypto continues to make strides toward mainstream acceptance. Notably, Morgan Stanley will allow its advisors to offer Bitcoin ETFs starting Wednesday. This follows more than half a year after the introduction of the first Bitcoin ETF. The investment bank will enable over 15,000 of its financial advisors to sell BlackRock’s IBIT and Fidelity’s FBTC. This move is seen as a significant step toward the “mainstreamization” of crypto, given the lengthy regulatory and company processes in major investment banks.
The recent crypto market downturn highlights its volatility and the broader economic concerns affecting all risk assets. While some analysts see the current situation as a temporary sell-off and a buying opportunity, others caution against the speculative nature of crypto. As the market evolves, its role as a mainstream alternative asset continues to grow, marked by increasing institutional acceptance and new investment opportunities.
