02 Jan On ESG, the Die is Cast
The following commentary/analysis is one I wrote in my capacity as a senior fellow at “the nation’s oldest consumer protection agency,” Consumers Research, where, among other things, I compile a weekly letter for public pension-fund managers. I am sharing it here today because I thought it might be useful to some of you.
Cautious Optimism to start 2025
The first chapter in my 2021 book The Dictatorships of Woke Capital is titled “To Whom Does Wall Street Belong.” In it, I address the longstanding perception that Wall Street and finance more generally have always been the purview of political conservatives, that the “greed is good” crowd was populated by Reaganites and old-money country clubbers who had always voted and would always vote a straight GOP ticket.
As I noted, that perception is patently false, both historically and currently. Indeed, if anything, the “right-wing” perception of finance has the political dynamics of the financial system today almost precisely backward. While it is true that the business of Wall Street is making money, the social and cultural influences on that business have been extremely “progressive” for the preceding three decades or so. I put it this way:
Over a span of sixteen years, from 1992 to 2008, Wall Street shifted aggressively to the left….
During the 2006–2008 election cycle, Wall Street ponied up big for the Democrats and especially for Obama. Goldman Sachs (its PAC, its employees, and their immediate families) was the second-largest donor to Obama overall. J.P. Morgan was fifth, Citigroup seventh, and Morgan Stanley rounded out the Top 20.7 The Democratic takeover of Wall Street was complete….
The differences between Wall Street in 1988 and Wall Street in 2008 were shocking. The transformation was nothing less than total. In the 1980s, Republicans in pop culture looked like Randolph and Mortimer Duke, the wealthy commodity brokers in the movie Trading Places who toyed with people’s lives just for fun. By the 2010s, however, Republicans were much more likely to be compared to Bo and Luke Duke, the reckless, redneck country boys who drove gas-guzzling cars and clung bitterly to their God and their guns.
The point of all of this was simply to note that the world’s biggest financiers, the giants of Wall Street, have all taken their social and cultural cues from “elite opinion.” Their environmental and social views have been very much in line with the political consensus, the academic consensus, the global institutional consensus, and so on. On these matters, there has been scarcely a hair’s breadth of difference between Joe Biden, James Hansen, Antonio Guterres, Klaus Schwab, and Larry Fink.
It is worth keeping this in mind while considering the news of the day:
Morgan Stanley terminated its membership of a major climate-banking group, joining a wave of Wall Street firms that recently quit a global alliance intended to aid the reduction of greenhouse-gas emissions.
Morgan Stanley is leaving the Net-Zero Banking Alliance, the lender said on Thursday. Citigroup Inc. and Bank of America Corp. said earlier this week that they were doing the same.
These announcements follow similar announcements made last month by Goldman Sachs and Wells Fargo. They also follow an announcement made last month by GFANZ, the Glasgow Financial Alliance for Net Zero, an umbrella organization for net-zero groups, that it would no longer require financial firms to make a commitment to net-zero goals to receive “guidance and assistance” from the Alliance. And all of this, in turn, is part of an ongoing process:
The defections that have hit NZBA follow similar exits across climate groups in other corners of the finance industry. In 2023, a coalition of insurers saw a mass exodus amid litigation threats. And in 2022, an equivalent group for asset managers parted ways with Vanguard Group, the world’s second-largest money manager. Other investment firms followed.
To be clear, the global net-zero financial services groups aren’t exactly on the verge of collapse. They still have plenty of members from plenty of countries. They are, however, rapidly losing the input and participation of some of the biggest players in the biggest and most important banking and capital markets systems in the world. Carrying on without American banks and asset managers may be possible for NZBA, GFANZ, and the like, but it’ll be a little bit like the Soviets carrying on, holding the 1980 Olympics in the face of the American boycott: no one will notice, and no one will care.
In response to the announcement today by Morgan Stanley, Matt Cole, the astute CEO of Strive Asset Management, sounded a note of caution: “This isn’t about a sudden change of heart,” Cole tweeted, “it’s due to mounting legal risks and PR backlash…. These moves are defensive, not proactive.”
Cole is right, of course, as is his wont. These banks – and asset managers and others – are indeed bowing to public opinion and the pressure exerted on them by Red State government officials. But then, that’s kinda the point.
Five years ago – and for many years before then – the giants of the financial world bowed to no one in adopting environmental and social policies. They followed “elite opinion,” or their own political predilections and nothing else. They didn’t know, much less care what the Attorney General of Texas, the Treasurer of Utah, the Chairman of the House Judiciary Committee, or the activists at various think tanks and shareholder-centered research firms thought about climate change or DEI or board diversity. None of those opinions, none of those people, were relevant to them. All that mattered was the reception they’d get for their efforts at the next COP meeting, at Davos every late January, in their next interview with Andrew Ross Sorkin, or at the next dinner party they attended with their wealthy colleagues in the business, powerful politicians, and influential celebrity-intellectuals.
Everything is different today. The big banks and the big asset managers may be making changes and adjusting the radicalism of their policies only because they know that various watchdogs are watching, but at least they’re doing it, at least they’re making those changes, at least they are now aware that there are people paying attention who believe that political consensus, academic consensus, and global consensus should be superseded by shareholder consensus.
Cole and others are right that “We must stay vigilant and continue pushing for corporations to put shareholders first.” That is inarguable. At the same time, it is worth noting that the progress made in reasserting shareholder rights over the last five years is both significant and largely indissoluble. There is no going back. Wall Street and the rest of the financial community will never again be able to operate as if shareholders are monolithically disinterested in environmental and social policies and are therefore willing to accept ideological meddling in investment and business matters. The proverbial die is cast.
