07 Oct 2023 Stefan Padfield: Do Asset Managers Hate Their Conservative Clients?
Is your asset manager looking out for your best interests, or are they pushing you toward left-wing ESG investment options? In a commentary published by Newsmax, Free Enterprise Project Associate Stefan Padfield outlines what any investor who values profit over leftist activism should ensure they see from their asset managers in order to trust them.
Here’s the bottom line: If asset managers cared about the interests of their conservative clients as much as their left-leaning clients, they wouldn’t be as biased in favor of environmental, social and governance (ESG) factors as they are. Let me explain.
Most conservative investors simply want their asset manager to generate the highest returns possible, and everything asset managers need for that is arguably captured in two words: “materiality” and “pecuniary.”
Materiality is generally understood to mean information a reasonable investor would consider important in deciding whether to buy or sell a security. Meanwhile, pecuniary factors are generally understood to be those expected to have a material effect on the risk and/or return of an investment. Accordingly, an investor having access to all material pecuniary factors should have everything they need to make the highest expected value investments.
So, what does an asset manager need ESG for?
ESG proponents will tell you that it simply helps them make better investment decisions and that there’s nothing political or ideological about it. But a quick review of any representative list of ESG initiatives exposes that assertion as a lie. Upon such a review, you’ll quickly see that ESG is essentially a radical leftist wish list. On seemingly every divisive issue of our time, whether it be climate change, affirmative action (also known as neo-racism), or transgenderism, etc. – there will be little if any light between the positions pushed by ESG advocates and the platforms of Elizabeth Warren or Alexandria Ocasio-Cortez.
Now, it’s completely reasonable for asset managers to push ESG for their left-leaning clients. But one would expect them, as good capitalists, to offer competing alternatives to their conservative clients – unless they just think their conservative clients are dupes.
To assess how asset managers are doing on this front, let’s look at three key indicators: (1) benchmark voting, (2) voting options, and (3) engagement.
I’m using “benchmark voting” here to cover the asset manager’s own votes on shareholder proposals. If asset managers are acting in a non-ideological fashion, then we’d expect their support for ESG and anti-ESG proposals to be roughly even. (As an aside, “anti-ESG” is better understood as “pro-fiduciary-duty” or “back to neutral”, but “anti-ESG” appears to be the common parlance, at least for now.) However, what we find when we look at the shareholder proposal support numbers of the top three asset managers is the following (2022 data via 1792 Exchange).
BlackRock: Pro-ESG = 30%; Anti-ESG = 3%.
State Street Funds: Pro-ESG = 50%; Anti-ESG = 13%. State Street Global Advisors: Pro-ESG = 38%; Anti-ESG = 0%.
Vanguard: Pro-ESG = 21%; Anti-ESG = 2%.
These hardly appear to be even-handed numbers.
When it comes to “voting options,” which asset managers are starting to offer clients, here’s the bottom line: Ignore your asset manager’s business-school word-salad about being a-political and value-focused if the end result remains that there are voting options that include an “ESG” choice but not an “anti-ESG” choice.
At least when it comes to shareholder proposals, it shouldn’t be that hard to provide an option that simply votes against ESG proposals – particularly if you’re already offering an ESG option that you can simply do the opposite of. This also applies to fund offerings, but beware of conservative sounding labels that obscure leftist reality – such as a “Christian Values” fund that tracks neo-Marxist liberation theology.
And finally, there’s “engagement.” I work for the Free Enterprise Project (FEP) at the National Center for Public Policy Research, and we describe ourselves as “the original and premier opponent of the woke takeover of American corporate life and defender of true capitalism.”
Among other things, we file shareholder proposals with the goal of getting corporations back to focusing on business and their bottom line. At the risk of sounding vain, we should be one of the first calls if an asset manager is interested in engaging with the conservative perspective. And to be fair, after reaching out to BlackRock, State Street and Vanguard this summer – we have had or are scheduled to have conversations with each of them.
While we appreciate these engagements, we will need to see certain actions before we can give these companies credit for taking conservative perspectives seriously. First, we will need to see at least some support for our own proposals, which to date and as far as we know have received zero support from these asset managers. Second, we will need to see the gap between ESG and anti-ESG proposal support decrease. Third, we will need to see genuinely conservative off-the-rack voting options. These are things all conservative clients of these asset managers should pay attention to.
But what’s a conservative investor to do if all these asset managers apparently either hate them and/or simply ignore their perspective? One thing to consider is moving your money to an asset manager that shares your values like, for example, Strive Asset Management. Another is to consider voting your own proxies. FEP offers a Proxy Navigator app (in beta testing now) to help with that, and we’ll soon be launching a service that will allow you to have your shares voted automatically in line with our recommendations.
In the end, until we see asset managers take some of the actions called for above, conservatives can be forgiven for concluding that these asset managers hate them.
Stefan Padfield is an associate at the National Center’s Free Enterprise Project (FEP), whose stated goal is to oppose the woke takeover of American corporate life. This first appeared at Newsmax.