When ESG and the Markets Collide

In our last post, Wokeness Broke Silicon Valley Bank, we gave some background on the history of Silicon Valley Bank’s risky investments coupled with its ESG management style. A company that adopts the ESG paradigm receives a relative score which is supposed to provide current and future investors with its overall commitment and cult-like adherence to some of the progressive left’s favorite ideologies namely:

• Environmental issues include – policies to fight climate change, the preservation of natural resources, and the reduction of carbon footprints.
• Social issues include – policies to promote diversity, equity, and inclusion as well as those that reduce gender and sexual discrimination.
• Governance structures include – policies to promote diversity in leadership, transparency in accounting, and limit conflicts of interest.

ESG has been heralded as the new and improved model of corporate governance and investors’ use of these scores has been referred to by the left as “Socially Responsible Investment”. It’s no wonder that even products marketed to children like Kellogg’s breakfast cereal are now featuring the rainbow colors of the alphabet crowd. Other companies like Ben and Jerry’s and Netflix that adopted a marketing theme featuring BLM must have received a huge boost in social ESG points in 2020.

But herein lies the problem with this artificially structured scoring system – the companies that are now working to improve their ESG scores are no longer seeking to serve their entire customer base or create wealth for their shareholders. Not everyone who buys or uses their products shares these left-leaning values, some of which are Marxist and anti-Christian in nature.

Home Depot co-founder, Bernie Marcus, spoke out about this trend. He said, “I think that the system — I think that the administration has pushed many of these banks into more concern about global warming than they do about shareholder return. And these banks are badly run because everybody is focused on diversity and all of the woke issues and not concentrating on the one thing they should, which is shareholder returns.”

Silicon Valley Bank (SVB) worked to create a very diverse board. The New York Post reports that their board consisted of 45% women, 2 veterans, and a black and LGBTQ member. Unbelievably there was only one board member that had any experience in investment and banking. It appears that the rest of the appointments were made not on merit, but solely based on identity politics in an attempt to appease the social justice mob and raise their ESG score. Why should anyone be surprised when unqualified and unserious people in charge (one board member is an improv actor) cause a business to crash and burn?

Soon after SVB fell, Signature Bank, the third largest in the country also met its demise. They were more concerned with creating diverse dance party videos, developing a “Pride Council” and training their employees in correct pronoun usage than actual banking. An organization cannot survive when silly people with ridiculous priorities are in control. 

But perhaps highlighting a company’s ESG is simply a smokescreen for poor performance. A recent paper written by Ryan Flugum (University of Northern Iowa) and Matthew E. Souther (the University of South Carolina – Darla Moore School of Business) claims, “Firms falling short of earnings expectations are more likely to cite stakeholder-focused objectives in their public communications around earnings announcements.”  In other words, companies not making money for shareholders instead tout their socially conscious commitments to the environment, diversity, and gender equality hoping this will appease them. If major corporations continue down this ludicrous path of ESG, it will not bode well for the economic health of our country.

Regardless of the cause, the average American winds up footing the bill for these massive failures because ultimately the monetary system is rigged. The elites on Wall Street and their cronies in D.C. make all the money when an investment pans out, but the lowly taxpayers must assume all the risk when a venture goes belly up. The bankers and hedge fund managers and their friends can’t lose as they are raking in tremendous amounts of money, yet still getting bailed out. This system has created an incredible disparity of wealth and power and is fundamentally unjust.

The botched fiscal policies of the Biden Administration have only exacerbated the house of cards that is our monetary system. Next time we will examine whether the collapse of these banks is intentional to either usher in a governmentally controlled digital currency or bring the United States to her knees.