19 Dec PUBLIC PENSION CORNER, #25: THANK YOU
NEWS:
I. BlackRock: Damned if you do; damned if you don’t
BlackRock, the largest asset manager in the world, is learning that playing politics with retirement funds brings significant, often unintended risks. Once you make the conscious decision to get involved in the game, you open yourself up to criticism from everyone, both those who reject politicization and those who demand that you become more politicized to suit their specific beliefs. Case in point:
Netherlands-based pension fund pension fund manager PME Pensioenfonds announced a decision to end its relationship with BlackRock as a manager for its equity portfolio, following an ESG-focused review of its external asset managers.
The announcement marks the second significant ESG-related mandate loss for BlackRock from a Dutch pension fund, following a decision earlier this year by pension fund PFZW to pull approximately €14 billion from the firm as part of a shift towards a more sustainability-focused investment policy….
The firm said that it evaluated BlackRock as part of its process managing its ESG index portfolio, and while acknowledging that “BlackRock has provided PME with high-quality services for many years in managing part of our equity portfolio,” it said that it decided to end its relationship with BlackRock, adding that it “considers which external managers best align with our vision and the principles of the Portfolio of Tomorrow.”
II. EU Parliament (finally!) Approves Reporting Rules Changes
The EU has been trying for almost a year to agree on a plan to cut its pending environmental and disclosure rules. Earlier this week, the EU Parliament finally did so, although the results are likely to leave many – especially in American boardrooms – disappointed:
Lawmakers in the European Parliament approved today a provisional agreement reached last week with EU member states to significantly scale back sustainability reporting and due diligence requirements for companies. The agreement was adopted with 428 votes in favor and 218 against, in addition to 17 abstentions.
The approval by MEPs forms one of the last steps towards the final adoption of the finalized Omnibus I package, launched by the EU Commission in February to simplify and reduce compliance burdens on companies across sustainability-focused regulations including the Corporate Sustainability Reporting Directive (CSRD) and Corporate Sustainability Due Diligence Directive (CSDDD). The agreement still requires approval by member states in the EU Council before entering into force.
The Commission’s initial proposal would have reduced the number of companies covered by the CSRD by approximately 80% by moving the regulation to cover only companies with more than 1,000 employees from the current 250 employee threshold, while retaining the CSDDD’s 1,000 employee threshold, in addition to shifting due diligence requirements to focus primarily at the level of direct business partners, unless the company has plausible information of adverse impacts further down the value chain. The initiative also introduced limits to the amount of information that could be requested from smaller value chain companies.
COMMENTARY
By Stephen R. Soukup, President and Publisher, The Political Forum
“Thank You”
This is likely the last issue of the Public Pension Corner of the year. Given that, I’d like to do something a little bit different today. First, I want to thank those of you in the public pension world who take time out of your busy schedules every week to read this little newsletter. I – in conjunction with my sponsors – believe that the information contained herein is important, both to educate and empower public fiduciaries and to strengthen the effort to preserve free and fair capital markets. Second, in keeping with that belief, I want to announce to public fiduciaries that the sponsors of this newsletter and I will be offering expanded opportunities for continuing education, discussion, and cooperation in the New Year. Keep an eye out for more information. Additionally, the tenor of this week’s commentary section will be somewhat out of the ordinary, as I once again try to make the case for the depoliticization of capital markets and a return to “back to neutral” business and financial administration.
In general, this newsletter is read by (or at least distributed to) two audiences: public pension fiduciaries (and their staffs) and the people on the other end of the investment equation, i.e., asset managers, wealth managers, investment advisors, and other market professionals. The latter group has been my primary audience for nearly all of my 30-year career. Those who comprise it are familiar with both my formal job description – to provide commentary and forecasting on the intersection of markets and politics, focusing specifically on trends that may affect markets going forward – and my (rather frequent) propensity to write things that are “somewhat out of the ordinary,” given that description.
For most of the last 15 years, I have written daily (or near daily) pieces on political events and developments, attempting to explain their broader relevance. I stopped doing that this past fall for a handful of reasons. Most obviously, I have other responsibilities, many of which involve the ideas that animate this newsletter (as noted above). Additionally, however, I found it increasingly difficult to address overtly political matters multiple times a week. I still do so once a week (as can be seen here), but that’s usually enough for me. The “politicization of everything” is a process that has been ongoing in the West for almost three hundred years, but over the last decade or so, it has become much more overt and aggressive. Politics today is a team sport that touches almost every aspect of our lives and turns every question, every disagreement, into a fight to the death between two sides that view each other as sworn enemies. It’s destructive. It’s debilitating. It’s exhausting. And I’ve simply found it harder and harder to spend all my time wallowing in it.
Unsurprisingly but unfortunately, these two themes – the desire to provide public fiduciaries with market knowledge that enhances their ability to perform their duties and responsibilities, and the politicization of everything – are not unrelated. Indeed, the latter necessitates the former. As I noted in the conclusion to The Dictatorship of Woke Capital, business and markets constitute the one aspect of Western culture that remains, at least nominally, uncaptured by omnipresent politics. And it is our responsibility to ensure that it remains so:
The choice here is simple. If we as a civilization allow even the spirit of capitalism to become part of “the political” and part of the total state, then we will have order—for however long that lasts. If we resist the politicization of business and of capital markets, however; if we determine for ourselves that disorder and depoliticization are the preferable options, then we not only preserve liberty but also preserve the spirit of innovation and expression that harnesses liberty to create wealth and prosperity.
A brief look at the news of the last week provides more than ample evidence of the destructiveness of the team-based politicization of everything. On Saturday, two students were murdered on the campus of Brown University in Providence, Rhode Island. The political left immediately launched into its usual denunciation of guns and insistence that gun control is the answer to all shooting problems. At the same time, the right insisted that it knew who the shooter was, what his motives were, and how the university was covering up for him because of his sexual orientation and political affiliations. And although the university may have been innocent of the most heinous accusations made against it, it performed shockingly poorly in its investigation, largely because of bad decisions it made in the name of political solidarity with faculty. All the while, an armed murderer was at large for nearly a week and may well have committed another murder, near another Ivy League campus, during that time.
On Sunday, at Bondi Beach in Sydney, Australia, two radicalized Islamist terrorists murdered more than a dozen Jewish men, women, and children as they celebrated the first day of Hanukkah. In response, the Australian government (and the government of New South Wales) blamed the guns the terrorists used, despite the nation’s already strict gun laws, and promised new, even more aggressive gun regulation. The political opposition, in turn, blamed recent Australian immigration policies, despite the fact that the elder of the two terrorists had been in the country for 27 years, and the younger was born there. Meanwhile, no one, apparently, has much to say – and even less to do – about the radicalization of Islamists in the country and the nearly universally rising tide of antisemitism.
Also on Sunday, one of the great American film directors of the last half-century, Rob Reiner, was brutally murdered in his home, along with his wife, allegedly by their own son. The President of the United States responded with a social media post slamming Reiner for his politics and political obsessions. The president’s opponents, in turn, slammed him for his politics and political obsessions. And then his defenders slammed them and noted that he wasn’t wrong about Reiner, his politics, or his political obsessions. And on and on it went.
And on and on it goes.
You can see, in other words, how destructive – and how exhausting – our politics have become. You can also see, I hope, how vital it is to our civilizational survival to ensure that business and capital markets remain as far removed from all of this as possible.
In the preface to the paperback edition of The Dictatorship, I wrote about the surprising and surprisingly powerful pushback against the politicization of capital markets that came from the states. As it turns out, federalism is a potent insulator against national political trends and, as such, against politicization more generally. ESG and the overt politicization of business and markets were prevented from achieving easy victory in large part because of the response of state and local financial officers. Without their efforts, who knows how far and how fast politics would have spread in American capital markets and how dysfunctional they would have become as a result. That’s why all of you matter infinitely more than you likely ever imagined. That’s why this newsletter matters. That’s why I am exceptionally grateful for all of you.
Merry Christmas. Happy Hanukkah. And may you all have a blessed and prosperous New Year.
