31 Jul PUBLIC PENSION CORNER, #6
NEWS:
I. American ESG Funds Continue to Struggle, as Europe Rebounds
Morningstar is out with its quarterly report on ESG fund inflows and outflows, and the news is typically terrible for American funds, albeit much better for ESG globally:
The global sustainable fund universe rebounded in the second quarter of 2025, registering net inflows of $4.9 billion. This marked a sharp reversal from the record-high restated redemptions of $11.8 billion in the first quarter. The universe comprises open-end and exchange-traded funds focused on sustainability, impact, or environmental, social, and governance factors.
European investors drove the recovery, pouring $8.6 billion of net new money into ESG funds over the past three months, after redeeming $7.3 billion in the prior quarter….
Meanwhile, US-domiciled sustainable funds continued to bleed money for the 11th consecutive quarter, although the loss was smaller than in the previous quarter, with withdrawals of $5.7 billion in the second quarter of 2025, compared with the $6.5 billion of outflows in the first quarter.
II. Labor Department Squelches Citi’s Racial Equity Plans
The Labor Department’s Employee Benefits Security Administration (EBSA) issued a new advisory opinion overturning a previous Biden-era letter on Citigroup’s Racial Equity Program. Labor’s new opinion holds that the program violates civil rights laws:
The subagency pointed to the U.S. Supreme Court opinion Students for Fair Admissions v. Harvard to explain its rescission, along with Trump’s executive order and a few other court cases. Attorneys previously predicted that SFFA v. Harvard, which found the use of race in college admissions unconstitutional, could chill corporate DEI programs.
Citi is among the early private companies to be targeted for DEI practices the administration considers illegal; Trump’s Jan. 21 executive order called for the preparation of reports by agency heads that would target “up to nine potential civil compliance investigations of publicly traded corporations, large non-profit corporations or associations, foundations with assets of 500 million dollars or more, State and local bar and medical associations, and institutions of higher education with endowments over 1 billion dollars.”
“Citi should take immediate action to end all illegal activity within its Racial Equity Program and any other initiative, plan, program, or scheme it operates under the banner of diversity, equity, and inclusion,” Turner wrote, although he stopped short of announcing an investigation into the company.
COMMENTARY
By Stephen R. Soukup, President and Publisher, The Political Forum
“The Atlantic Swings and Misses”
Two weeks ago, The Atlantic, that venerable mainstay of popular intellectual journalism, published an article “exposing” the origins and financial sponsorship of the effort to undermine “climate-conscious investing.” The two authors of the piece – both Washington Post journalists – wasted no time identifying the culprit. Indeed, they named him in the article’s subhead, laying blame for this unconscionable attack on climate activism at the feet of the most usual of usual suspects: “A Leonard Leo–funded effort to destroy ESG has scared off much of corporate America.” They continued:
In January, a group of present and former Republican state officials gathered at a posh resort in Sea Island, Georgia, together with conservative leaders, for a two-day lesson in how to dismantle corporate America’s most ambitious response to climate change. At the Cloister, with its golf courses, tennis courts, and beaches, ESG was denounced as a sinister force undermining free markets and democracy.
“I would hope everyone here is pretty much committed to destroying ESG,” said Will Hild, the executive director of Consumers’ Research, the organization that has led the fight….
Expectations for ESG have now fallen off dramatically—and Hild and his three colleagues at Consumers’ Research can claim much of the credit. At seminars such as the one at Sea Island, Hild and his allies armed a network of Republican state attorneys general, state treasurers, and comptrollers with legal and political ammunition.
The key funders of such efforts include fossil-fuel-industry executives and Leonard Leo, who is best known for his leadership of the Federalist Society….
Beginning in 2021, Leo and his team injected cash into a long-dormant organization that they would use to fight ESG: Consumers’ Research.
That sounds terrible. And conspiratorial. And maybe even incriminating. One might say that The Atlantic has performed a public service here, that this exposé is an important indictment of the power of money and political connections to undercut the perfectly understandable and justifiable desire to transform capital markets into an extension of the administrative state in the hope of averting global disaster.
Of course, if one said that, one would be wrong.
As I say, the story sounds awful. It is, however, fatally flawed – on several fronts.
For starters, the entire premise of the article is factually inaccurate.
Don’t get me wrong. I won’t deny, even for a moment, the vital role that Will Hild and Consumers Research played in raising awareness of ESG. They have done yeoman’s work over the last five years and are, inarguably, among the most effective and formidable public campaigners against ESG, “stakeholderism,” and all related politically tinged investment and engagement strategies. Pretending otherwise would be both dishonest and foolish.
Additionally, I won’t pretend that Leonard Leo and his inimitable CRC Advisors haven’t been absolutely vital in the pushback against ESG. They have been. And again, there’s no sense in pretending otherwise.
All of that notwithstanding, I can tell you from personal experience that the pushback against ESG did NOT start with Leonard Leo or Consumers Research. As I’ve noted countless times, it mostly started with one man, who, to the best of my knowledge, has never taken a dime from Leo, from CRC, or even from those dastardly “fossil-fuel industry executives.” I wrote the following about him in a recent column:
This past Monday was the first day on the job for the new Senior Policy Advisor at the Department of Labor. His name is Justin Danhof, and his advisory portfolio will include such weighty topics as ESG, stakeholderism, and the interplay between political ideology and markets that has threatened Americans’ retirement savings for the last decade or more. It’s hard to imagine a person better suited for the task.
How do I know this? Well, that’s a long story, but a good chunk of it can be found in my book. You see, way back in 2021, when ESG was the dominant investment fad and guys like BlackRock’s Larry Fink were openly talking about using capital markets to “change behaviors” and save the planet from the scourge of fossil fuels, I wrote The Dictatorship of Work Capital, which The Wall Street Journal named one of its Top 5 politics books of the year and described as “an exceptionally useful presentation of the intellectual origins and present-day lunacies of woke capitalism.” I can tell you honestly that there would have been no book pushing back against ESG if it weren’t for Justin Danhof. Indeed, it’s hardly a stretch to say that there would be no pushback whatsoever against ESG if it weren’t for Danhof.
Without giving away too many details, I can tell you that the honest-to-goodness pushback against ESG took shape over the course of one morning in late 2019. Justin and I sat in a conference room at a large hotel (that was not the Cloisters at Sea Island) with representatives of four large, very powerful non-profits, as well as a handful of others (including a local media syndicate), and “we” presented the case for action on ESG. I use the scare-quotes here because I mostly sat there, while Justin made the case in stunning and disconcerting detail. Among the things “we” argued the pushback needed immediately was a book to make the case to the public and the financial community. About a half-hour after the meeting ended, while Justin continued to make the case to the non-profits, I received a phone call from my publisher, Encounter Books’ erudite chief Roger Kimball, who said he found the subject intriguing, really liked my book proposal, and would send over a contract within the week.
I can also tell you from personal experience that the states were involved in this fight long before Will and Consumers Research told them they needed to be. Again, CR’s role here cannot and should not be diminished, but nor should the threat posed by ESG to energy-producing states and the foresight of state financial officers, who identified those risks early on.
A second problem with The Atlantic’s hit on the ESG resistance is that the information revealed in it, while not exactly accurate, is also not exactly news. Starting in August of 2022, The New York Times ran a series of articles intended to achieve the same end as The Atlantic’s piece (i.e., scare people about the dark money conservatives fighting climate action) and relying much of the same material. One such article, from October 12, 2022, discussed Leo, CRC, and Consumers Research thusly:
The ambition, tactics and impact of Mr. Leo’s network are illustrated by its campaign to punish some of the country’s biggest corporations for pushing environmental, social and governance causes, known as E.S.G., that generally align with a Democratic agenda.
The campaign has been pushed by two groups — Consumers’ Research and the State Financial Officers Foundation — that came to the issue relatively recently and have helped elevate it within the Republican Party. Both groups are clients of CRC Advisors, a firm with about 80 employees that Mr. Leo co-founded in January 2020, building on an earlier operation run by his allies for many years, that helps groups in the network raise money and execute their strategies.
Consumers’ Research dates back to the 1930s, when it focused on identifying and publicizing defective or unsafe consumer products. It had gone largely dormant by the early 2000s, but it was resuscitated a decade later as a Republican-aligned group working partly to topple federal environmental laws, using millions of dollars from donors with connections to Mr. Leo.
Sounds familiar, yes?
A third problem with The Atlantic’s hit piece is….well…The Atlantic. The magazine is owned and operated by something called the Emerson Collective. The Emerson Collective, in turn, is (mostly) owned and operated by Laurene Powell Jobs, the widow of Apple Founder Steve Jobs. As his heir, Mrs. Jobs became a massive shareholder in Apple but also inherited over $1 billion in Disney stock, the result of her husband’s other start-up, Pixar. From 2011-2016, Mrs. Jobs was the single largest shareholder of Disney, holding roughly 8% of the company’s outstanding shares. During that period, the two companies with which she was most heavily associated – Apple and Disney – focused their operations and their future profits on investments in the People’s Republic of China. Both companies were also early ESG pioneers, and both were unabashed ESG hypocrites, which I detail in The Dictatorship of Woke Capital. I note as well that Mrs. Jobs “has used Emerson Collective and other organizations that she’s funded to push a variety of progressive causes, especially the case for coercing businesses to curb carbon emissions.”
In other words, The Atlantic is hardly an impartial observer here. It has an axe to grind here – one that it and its owner have been grinding for years. That they would find Will Hild and Consumers Research frustrating should surprise no one. That they would stoop to recycling three-year-old stories against them in an attempt to resuscitate ESG is even less surprising. Frankly, it’s a bit surprising it took them this long.
And that brings us to the fourth and final problem with The Atlantic’s hit piece, the fact ESG needs resuscitation. As Morningstar reported last week, he second quarter was the eleventh straight quarter of ESG fund outflows, with redemptions netting a total of $5.7 billion (following outflows of $6.5 billion in the 1st quarter…and almost $20 billion in 2024…and more than $13 billion in 2023). Investors, of course, invest to make money, which is to say that they are pulling their money out of ESG funds mostly because they’re not making money. Or because they doubt their ability to make money long-term. Or because they are bothered by their effects on corporations’ capacity to make profits.
In truth, investors could have any number of reasons for taking their money out of ESG funds – none of which have anything to do with Leonard Leo or Will Hild.
Interestingly, ESG funds rebounded in Europe and Asia last quarter, seeing net positive inflows. What this suggests is that ESG isn’t dead. It’s still viable in jurisdictions in which the political powers that be will coerce the behavior necessary to normalize its inherently anti-industrialist zeitgeist. Or to put it another way, the pushback against ESG is not political, as the nice folks at The Atlantic suggest. They have it backward. ESG represents the politicization of capital markets – and it always has.
