“Forcing Behaviors” With the Help of ESG

Concerned Women for America Legislative Action Committee (CWALAC) is combatting the recent trend of using the financial industry as a tool to advance policies that undermine our core values, otherwise known as “environmental, social, governance” scores (ESG). Learn more about the problems with ESG HERE. ESG is being pitched by supporters as a mere source of data to use in determining where to make financial investments. But recently recirculated comments by Larry Fink, CEO of financial industry giant BlackRock, perfectly capture how ESG serves the opposite purpose. “You have to force behaviors,” he infamously said. “And at BlackRock, we are forcing behaviors.”

His comments came at a time when BlackRock—a giant in the financial industry—was pressuring companies it worked with to meet workforce diversity quotas. BlackRock asserts that the comments were taken out of context. But the comments are still relevant today, as BlackRock and others are still trying to “force behavior,” currently in the form of ESG. Other major actors trying to force behaviors include Glass Lewis and Institutional Shareholders Services (ISS).

Fortunately, the U.S. Congress has taken notice of the harms of ESG. CWALAC recently attended congressional hearings in the U.S. House of Representatives hosted by the Committee on Oversight and Accountability and chaired by Reps. James Comer (R-Kentucky) and Pat Fallon (R-Texas). The hearings involved an examination of ESG with state attorneys general who were challenging unlawful government action related to ESG and involving the harms of ESG generally.

During the hearings, ESG proponents frequently characterized ESG as a passive diagnostic tool. They made recurring references to ESG as “data.” Put simply, they said, ESG is a tool used by financial institutions to assess which companies advance or hinder the different values packed into the “E,” the “S,” and the “G.” Some legislators repeated throughout the hearings that concern about ESG is just a manufactured crisis.

The fact of the matter is that this characterization totally overlooks how companies have used ESG to push for social change regardless of and sometimes at the expense of their clients’ financial interests. Once we start talking in specifics—as groups like Texas Public Policy Foundation, Committee to Unleash Prosperity, and American Accountability Foundation have done in investigative reporting about BlackRock, Glass Lewis, and ISS—it becomes clear that calling ESG mere “data” obscures the truly harmful nature of ESG.

The ideal relationship is one where a client—perhaps an individual or a government entity—tells its money manager—say an asset manager like BlackRock or a proxy advisory firm like Glass Lewis or ISS—at the outset of their contractual relationship that decisions should be made according to ESG. While we oppose use of ESG whether a client wants it or not—especially a government client—we can at least hold government actors accountable for what they know and support. But one of the problems is using ESG proactively as criteria for decisions about finances without the consent of the client. Unfortunately, this describes the unilateral behavior and abuse of trust by companies like BlackRock, Glass Lewis, and ISS.

ESG is not “data.” It is a tool being used to advance radical social change. You can learn more about our specific concerns with ESG HERE. You can learn more about model policies we support to combat ESG HERE.