![\"Scott](\"https:\/\/nationalcenter.org\/wp-content\/uploads\/2019\/11\/Scott-Shepard-1-214x300.jpg\")
<\/a>Scott Shepard<\/p><\/div>\n
O\u2019Hanley qualifies because of his indefensible assertion that ESG investing (ostensibly for the benefit of E<\/strong>nvironmental, S<\/strong>ocial & G<\/strong>overnance interests) is\u00a0pursued<\/a> at State Street \u2013 an investment house like BlackRock and Vanguard \u2013 because the strategies are proven by objective research, neutral as to political and policy preferences, to be in the best interest of long-term company value. As a result, O\u2019Hanley implied last week, State Street need not discover the policy interests of State Street investors because no policy interests are relevant to the decisions.<\/p>\n But State Street\u2019s ESG research is not at all policy- and politics-neutral. The question must then arise: whose personal political and policy preferences are being used? It\u2019s not those of the investors, and it\u2019s not those of ultimate<\/em> shareholders (i.e.,\u00a0<\/em>not other intermediaries like pension funds that likewise substitute managers\u2019 personal policy preferences for those of the pension beneficiaries who have earned those funds). So it must be those of State Street\u2019s executives and research directors.<\/p>\n This explains O\u2019Hanley\u2019s pretense that ESG decisions are free of policy and political slant. But this means that O\u2019Hanley and friends not only substitute their personal policy preferences for those of investors and shareholders (self-dealing, in fiduciary law) but also cover it up (which indicates willfulness). This makes for very hot water and lots of potential legal liability for O\u2019Hanley and pals.<\/p>\n State Street held its annual shareholder meeting last Wednesday. As part of my day job I \u201cattended\u201d the virtual meeting and asked O\u2019Hanley about ESG investing. After noting Warren Buffett\u2019s recent opinion<\/a> that ESG investing is often \u201casinine\u201d and built on \u201cmoral judgments\u201d about which it is \u201cvery tough\u201d to decide real benefit, I asked why O\u2019Hanley thought he knew better than Buffett. Then I asked, \u201cCan you explain in detail what you do to ensure your proxy decisions reflect the actual wishes of your investors instead of those of State Street executives?\u201d<\/p>\n In fairness to O\u2019Hanley, here<\/a> is his answer in full:<\/p>\n Thank you for the question. State Street Global Advisors is the third-largest asset manager in the world, and a large proportion of its roughly 3.6 trillion in assets under management is in index funds. A unique characteristic of an index fund is that as long as a stock is in the index we will be invested in that stock and in that company. As a result, for a long time we\u2019ve taken the view that engagement with shareholders is quite important because we don\u2019t have the ability to, in effect, not own the stock if it\u2019s in the index.<\/p>\n Our views on so-called ESG matters are, in fact, not based on politics but are based on value, that is, the value of the company. And as our State Street Global Advisors does its research, it has come to the conclusion that there are many elements of governance, of environmental policy, that in fact do have long-term impact on a company\u2019s value. It is on those matters that State Street will exercise, will engage, from a stewardship perspective. Given that it doesn\u2019t have the ability to disinvest, its actions if it decides that a company is in fact impairing long-term shareholder value, one of the only actions it can take, is its vote, whether it\u2019s voting against particular directors, voting against entire boards of directors. But again, that\u2019s always done in the context of a view on what\u2019s in the best interest of long-term shareholder value.<\/p><\/blockquote>\n In short, there are apparently no policy preferences or biases involved in State Street\u2019s research, on which the company bases its ESG investing decisions \u2013 hence no need to find out what State Street\u2019s ultimate investors\u2019 beliefs or preferences are. Or, as Cyrus Taraporevala, CEO of the research arm, State Street Global Advisors (SSGA), put it last year, \u201cWe see that shareholder value is increasingly being driven by issues such as climate change, labor practices, and consumer product safety. [\u2026] Ultimately, we have a fiduciary responsibility to our clients to maximize the probability of attractive long-term returns.\u201d<\/p>\n Analysis quickly undermines these claims of objective, neutral and policy-preference-free research and decision-making. Our review of the SSGA research showed constant uncritical acceptance of left-wing assumptions without any corresponding critical evaluation of those assumptions, and certainly with no acceptance of center\/right assumptions.<\/p>\n Consider, for instance, SSGA\u2019s embrace of zero-carbon goals, goals set to political guidelines pushed by the United Nations in the Paris Climate Accords and following statements. SSGA seems not to have considered\u00a0the political nature of the UN reports, nor to have undertaken its own apolitical scientific analysis. It does not seem to account for the likelihood that any reductions by American corporations will be swamped by the big producers, especially China and India, who have no real-world intention of reducing their emissions, and in fact behave as though they\u2019ll grow into the foreseeable future. It does not consider the likelihood that technology will not be affordably available to permit zero-carbon emissions on the United Nations\u2019 timeline without crushing the American economy, American competitiveness, and the American people.<\/p>\n If it does not consider these factors, and similar factors in other ESG contexts, then its decisions are purely<\/em> political and ideological, and \u2013 as O\u2019Hanley tacitly admitted, are based solely\u00a0<\/em>on the political and policy preferences of State Street executives. Even if those concerns are considered, how they are weighed in making final judgments necessarily requires exactly the sort of value judgments that O\u2019Hanley pretends not to make.<\/p>\n Meanwhile, it certainly seems probative that all the ESG positions that State Street pushes are left-wing and are framed in left-wing parlance. Wouldn\u2019t objective analysis for long-term value come up with some<\/em> positions that are favored by the right, which is generally much more pro-business and pro-growth anyway?<\/p>\n I wonder what the courts will think of all this.\u00a0Discovery and expert testimony should be fascinating.<\/p>\n <\/p>\n Scott Shepard<\/a> is a fellow at the\u00a0<\/em>National Center for Public Policy Research<\/em><\/a>\u00a0and Deputy Director of its\u00a0<\/em>Free Enterprise Project<\/em><\/a>.<\/em><\/p>\n","protected":false},"excerpt":{"rendered":" Set a new place at the table, Larry Fink, Brian Moynihan & Co. Ronald O\u2019Hanley has earned his spurs, and is ready to join you at the Roundtable of Woke Corporate Prevaricators, the Order of the Forked Tongue. O\u2019Hanley qualifies because of his indefensible assertion…<\/p>\n","protected":false},"author":18,"featured_media":36506,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[30,655,731],"tags":[658],"yoast_head":"\n