We’ve Only Just Begun

We’ve Only Just Begun

Almost four years ago, when the Business Roundtable took it upon itself to redefine the purpose of a corporation, we warned the business leaders involved of what we called “Churchill’s Crocodile,” a “reference to the statement that Reader’s Digest adapted from a speech Churchill gave in 1940: ‘An appeaser is one who feeds a crocodile — hoping it will eat him last.’”  We also noted that “our friend Justin Danhof, [then] the General Counsel for the National Center for Public Policy Research and the Director of the Free Enterprise Project [and now the director of corporate governance at Strive Asset Management], concurred, suggesting that the Business Roundtable may think it has done something clever but all it has really done is make its member companies more likely targets.”  Danhof put it this way:

This WILL open them up to a slew of shareholder resolutions. BRT is playing right into the activist’s hands. 

Many liberal proposals follow a predictable pattern. Step 1) file a resolution seeking a policy statement on some ESG issue. Step 2) The left then “identifies” an action that is out of step with the policy statement. Step 3) file a resolution the following year that demands the corporation stop the action identified in Step 2 because it is incongruous with the policy statement in Step 1. 

Here’s the kicker – often times the action in Step 2 is being a member of a pro-business association such as BRT! … What BRT just did was to put Step 1 in writing for the whole world to see, essentially doing the first part of the left’s job in the process. Ugh. I can actually envision resolutions now demanding companies leave BRT because some BRT advocacy offends this BRT statement.

We’ve been thinking a great deal about Churchill’s Crocodile and Justin’s warning over the last few days, ever since we stumbled across the following, published over the weekend by Bloomberg:

The asset management industry is overlooking what promises to be a major new ESG risk: biodiversity.

A fresh analysis by nonprofit ShareAction found that only 10% of the asset managers it surveyed say they have a dedicated biodiversity policy covering all their portfolios.

“Even the top-performing asset managers in the survey have a biodiversity blind spot, often failing to take into account the protection of important habitats such as forests, rivers and oceans when managing their investments,” said Claudia Gray, head of financial sector research at ShareAction. 

The study, which looked at firms representing a combined $77 trillion in client assets, comes roughly two months after the COP15 agreement put biodiversity firmly on the investing map. Hailed as a deal with similar significance to the 2015 Paris climate agreement, the COP15 accord struck in December has the potential to change the regulatory landscape so that investment managers will no longer be able to ignore biodiversity.

We hate to say we told you so…but…well…you know….

A few years back, Larry Fink, the CEO of BlackRock, thought he had the ESG game figured out.  Plastics!  Sustainability!  That, he said, was the key to ESG and the future of the planet.  He wrote his famous annual letter about how nifty his sustainability crusade would be and how important he and his legacy would be to the future of the planet.  But he was wrong.  Sustainability wasn’t the “be all, end all” of the “E” in ESG.  It was only just the start.  And no matter how dedicated Fink, his portfolio managers, the CEOs of companies they hold, and everyone else in ESG-world may be to sustainability and Net Zero and all the other climate change-y buzzwords they all insist they support, it’s not enough.  And guess what?  It’s never gonna be enough.  No matter what they do, what they say, or how they “engage” with corporations, they will simply be unable ever to do enough.

That’s kinda the thing with Utopian/Millenarian movements: they never reach fruition.  And so, there’s always more to do.  More scalps to collect.  More heads to knock.  More standards to meet.  More regulations to implement.  More companies to harass.  Yesterday, it was sustainability.  Today it’s biodiversity.  Tomorrow it’ll be ocean acidification and eutrophication.  The day after that, it’ll be…well…who knows?  But you get the point.  We wonder, though, if anyone else in the financial world does.

Here’s the thing, Mr. Fink ESG Guy.  You smiled and winked when they said they wanted sustainability.  You smiled and agreed when they said they wanted superficial, skin-deep workforce diversity.  You’ll probably smile and nod your head now that they demand biodiversity.  But eventually, they’ll move beyond the Sudetenland and Bohemia and they roll on into Poland.  And then into the Low Countries.  And then into France.  And they won’t stop, even when they have you and your ilk holed up in Dunkirk.  And you can’t count on the environmental Millenarians to pause, ala Rundstedt, to service their tanks.

Moreover, the odds of you, personally, evolving from Chamberlain to Churchill are slim to none.  You don’t have it in you.  You’re an appeaser, and they know it.

The good news here is that with every new iteration of THE environmental issue that MUST be addressed immediately by capital markets, it will become more and more difficult to continue the pretense that any of this is about “prudent” screening for “legitimate” risk factors.  We already know that the “stranded assets” part of the sustainability case was almost entirely false, but its ridiculousness will become more and more apparent as we move beyond energy to…whatever it is that causes the loss of biodiversity (which, we suspect, is EVERYTHING).

At the risk of mixing our metaphors, before long, the companies that do the least will be considered the best by the ESG enforcers, thereby turning the capitalist symbolism in the Parable of the Talents on its head.  “Ah, good, faithful, and slothful servant: you knew that you could do nothing with the talent I gave that would not upset the new high priests.  And so, you buried it in the ground, being careful not to harm endangered species or cause soil erosion.  Your fear and weakness have brought us all to ruin, but at least you didn’t create any excess carbon in the process.”

Anyone who was paying attention or who had any knowledge of history and human behavior could have seen this coming.  Apparently, however, those aren’t the qualifications that matter in running a BRT-member corporation or a multi-trillion-dollar asset management firm.

It’s only just begun.

Stephen Soukup
Stephen Soukup
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Steve Soukup is the Vice President and Publisher of The Political Forum, an “independent research provider” that delivers research and consulting services to the institutional investment community, with an emphasis on economic, social, political, and geopolitical events that are likely to have an impact on the financial markets in the United States and abroad.