American Institute for Economic Research (AIER) senior research fellow Paul Mueller writes with AIER research fellow Thomas Savidge that “Pulling money from asset managers who put environmental, social, and governance goals over the interests of their clients is a good start.” On its face, this is difficult to argue with regardless of one’s ideology. There are thousands of asset managers offering all manner of investment approaches, including ones fully focused on returns, environmental goals, uncorrelated-to-market returns, and countless others. Those with funds should vote with their feet, which is how markets work.
Unfortunately, that’s not the full story. While it’s easy to share their view that money managers shouldn’t prioritize gauzy theories about global warming and social justice over returns, it’s notable that in the piece they’re quoted from, they’re writing about the Texas Permanent School Fund’s (TPSF) decision to pull $8.5 billion from BlackRock, a money manager well known to favor ESG initiatives, and that they claim sometimes boycotts fossil fuel and energy companies. Mueller and Savidge describe the TPSF as “a perpetual fund established to support Texas public schools.” Hopefully readers see the problem here, conservative readers in particular.
To see why, stop and consider why conservatives disdain big government in the first place: governments have no resources. Instead, they extract them from the private sector via their taxing power, only for them to spend what they’ve extracted on goods, services and labor that they prioritize. Stated very simply, government spending amounts to the politicization, or better yet, the central planning of precious resources.
In an investment sense, what governments direct money to, and what they don’t direct money to, amounts to the central planning of capital. By extension, it warps markets to varying degrees. See above. It’s a reminder that when conservatives call for reduced taxation and limits on the size and scope of government, they have a great point about limiting the control of precious capital by government.
Which calls into question conservative cheering of the TPSF’s actions. To see why, first imagine the reaction of conservatives if an equivalent entity in California pulled funds from asset managers seen as hostile to green energy and the companies engaged in the creation of same. Conservatives would be troubled by the politicization of substantial investment by sizable government entities.
After which, what if companies embracing ESG goals outperform those that don’t? The previous question isn’t an assertion as much as it’s a question. Lest readers forget, BlackRock has $10.5 trillion under management despite myriad investment options out there, including ones that don’t prioritize ESG. Is it possible BlackRock is both ideological, and good? The obvious answer, one that conservatives would be comfortable with, is let the markets decide on the matter of ESG.
Except that Mueller, Savidge, and countless other right-of-center critics of ESG investing seemingly don’t agree. They reject investor focus on environmental, social and governance goals over returns, and one way in which they’d like to push back against it is by encouraging state investment funds to pull “money from asset managers” whose asset allocation is accented by a focus on environmental, social and governance goals. That’s fine if it’s their money, but it’s not. Instead, they’re cheering on a Texas governmental entity that is directing resources first extracted from the private sector.
Which is why it’s a bit confusing that conservatives are calling for the TPSF and others like it to use swagger decidedly not their own to “push back” against ESG. Politicization of investment doesn’t suddenly take on laudatory qualities when those politicizing it agree with us.
The simple truth is that politicization of investment warps markets, period. Conservatives might remember this, and in remembering it avoid becoming what they disdain. What’s wrong when members of the left in government tip the scales in markets is equally wrong when members of the right do it.
Republished from RealClear Markets
