07 Aug PUBLIC PENSION CORNER, #51: Vanguard, the SEC, and the Servile Market
NEWS:
I. ESG Isn’t Dead Yet
New data reported by Morningstar show that American ESG funds showed their first quarterly net inflows in four years. Naturally, all the gains are in passive strategies:
The second quarter of 2026 marked a noteworthy moment for US sustainable funds. After 14 consecutive quarters of net outflows, investors added nearly $3 billion to the category, the first quarter of positive flows since the beginning of 2022. Inflows and market appreciation drove assets in sustainable funds to nearly $400 billion, a new high-water mark.
Even so, conventional long-term funds continued to attract substantially stronger demand, collecting $356 billion during the quarter, up from $337 billion in the first quarter. Sustainable funds posted an organic growth rate of 0.8%, slightly below the 1.0% organic growth rate for the broader US fund universe.
Although the return to positive territory represents a notable shift after more than three years of withdrawals, investor demand focused on a relatively small group of passive strategies, while actively managed sustainable funds continued to experience redemptions.
II. Compliance Costs Are Eating ESG Budgets
According to a new survey of sustainability professionals by advisory and consultancy firm GlobeScan and nonprofit sustainability consultancy Business for Social Responsibility, compliance and reporting are occupying most of their time and budgets:
Compliance and reporting have become the main focus for sustainability teams, even as budgets shrink and headcounts are reduced, according to a survey of 124 sustainability professionals published last month.
The results, collected by advisory and consultancy firm GlobeScan and nonprofit sustainability consultancy Business for Social Responsibility, indicate that compliance concerns are taking up “outsized resources compared to other priorities that might deliver more strategic business value and impact.” …
Regulatory requirements have also emerged as the main driver of companies’ sustainability efforts, with 76% of respondents citing them as a driver, compared to just 31% cited in the survey’s 2016 edition, pointing to how regulations’ impact has more than doubled over a decade.
COMMENTARY
By Stephen R. Soukup, President and Publisher, The Political Forum
“Vanguard, the SEC, and the Servile Market”
As you may recall, this past February, Vanguard Group announced that it had settled its portion of the lawsuit brought against it by 11 states. The suit, which was led by Texas, accused the asset management giant of conspiring with the other giants, BlackRock and State Street, to push a “green” agenda on coal companies, thereby raising energy prices for consumers. As I have argued elsewhere (in conjunction with my friend and colleague Allen Mendenhall), Vanguard’s decision to settle was the smart move. Unlike BlackRock, for example, Vanguard is primarily – almost exclusively – a passive management firm. And the case against the Big Three cut to the heart of the passive revolution and became the first real legal test of the common ownership hypothesis.
In any event, Vanguard settled, while the other two didn’t. When it did so, it agreed to a host of conditions, in addition to paying $29.5 million. Notably, it agreed to forego any future participation in global climate coalitions. All things considered, its willingness to settle and its readiness to avoid future ESG-related conflicts solidified Vanguard’s reputation as the least ESG-captured of the Big Three. Vanguard led the asset managers in defecting from the ESG-era climate alliances, and it was always the least supportive of pro-ESG shareholder proposals, voting against all environmental and social shareholder proposals for two years running. Vanguard’s pullback from ESG may not have been as flashy as Larry Fink and BlackRock’s, but then, its embrace of ESG was not as flashy as BlackRock’s either.
And that’s what makes this story so telling:
Vanguard Group has urged the US Securities and Exchange Commission (SEC) to preserve climate-related disclosure requirements, arguing that investors need “simple, clear, consistent and comparable” information to assess climate-related risks and opportunities.
The asset manager submitted its response as part of the SEC’s review of climate disclosure rules, alongside other major investors including Nuveen and TIAA….
They just can’t help themselves. They can’t help but believe that they have the right to speak for all of us, using our money as leverage.
For some time now, a debate has raged over the nature of the ESG/stakeholder: is it corporatocracy or is it corporatism? In short, is it being driven by the private sector and imposed on the public sector, or is it the other way around? The fact that this debate rages mostly in my head is beside the point. It occasionally appears elsewhere as well.
What I’ve learned over the past couple of years – researching and writing The Dictatorship of Big Capital – is that the answer to the question, “is business or government driving ESG?” is “yes.” Or, to put a little more flesh on it: the question has become largely irrelevant. Is it corporatocracy or corporatism? It’s both. And it doesn’t really matter that much anyway.
The combination of the Administrative State, with its highly centralized, concentrated political power, and the passive-dominated capital markets, with their highly centralized, concentrated financial power, creates a feedback loop that renders the question pointless. Sometimes, it’s a corporatocratic entity with BlackRock, Vanguard, State Street, Fidelity, and the rest using their power to circumvent traditional politics in an attempt to deliver policy outcomes with no need for democratic assent. Sometimes, it’s a corporatist entity, with legislative bodies passing laws directing the private sector on how to behave and what to value, and regulatory bodies issuing rules explaining to the private sector what guidelines they must follow in doing as the state says and how often they must do so.
The Progressive-era consolidation of political power and the post-ERISA-era consolidation of financial power are now indistinguishable from one another. The ultimate result of the centralizing forces unleashed by Rousseau, the leftist Pandora, and cheered on by his Progressive descendants is something they would never recognize, much less appreciate. They wanted a system in which government would control business, in which capital would be subservient not to labor but to administration. What they wound up with instead is a system in which government and business routinely alternate controlling one another, while no one effectively controls either.
This, I go on to argue, creates two further enfeebling conditions for investors who want to understand and control how their capital is used: a self-supporting, self-reinforcing oligarchy of public and private sector individuals who work together to determine the purpose of capital, without input from its actual owners; and what I call “the Servile Market” (borrowing from Hilaire Belloc). “The average individual investor,” I write, “capitalizes corporations with his savings, only to have his capital deployed in ways he never imagined and in pursuit of ends to which he never agreed. Although he is at least nominally placated by the returns on his investments, he is nevertheless alienated from the moral environment his investments facilitate.” They all do what they want with our money, and they don’t care about us one way or the other.
The bottom line, I conclude, is that the passive investment revolution created a nation of nominal owners and only a very small handful of actual capitalists. It made us servile and took the power of our capital and handed it to someone else.
To bring all of this back to Vanguard: the SEC’s climate emissions rule (in its multiple iterations) is one of the principal examples I use to demonstrate how the feedback loop, the investment oligarchy, and the Servile Market all work in practice. The massive investment firms pose as “investors,” using the trillions of dollars of our money to speak on our behalf, while the unelected bureaucracy colludes with them to regulate the investment business – and the economy as a whole – with almost zero input from any actual “investor.” The comment periods regulatory bodies must provide to hear the opinions of interested parties only exacerbate the problem. Small investors – indeed, most investors – don’t participate in this process. Large investors and other significant external parties do, meaning that this reinforces the impression of a small group making decisions about markets that affect a far wider and far less homogeneous population.
Vanguard – the least ESG-supportive of the Big Three – just proved my point. Were any of you Vanguard fund owners asked what you think about the SEC’s climate emissions rule? Were any of you consulted on the firm’s response to the issue and whether it’s a good or bad thing for corporations to spend trillions of dollars every year complying with someone else’s political priorities? Of course you weren’t. But that didn’t stop the firm from using the leverage provided by your money to attempt to influence the government on those questions.
That’s not exactly the “shareholder democracy” we’ve been told characterizes our capital markets. It’s something else altogether, something that deprives us of our agency while pretending just the opposite.
