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At Thursday’s Senate Banking Committee hearing with America’s top retail banking CEOs, I delivered a message: Please resist the urge to respond to the very loud noise in your left ear from political activists. I am more than happy to be the loud noise in their right ear urging them to simply make banking decisions based on fundamental lending criteria.
Calls for environmental, social and corporate governance (ESG) in the financial sector are a public relations ploy more focused on allaying “Twitter risk” than any material risk to investors. BlackRock CEO Larry Fink has dubbed it “woke capitalism,” but what does it actually look like?
In the first six months of 2022, BlackRock lost $1.7 trillion of its customers’ money. Similarly, Sri Lanka had a near-perfect ESG score and was praised worldwide by liberal elites, but was forced to declare bankruptcy and its president was forced to resign after the country could no longer afford fuel and basic food for the nation.
The left is using capital, the banking industry and the biggest asset managers on Wall Street to shape policy in ways it cannot achieve through the legislative process. Now agencies from the Securities and Exchange Commission (SEC), Office of the Comptroller of the Currency (OCC), Federal Deposit Insurance Corporation (FDIC) and Consumer Financial Protection Bureau (CFPB) want to get into ESG business .
POST-ESG ERA FOR COMPANIES, INVESTMENT IS APPROACHING
For example, the FDIC released draft principles asking financial institutions to consider climate-related risks in their risk management frameworks. The SEC followed suit, proposing a new 500-page climate disclosure rule. Never mind that these proposals are highly arbitrary and outside of their congressional mandated powers.
In practice, ESG is unfair to taxpayers and legal business. That’s why I introduced the Fair Access to Banking Services Act, which would prevent discrimination by banks and financial service providers against constitutionally protected industries and law-abiding businesses. It’s also why I joined Sen. Dan Sullivan, R-Ark., in introducing the Investor Democracy is Expected (INDEX) Act to empower investors and address issues arising from the consolidation of corporate ownership and voting power in Wall Street’s largest investment advisers and their index funds.
FORMER BLACKROCK EXECUTIVE ARGUES ESG IS BAD FOR SOCIETY AND YOUR PORTFOLIO IN WSJ OP-ED
My colleagues opposite are actively pushing our financial system toward political activism by forcing divestment from fossil fuel industries. They ignore our current reality, assuming that we can eliminate greenhouse gas (GHG) emissions tomorrow by eliminating American energy. These short-sighted actions do nothing more than transfer climate guilt from the left to polluting countries so that they feel better about themselves.
If the “e” in ESG were seriously about environmental governance, we would be producing more American energy to displace dirtier sources of foreign emissions. In my home state of North Dakota, we are producing carbon-negative barrels of oil through enhanced oil recovery. This technology captures industrial carbon that would otherwise have been emitted, injects it deep into an already existing production well, and boosts previously unrecoverable oil while permanently sequestering the carbon safely in the earth’s geology. Far more carbon is captured than would ever be emitted by the oil produced. Loans should go to American innovators like this rather than filthy producers in Russia or Venezuela!
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I started my “Bully Pulpit” series last year to showcase North Dakota’s excellence in coastal energy innovation. The series brings together a variety of influential public and business leaders in North Dakota to share our expertise in a format designed for constructive discussions. When I hosted Goldman Sachs CEO David Solomon in Bismarck and Bank of America Chairman and CEO Brian Moynihan in Fargo, I got to show off our state’s innovative climate solutions that actually reduce emissions.
ESG activism is not exclusive to energy. Last week, I led a letter with most of my fellow Senate Banking Republicans pushing back against efforts to track gun purchases. Banks should not abuse their power to prevent law-abiding Americans from exercising a constitutional right by de facto prohibiting the legal purchase of firearms.
Addressing complex and contentious social policy issues of national importance involves balancing competing values and using the channels of our democratic system where elected representatives of the people call balls and strikes, without forcing our financial institutions to ” awaken capitalism”.
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I understand that there are political pressures to block legal transactions and insert financial institutions into controversial social issues, but the American banking system was not created to signal virtue. Basically, banks are intermediaries. They receive funds from depositors and lend funds to borrowers.
Banks and asset managers should avoid intervening in social and cultural issues lest they leave the impression that their priorities are based on shifting political trends. Simply put, wading in these waters may make favorable headlines in the millennial Twittersphere, but it’s bad policy. As Sen. John Kennedy, R-La., said, “You’ll never win the ultra-woke toss… Nothing you do will ever be enough.”
CLICK HERE TO LEARN MORE ABOUT SEN. KEVIN CRAMER