The Vanguard Group — a “major asset manager” has agreed to a settlement in the multi-state lawsuit against it and similar funds BlackRock and State Street over ESG practices.
Vanguard, along with BlackRock and State Street are heavily involved in “Environmental, Social, and Governance” investing which the lawsuit contended was being used — in particular by BlackRock — to artificially suppress coal production under the banner of “green energy.”
According to Investopedia, “Environmental, social, and governance (ESG) investing refers to a set of standards for a company’s behavior used by socially conscious investors to screen potential investments.
“Environmental criteria consider how a company safeguards the environment, including corporate policies addressing climate change, for example. Social criteria examine how it manages relationships with employees, suppliers, customers, and the communities where it operates. Governance deals with a company’s leadership, executive pay, audits, internal controls, and shareholder rights.”
According to a release from Kansas Attorney General Kris Kobach, under the settlement terms secured by the multistate coalition: “Vanguard has agreed to strict passivity commitments, which prohibit Vanguard from using shareholdings to dictate portfolio companies’ strategies, threaten divestment to force compliance, or nominate directors and push shareholder proposals aligned with ESG over profitability.”
Texas led the lawsuit along with Kansas and 11 other states.
As The Sentinel previously reported, major ESG funds such as Blackrock have used the power of their checkbook to force changes to boards of directors at major companies such as Exxon Mobil.
Blackrock controls about $8.25 trillion in investments globally and is involved in nearly every state pension fund.
Under the terms of the agreement, Vanguard will pay $29.5 million to the participating states — including Kansas — to support enforcement and consumer relief efforts.
According to the release, Vanguard will also “empower investors by offering proxy voting rights in funds representing at least 50% of U.S. equity assets under management. The concession is a first-of-its-kind reform that allows Kansas investors and consumers to directly influence whether companies prioritize profits or political goals.”
However, Reuters reports that BlackRock is unlikely to agree to a similar settlement — although the company has declined to comment.
But in a statement emailed to Reuters, State Street said “the lawsuit remains baseless and without merit. There was not, and is not, any collusion here aimed at coal prices. This settlement does not change that.”
“A spokesperson also noted that like BlackRock and Vanguard, State Street runs a program allowing retail investors to influence proxy votes.”
The dangers of ESG investing to states
Derek Kreifels, former CEO of the State Financial Officers Foundation, said in 2023 that ESG funds — by restricting access to capital — can make it very difficult for companies, or individuals, who don’t score high on “ESG ratings,” to do business.
“(Blackrock) CEO Larry Fink has continued to make public comments, to push, you know, companies that not only help the way that they are managing funds, but they’re also leveraging companies that they invest in, frankly … for example, a cattle production company in Nebraska, and that company is not monitoring or engaged in some kind of what they would deem an appropriate level of methane mitigation, then they’re going to restrict the amount of investment that they have or allow them to be involved in a portfolio that they control or manage,” Kreifels said in a phone interview. “And so, you know, the implications for agriculture are enormous, whether it’s cattle ranching or wheat farming, that all of this is trickling down and impacting the price of diesel. It’s impacting the price of fertilizers. You can’t mass-produce food for the world. Without fertilizer and pesticides, and some of the chemical-based products that we have to have to mass produce food.”
Moreover, ESG funds simply don’t perform very well.
Indeed, according to Harvard Business Review, as of Dec. 2021, ESG funds performed poorly over time, despite attracting more investment.
“Although the highest rated funds in terms of sustainability certainly attracted more capital than the lowest rated funds, none of the high sustainability funds outperformed any of the lowest rated funds,” the article states.
HBR also notes that: “while it is possible that investors would be happy to sacrifice financial returns in exchange for better ESG performance. Unfortunately, ESG funds don’t seem to deliver better ESG performance either.”
