Banks, asset managers should ignore calls for ESG and woke capitalism and stick to what they do best

At Thursday’s Senate Banking Committee hearing with America’s largest retail bank CEOs, I imparted a message: please resist the impulse to respond to the very loud noise in your left ear from political activists. I’m more than happy to be the loud noise in their right ear urging them to simply make banking decisions based on fundamental lending criteria. 

The calls for environmental, social and corporate governance (ESG) in the financial industry are a public relations ploy more focused on placating "Twitter risk" than any material risk to investors. BlackRock CEO Larry Fink has dubbed it "woke capitalism," but what does it look like in reality? 

In the first six months of 2022, BlackRock lost $1.7 trillion of their clients’ money. Similarly, Sri Lanka had a nearly perfect ESG rating and was lauded globally by liberal elites, yet it was forced to declare bankruptcy, and its president was forced to resign after the country could no longer afford basic fuel and food for the nation. 

The Left uses capital, the banking industry and Wall Street’s largest asset managers to shape policy in ways they can’t achieve through the legislative process. Now agencies from the Securities and Exchange Commission (SEC), to the Office of the Comptroller of the Currency (OCC), the Federal Deposit Insurance Corporation (FDIC), and the Consumer Financial Protection Bureau (CFPB) want to get into the ESG business. 

POST-ESG ERA FOR CORPORATIONS, INVESTMENT NEARS

For example, the FDIC issued draft principles directing financial institutions to address climate-related risks into their risk management frameworks. The SEC followed suit proposing a sweeping new 500-page climate disclosure rule. Never mind the fact that these proposals are highly arbitrary and outside their congressionally prescribed authorities.

ESG in practice is unfair to taxpayers and legal commerce alike. That is why I have introduced the Fair Access to Banking Act, which would prevent discrimination by banks and financial service providers against constitutionally-protected industries and law-abiding businesses. It is also why I joined Sen. Dan Sullivan, R-Ark., in introducing the Investor Democracy is Expected (INDEX) Act to empower investors and address problems stemming from the consolidated corporate ownership and voting power within Wall Street’s largest investment advisers and their index funds.

FORMER BLACKROCK EXECUTIVE ARGUES ESG IS BAD FOR SOCIETY AND YOUR WALLET IN WSJ OP-ED

My colleagues across the aisle are actively pushing our financial system into political activism by forcing divestment from fossil fuel industries. They disregard our present reality, assuming we can eliminate greenhouse gas (GHG) emissions tomorrow by eliminating American energy. These shortsighted actions do nothing more than transfer the Left’s climate guilt to polluting countries so they can feel better about themselves. 

If the "e" in ESG was seriously about environmental governance, we would be producing more American energy to displace dirtier, foreign sources of emissions. In my home state of North Dakota, we are producing net negative carbon barrels of oil using enhanced oil recovery. This technology captures industrial carbon which would have otherwise been emitted, injects it deep into an already existing, lower producing well, and stimulates previously unrecoverable oil while permanently sequestering the carbon safely into the earth’s geology. Far more carbon is captured than what would ever be emitted by the oil produced. Lending should be flowing to American innovators like this rather than dirty producers in Russia or Venezuela!

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I started my "Bully Pulpit" series last year to showcase North Dakota’s excellence in energy innovation to the coasts. The series brings a variety of influential public and business leaders to 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 was able 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 Senate Banking Republican colleagues pushing back on efforts to track gun purchases. Banks should not misuse their power to hinder the ability of law-abiding Americans to exercise a constitutional right by creating de facto bans on legal firearm purchases. 

Addressing complex, contentious social policy issues of national significance involves balancing competing values and using the channels of our democratic system where elected representatives of the people call the balls and strikes, not coercing our financial institutions into "woke capitalism."

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I understand there is political pressure to block legal transactions and insert financial institutions into controversial social issues, but the American banking system was not created to virtue-signal. At their root, banks are intermediaries. They take in funds from depositors and lend funds to borrowers.

Banks and asset managers should steer clear of weighing in on social and cultural issues lest they leave the impression their priorities are based on shifting political trends. Simply put, wading into these waters may make for some favorable headlines with the millennial Twittersphere, but it is bad policy. As Sen. John Kennedy, R-La., said, "You will never win the uber-woke sweepstakes… Nothing you do will ever be enough."

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