09 Sep ESG at the OECD
Yesterday, in Paris, the Organization for Economic Co-operation and Development (OECD) launched its inaugural roundtable on Global Capital Markets. As part of the first day’s events, attendees from the Organization’s 38 member-countries heard remarks from a Senior Policy Advisor to the U.S. Department of Labor’s Employee Benefits Security Administration, the federal agency in charge of ensuring that American workers’ retirement benefits are invested properly and secure from fraud, deceit, and other misuse or abuse. Those remarks were blunt and forceful and included the following:
In the United States anyone that oversees private pension dollars must act “for the exclusive purpose of . . . providing benefits to participants and beneficiaries.” As such, they are duty bound to maximize risk-adjusted financial return to the exclusion of all other pursuits. Our pension system is designed to pursue one social purpose, one normative good—the provision of a secure and prosperous retirement to our workers.
President Trump’s Administration considers the well-being of the American worker sacrosanct. And part of their well-being depends on their ability to retire with dignity. To achieve that noble goal, we need a robust pension system that eschews politics and other social purposes. For far too long, special interests and policy organizations have pushed politicized investing, including within pension funds. America is not blameless in this folly. Many American businesses, pensions, and prior Administrations have adopted, and even advocated for these policies. However, because of our clear standards, America’s adoption of politically motivated investments has been far less than some other OECD members as evidenced by low rate of such practices in ERISA qualified plans. In America, the sun is now fully setting on this behavior.
The Senior Policy Advisor continued, noting that the type of “behavior” he was describing, the “politicized investing” he and the entire Trump administration were disavowing, is that which is best known by the three-letter abbreviation “ESG,” which, he said, “looks a lot like a Marxist march through corporate culture.” And Marxism, he added, is the “complete destruction of capitalism.” The Senior Advisor concluded by declaring that “The United States is no longer going to support these policies, even tacitly,” because it is inimical to the function and purpose of business and capital; it is an overt and inarguable violation of investment managers’ fiduciary duties; and it almost certainly aids those whose intentions are less than noble:
ESG is not just some side-bar political or policy issue. It’s about sovereignty and security as well. Authoritarian leaders love when our member nations embrace ESG. Why? Because it lessens your prosperity and makes you less competitive. If America and other OECD member companies hamstring our nations’ capital markets and pension systems with superfluous ESG costs, it only serves to benefit authoritarian regimes that do not engage in such frivolity.
As I say, the remarks were blunt and forceful – and they were not especially well received by the rest of the OECD, which has yet to fully grasp the damage that can be done not just to business and capital markets but to the entirety of society by the political manipulation and abuse of pensions and investments. Despite its poor reception, the address given by the Senior Advisor to EBSA was both important and groundbreaking for a couple of reasons.
For starters, it is highly unusual for a Senior Policy Advisor to speak on behalf of an American administration at such an event. Securities and Exchange Commission Chairman Paul Atkins will address the roundtable tomorrow, and almost all other speakers will be government representatives of similar seniority. Nevertheless, this Advisor was chosen to represent the Trump administration and establish its position on ESG and capital markets for a reason, the same reason he was hired in the first place. He is among the world’s foremost experts on ESG and its destructive effects and has been intimately involved in pushing back against its infiltration of American capital markets for far longer than most market participants have even been aware of its existence. His name is Justin Danhof, and a few months ago, when he took the position at Labor, I wrote that it was “hard [for me] to imagine a person better suited” to the task of leading the Department’s efforts to protect Americans’ retirement benefits from the undue influence of politics. I noted as well that “it’s hardly a stretch to say that there would be no pushback whatsoever against ESG if it weren’t for” Danhof and his nearly two decades of dedication to the cause of saving capital markets. Danhof is part of the administration specifically to do things like address the OECD and to leave no doubt about his position.
Additionally, the OECD and its member states are not especially used to being addressed in either the tone or the language Danhof used. For a representative of an American administration to call out the Organization’s policies directly and to refer to them as “Marxism” (and, moreover, to refer to “Marxism” in such negative terms) is also highly unusual. These are generally collegial events, opportunities for representatives of various governments to meet, share their common beliefs and ideas, and agree to continue with business as usual. Rarely do they start with such a brash and candid rebuke of everything the host organization is doing on the subject of the gathering.
What all of this tells us is that the Trump administration is serious about addressing and rooting out the elements that have politicized American capital markets. As noted above, SEC Chairman Paul Atkins will address the roundtable tomorrow. One can expect that his speech will be more subtle and reconciliatory, but that it will, nevertheless, deliver the same message: “In America, the sun is now fully setting on this behavior.”
It is no coincidence that Atkins and Danhof are delivering this message to the OECD and are doing so in the heart of Europe. Every day, the American and European approaches to ESG and stakeholderism diverge further and further from one another. Finding a way to manage the gap between those approaches and to ensure that the gap doesn’t damage American business and its dynamism will be one of the critical economic challenges of the Trump presidency. Even after Atkins, Danhof, and the American delegation leave Paris and return home, the Europeans will hear this same message from the administration consistently. Its Ambassador to the EU, Andy Puzder, is another prominent and unrelenting critic of ESG and will remind his European counterparts daily of the criticality of American business and capital markets to a free and functional global economy.
I don’t know if Puzder was able to make the train ride over from Brussels to Paris to hear Danhof’s speech or otherwise participate in the OECD roundtable. If he did, though, he would have brought with him precisely the same attitude about ESG and its corrupting as Danhof expressed – and as Atkins will likely express. The administration stands unified on this matter.
Later this week – Friday, maybe – the Wall Street Journal will probably run an op-ed on the Atkins speech and the OECD roundtable. It will likely title it something like “A New Day at the OECD.” Even though they’ll almost certainly overlook the first sign of that new day’s dawn, they’ll get the bigger story right: it is a new day in global capital markets, one that is unmistakably pro-fiduciary.
