Sally Reed
Investment firms like BlackRock Capital are responsible for many changes in how companies do business, thanks to their implementation of ESG scores. Now, Elon Musk is accusing them of “inflicting” certain behaviors on the American public in the name of compliance. Let’s see if he’s right in his estimation.
Asset Managers Like BlackRock have a Lot of Power
BlackRock Capital is a well-known asset management company that invests its clients’ money in firms that it thinks will do well and have high returns.
What happens when such a company starts pushing an ideological agenda for its investments? Firms who want the money can’t avoid giving in to these ideological demands.
What Are ESG Ratings?
ESG stands for “Environmental, Social, and Governance” traits. An ESG rating measures how well a company does in those areas based on how much exposure they have.
The idea behind the ESG rating was to make companies more socially aware of their responsibility to customers outside of just making a profit for their shareholders.
ESG Ratings Are Like Morality for Companies
If you’re not an investor, you should consider ESG ratings as a morality compass for companies. Usually, companies don’t care what they do so long as they make a profit.
ESG makes those companies think about what they do and who they impact. It’s supposed to be a driver for change in several areas, but Elon Musk believes it’s not doing what it should.
A Repackaged Brand of Socialism
In a recent discussion with Republican hopeful Vivek Ramaswamy, Musk outlined that he thinks that the ESG scores are more like socialism than any real push towards having moral companies.
He says that companies like BlackRock, which holds a lot of capital, can force businesses to do their bidding just to achieve a good ESG score against the wishes of individual shareholders.
Musk Doesn’t Like Where ESG Scores Go
Musk has a history of supporting environmental causes. His electric car company, Tesla, wants to reduce the amount of carbon emissions globally, for instance.
However, he’s not a fan of forcing companies to go that route. As a believer in free speech and decisions, he would much prefer businesses weren’t “extorted” into social responsibility.
Not Making Optimal Decisions
ESG scores have become a sore point for many businesses. Their decisions on hiring and the content they produce are dictated by those scores, forcing them to make certain decisions.
These decisions sometimes negatively impact their bottom line. However, if they get investment from firms like BlackRock, they can afford to take a loss just to have a good ESG rating.
Many Decisions Don’t Espouse Republican Interests
One reason Musk may be outspoken against ESG values is that they don’t typically support the same things that Republicans do. They are actively against the GOP’s interests.
Some ESG value scores come from boycotting the fossil fuel industry and discriminating against firearms access. These ideals are more liberal and show that the ideology firms that prop up the ESG are concerned with spreading.
The Public is Being Lied To
Musk’s argument hinges on the fact that he believes the public is being lied to about where their money is being spent. Part of that comes from these companies’ intransigence in their spending.
Firms like Fidelity and BlackRock collect capital from investors, pool it together, and make investments in companies. Now, ESG scores mean that companies are forced to make suboptimal decisions.
Rewards On The Market Come From Performance
When one looks at the stock market, companies that perform well are those that appeal to their audiences and deliver a good product with low production costs compared to competitors.
ESG scores turn that performance-based return on its head. If a company can guarantee it has a good ESG score, it doesn’t need to appeal to its audience. Instead, it can just be political and live off investor capital.
Some States Have Had Enough
States like Texas have passed legislation to block certain financial corporations from participating in municipal deals, primarily to stop the propagation of ESG values.
Texas has also passed legislation forcing multinational financial corporations to stop imposing ESG ratings on companies in the state. Musk imagines this could lead to many court cases.
When The Public Becomes Aware, Heads Will Roll
Musk says that, given the state of these financial mega-corporations, ESG ratings are setting them up to face some of the most massive class-action lawsuits of all time.
Investment firms have a fiduciary duty to their investors to make optimal decisions. Using ESG ratings for investing makes suboptimal decisions, introducing those firms to a class-action suit from clients.
A Corrupt Industry
While a massive class-action suit might happen, it hinges on investors being directly involved in the investment. Most of BlackRock Capital’s investors are intermediaries from brokerage firms.
Those individuals provide a level of abstraction – a shield – for the capital companies, allowing them to do what they want with others’ money and avoid the consequences of their investing.
The Sector Is Structured For Corruption
According to Ramaswamy, the investment sector is designed for corruption. With money managers serving as intermediaries, they can easily accept the disclosures that capital investment firms offer.
The actual investors trust those managers to do what’s best for them. Once BlackRock has disclosed its criteria to investors, it has completed the requirements. If the client still sends them money, it is in the clear.
The Average Investor is Being Hoodwinked
Musk stated at the end of this session that the average investor is being misled about where their money is going. For most investors, once they can see a profit, that’s all they’re concerned with. However, this is an unsustainable practice.
Eventually, investment money will start to dwindle. Like a Ponzi scheme, companies valued on ESG ratings will collapse because they stopped providing value to their customers and replaced it with ideology to impress their investors. The result is that companies that rely on the ESG system to make their company decisions will fail as income dries up.
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