The Democratic-led Securities and Exchange Commission is expected to issue rules on whether to require public companies to disclose risks associated with climate change, an action that should serve as a wake-up call for small-business owners, retail investors, and state treasurers in red states.
If the SEC has its way, public companies will have to disclose any risks they pose to the climate, providing ammunition to numerous financial companies, credit rating agencies, asset managers, proxy advisers, and others. If the company is not doing “enough” for the environment, its credit rating would be docked, and it would become more costly to operate. All businesses would face the real choice between spending capital on nonessential items to appease the climate gods or paying increased borrowing costs resulting from a downgraded credit rating.
While SEC rules may only apply to public companies in the near term, liberals already have their sights set on private companies as well. If the public is concerned about inflation and price increases now, just wait.
Though disclosures would primarily focus on climate change, asset managers and others have already tipped their hand to liberal policies on the horizon such as social justice or the seemingly innocuous but equally troubling “equity.”
Investors, such as the pension fund from the state of North Carolina where I live, invest their money into pools of assets put together by asset managers, including BlackRock, which manages over $9 trillion in assets. These asset managers serve as fiduciaries to their investors and, in turn, are expected to act for the benefit of their investors. Recently, the largest asset manager indicated using its heft to cast all votes with an environmental social governance lens. Think climate change today, equity, “anti-racism,” or other liberal policies tomorrow.
In a recent letter to shareholders, BlackRock CEO Larry Fink outlined BlackRock’s new approach on proxy voting based on its new perspective on climate change. In it, Fink mentions BlackRock’s hesitation to vote on board directors or managers who have not made sufficient sustainability-related progress.
A review of the proxy vote in favor of the dissident slate of Exxon directors reveals that BlackRock is not alone. Fellow asset managers State Street and Vanguard joined BlackRock in this sentiment. Together, these asset managers control a combined 21% of Exxon shares and have all been outspoken on Exxon’s need to address climate issues.
Perhaps more troubling is the power of these asset managers beyond just Exxon. These big three asset managers control about $15 trillion in assets, or about three-quarters of the value of the U.S. gross domestic product.
The question then becomes: Are investors truly aware that asset managers are voting with environmental social governance principles on even non-ESG products?
West Virginia’s pension funds totaled $17 billion in 2020 with their largest equity holdings in a BlackRock product totaling about $2 billion. With $14 billion of its economy coming from mining and coal-fired power generation, how is the West Virginia economy being affected by the pressure of these entities — ratings agencies, asset managers, proxy advisers, and regulators — with the sole focus on climate change?
In the case of North Carolina, $12 billion of its $114 billion pension fund is similarly invested with BlackRock. For all the attention and importance that BlackRock and other asset managers are placing on climate change, North Carolina’s Investment Advisory Committee had zero references to climate change in its proxy voting guidelines, performance review, public policy outlook (save a minor dated mention to a climate change provision in an infrastructure bill), or really any reporting documents on its website.
State treasurers need to pay attention and fight back because this is spiraling rapidly. Public companies today, private ones tomorrow. Climate change today, another liberal issue tomorrow. If investors, especially state treasurers and state investment committees, don’t like the direction this is going, perhaps it’s time for them to vote their values by selecting new fiduciaries and investment advisers.
Jill Homan is president of Javelin 19, a real estate investment and advisory firm focused on investing in low-income communities called Opportunity Zones.
