The Wall Street Journal published an opinion article by former BlackRock senior executive Terrence R. Keeley Monday which argued against environmental, social, and governance (ESG) policies to drive investment.
“Trillions of dollars have poured into environmental, social and governance funds in recent years,” began Keeley, who was a senior executive at BlackRock for over a decade from 2011-2022.
“Yet for a financial phenomenon this pervasive, there is astonishingly little evidence of its tangible benefit,” he argued.
Former Attorney General William Barr expressed similar concerns on Fox News’ “America’s Newsroom” earlier this month, where he argued that firms like BlackRock are “circumventing the Democrat process” and dictating national policy by forcing the smaller companies it finances not to produce oil and imposing other mandates.
“The implicit promise of ESG investing is that you can do well and do good at the same time. Investors presume they can make a market return while advancing causes such as lowering carbon emissions and income inequality,” Keeley wrote.
“But multiple studies find ESG strategies are doing little of either,” he argued.
He cited a study conducted by Bradford Cornell, a professor at the University of California, Los Angeles, and Aswath Damodaran, a professor at New York University, which found that ESG policies do not lead to higher returns for investors.
“Telling firms that being socially responsible will deliver higher growth, profits and value is false advertising,” he wrote, quoting the study.
Keeley argued that just because investment firms are refusing to finance traditional energy projects does not mean consumer demand for them will fall. His argument is evidenced by the recent energy shortages in California.
“The production of goods and services declines when people stop buying them—not when others stop investing in the companies that produce them,” he wrote.
Keeley argued that, going forward, “all ESG funds should provide impact reports with their financial returns.”
He also highlighted what he argued was the hypocrisy of ESG ratings, noting that Pepsi, a soft drinks company, is rated higher than Tesla, Elon Musk’s electric car company.
“Does this mean electric vehicles are worse for the planet than soft drinks, or that socially concerned investors should overweight Pepsi and underweight Tesla in their portfolios?” he asked.
“ESG draws scorn from the left for being too timid and from the right for being too aggressive. The harder truth is that ESG is largely failing on its own terms,” Keeley wrote.
“Despite tens of trillions of ESG investments, investors haven’t done very well nor generated much good,” he concluded.