21 Mar 2023 SVB and ESG: The Big Picture Is Even Worse
It quickly emerged after Silicon Valley Bank (SVB) was shuttered two weekends back that it had spent millions of shareholder (and, it appears, ) money for partisan political purposes that lie beyond the scope of its directors’ and executives’ statutory remit, including on – of course – decarbonization and equity-based discrimination initiatives. The expenses by themselves did not sink SVB, but its larger ESG commitments, and the assumptions and blindnesses that go along with them, certainly did.
SVB blew quite a lot of money on ESG-style politics. It committed $5 billion to the decarbonization pipe dream, and its collapse was mourned by Christina Qi, a former ESG-committed hedge fund manager, because it “has been devastating in more ways than one: They supported women, minorities, & the LGBTQ community more than any other big bank. This includes not just diverse events, but actual funding. SVB helped us move one step forward; without them, we move two steps back.” (As Russ Greene of Stand Together tartly and trenchantly noted, instead of all this “sustainable” capitalism, “[m]aybe Silicon Valley Bank should have focused on capitalism capitalism.”
That’s surely correct, because while the performative ESG efforts certainly drained away money that SVB eventually very much needed for other purposes, it was the thorough-going commitment to ESG thinking, to notions of “sustainable” and “stakeholder” and the other varieties of non-at-all-capitalism capitalism that really did the bank in.
SVB’s problem was that it was too deeply invested in tech companies, and not sufficiently diversified in real-world companies. This made it vulnerable to, as RealClearMarkets editor John Tamny put it last week, “Peter Thiel essentially yelling ‘Fire’” the week before the bank’s collapse, as well as to the year-long swoon in tech-company values and the failure of an unusually high number of tech-industry startups, which many of its venture-capital depositors and investors had funded.
This misallocation is not at all unique to SVB, though. It is a central characteristic both of explicit ESG funds and of general ESG investing. Tech companies have been some of the most nauseating in their embrace of ESG goals such as equity-based discrimination, political-schedule decarbonization (despite the vast amounts of energy that tech server farms hoover up), and censorship of facts and opinions that challenge the hard-left narrative in the solidly Newspeak name of “safety and harm reduction.” And so the types of investors who push ESG and subscribe to its shibboleths invested heavily in tech, while underinvesting in nasty, dinosaur industries such as reliable energy.
This investment strategy suggests that at least a significant percentage of the ESG squad really did, in Barack Obama’s immortal words, “believe [their] own bullshit.” They really did think that ESG meant “doing well by doing good,” with good in their eyes being reviving illegal discrimination, shifting away from reliable energy, and stifling thoughts with which they disagreed.
They were able for some years to nurse that fantasy not because it could possibly be true, but because for quite a while, tech investments exogenously did well, while physical-world assets did poorly. In the last year or so that has flipped, reminding or teaching ESG investors an old Warren Buffet rule: when the tide goes out, you can see who’s swimming naked. The largest of those swimmers, at least by volume of ego, was surely Larry Fink, who brashly proclaimed at BlackRock’s 2022 annual shareholder meeting that you could tell that ESG investments were fiduciarily sound because of how well they, and BlackRock, had performed. This was shortly before the market developments that caused BlackRock to lose more of investors’ assets than any other company in human history – about $2 trillion.
You can bet that Fink will not at this year’s meeting be honest: he will not say “oh, well, by my own metric from last year we can see that ESG is a flaming failure, and so BlackRock will abandon it.” Oh, no. His desire to “force behaviors” throughout American and western commerce and polities that match his personal prejudices, warmed and guarded by an impenetrable cocoon of smug, won’t be derailed by anything so plebian as facts or consistency.
Nor, surely, will he admit to the damage done to investors by BlackRock’s heavy investment in SVB, itself another artifact of the epistemic failures of the ESG mindset.
Before I go, let me shift the discussion briefly to Signature Bank, also closed on SVB weekend, just long enough to note the presence on Signature’s board of directors of – quelle surprise – Barney Frank. It would be fair to call that guy the Forrest Gump of financial-industry disasters, except that Gump was a mere spectator to world-historical events, while Frank is a munificent contributor to banking crises. (In fact, all of his run-ins with the market economy appear to be disasters, stretching all the way back to 1989, when his boyfriend and employee Steve Gobie was found to be running a prostitution ring out of Frank’s house.)
Frank was significantly responsible for pushing the Clinton Administration to push banks to start making sub-prime mortgage loans in the name of proto-equity, the motive cause of the mortgage debacle that lead to a global credit crisis and then the Great Recession a decade later. In response to his own crisis he wrote Dodd-Frank, a monstrosity of regulatory accretion that spawned the too-big-to-fail banks that now feel themselves privileged to discriminate on ESG lines against industries and customers that offend leftwing sensibilities. And here he is, gibbering that crypto killed Signature Bank, somehow, despite the fact that he had as a director overseen those heavy crypto investments and appears to have made no objection.
Signature had brought Frank on board because of his “extensive experience as a Congressman, and particularly as Chair of the House Financial Services Committee.” Given Frank’s central role in repeatedly devastating the American banking sector, I’d say that Signature Bank got exactly what it should have expected.