China U.S.

Chinese De-Listings From U.S. Exchanges Signal Hidden ESG Horror

Chinese government-owned companies are beginning to delist from American stock exchanges. While this might seem like a minor win for those who seek to decouple the American and Chinese economies in the wake of, among other things, tensions over Taiwan, the bigger story is – as is so often true these days – one of the so-called ESG movement and the insurrection of the C-suites. That story is predictably one of giant investment managers and lenders holding American publicly traded companies to debilitating and stifling political-policy-driven standards that they do not apply to private-equity firms or to foreign companies with which these managers and lenders happily deal.

Scott Shepard

Scott Shepard

Last week two companies owned by the Chinese government delisted from American exchanges: PetroChina Sinopec and China Life Insurance. Reports indicate that Aluminum Corporation of China and Sinopec Shanghai Petrochemical will also delist soon, and some analysts expect that other China-owned companies will follow. Alibaba, meanwhile, has released plans to have dual primary listings in both New York and Hong Kong, raising its secondary Hong Kong listing to primary.

By delisting from American exchanges, these corporate arms of the Chinese government – and therefore of the Chinese Communist Party – excuse themselves from having to submit to audits by the Public Company Accounting Oversight Board (PCAOB), a federal statutory oversight outfit. By moving now, the companies are also getting out before the SEC finalizes new disclosure rules that, as proposed, would force companies traded on American exchanges to make highly expensive and speculative carbon-emission disclosures – including the emissions created by all of a company’s suppliers.

The imminent delistings have generated headlines in the financial press but are unlikely to change the makeup of large fund management companies, notes Justin Bernier, Chief Investment Officer at National Security Index. “The big index funds get most of their exposure to these companies from securities traded on Chinese – not U.S. – exchanges.”  In the case of PetroChina, American asset managers own about $150 million in depository receipts traded in the U.S., while top institutional holders – including Vanguard, BlackRock and State Street – own ten times more in shares ($1.5 billion) traded on the Hong Kong exchange.

Bernier, a formal naval intelligence officer, added that PetroChina as well as Sinopec Group are involved in the development of Chinese facilities on artificial islands in the disputed South China Sea, a strategic chokepoint that could threaten American and allied forces in the event of a crisis.  The head of U.S. forces in the Pacific, Admiral John C. Aquilino, recently reported that China has militarized at least three islands in the area with anti-ship and anti-aircraft systems in what amounts to “the largest military buildup since World War II by the PRC.”

As has been discussed in these pages, the SEC’s carbon-emission rules are illegal, expensive and dumb. They lie beyond the SEC’s statutory remit, and thus are beyond its power to promulgate. They are based on a long series of counterfactual or highly speculative assumptions, such as that Congress will ever mandate decarbonization according to activist schedules; that while all of the past “act-now-or-we’re-doomed” scenarios were false (else acting now wouldn’t matter), this set is somehow spot on; and many more. These rules will hurt the small investors and small businesses that have historically been the special concern of the SEC. They will harm the productivity of companies traded on American exchanges to no global or local benefit.

Nevertheless, the too-big-to-fail bank and investment-house CEOs who promote ESG, and who have threatened to starve of capital companies that dare to reject the twin ESG pillars of equity-based discrimination and activist-schedule decarbonization, stand foursquare behind the sorts of disclosure demands and farcical assumptions embraced by the SEC’s forthcoming rules. BlackRock’s Larry Fink’s only objections were that the SEC had dared in its disclosure demands to differ in any way from the disclosure demands that he and Mike Bloomberg had cooked up on their own.

It would surely prove embarrassing to the Chinese government-owned corporations to allow themselves to be subjected to the SEC’s pending disclosure rules, regardless of the wisdom of those rules. While the Chinese government occasionally pays vague lip service to the idea of eventually reducing carbon emissions, it has expressly declared its intentions to increase carbon emissions into the foreseeable future – long after the time at which the current catastrophists insist that the whole world must have reached carbon zero, lest all of the cataclysms of their fevered imaginings befall us.

Two of the companies that have or are about to delist are carbon-energy companies, and a third is an aluminum manufacturer that requires huge amounts of energy. Any carbon disclosures made by these companies would have either been farcically false or would have revealed without any possibility of pretense that China’s state-owned industries had no real interest in activist-schedule decarbonization, but instead intended to increase reliable energy use as necessary to maintain the Chinese economy.

That would also have been embarrassing for all American and Western supporters of activist-schedule decarbonization because it obliterates any remaining vestige of that schedule’s rationale. If China and other non-Western countries aren’t going to decarbonize on similar schedules, then nothing the West does can matter even under the climate-catastrophists’ own assumptions.

But it would have proven particularly embarrassing for Fink and all the other malefactors of usurped influence who push so hard for American corporations to adopt activist-schedule decarbonization. Even as they violate their fiduciary duties to pressure American corporations, they have been aggressively eager to put their clients’ money in China-owned concerns that are bound by neither carbon-disclosure regimes or climate-catastrophist decarbonization diktats. As recently as a year ago, BlackRock was telling investors to triple their investment in China.

Now Fink and other stewards of Americans’ assets are once again faced squarely with a test of their fidelity. They have already violated their fidelity to their fiduciary duties by embracing the ESG push that privileges their personal policy preferences over their duty to invest the assets entrusted to them only in consonance with the law (broken by equity-based discrimination) and complete and objective research (the opposite of which underpins their activist-schedule decarbonization demands). Now we will see if they even have fidelity to the policy positions that they have staked out here in the States.

They have a choice. If they are serious about their decarbonization position, they have to be serious about it everywhere, the world’s climate being, you know, global. Big Chinese state-owned enterprises are giving up their American listings to avoid the sort of carbon-disclosure regimes and decarbonization schedules that Fink & Co. are using other people’s capital to force here. Are they then going to invest that capital in China-owned companies that do not – in fact, on the ground, not occasionally and rhetorically – submit to the same rules and regimes?

Recall, when considering this question, that while BlackRock and the other investment houses offer ESG-labeled and non-ESG-labeled funds, BlackRock has proudly boasted that here in the States it uses the power of all of the capital invested with it, not just the ESG fraction, to “forc[e]” activist-schedule decarbonization. So it would be no answer for BlackRock & Co. to divest only their ESG-labeled investments from non-disclosing, non-decarbonizing China-owned companies. For them to have the slightest bit of fidelity, even to the rationales for their fiduciary breaches, they would have to withdraw all of their investors’ funds from Chinese state-owned companies that failed to live up to their activist-driven disclosure-and-decarbonization regime.

After all, what would it suggest were it to turn out that what all these ESG warriors are really doing is simply forcing a profoundly partisan, illegal and/or productivity-destroying policy agenda only on U.S.-listed publicly traded companies?

Scott Shepard is a fellow at the National Center for Public Policy Research and Director of its Free Enterprise Project. This first appeared at RealClearMarkets.

The National Center for Public Policy Research is a communications and research foundation supportive of a strong national defense and dedicated to providing free market solutions to today’s public policy problems. We believe that the principles of a free market, individual liberty and personal responsibility provide the greatest hope for meeting the challenges facing America in the 21st century.