The ESG Pushback

Heritage Explains

The ESG Pushback

Under the umbrella of Environmental, Social, and Governance (ESG) activism, corporations have become unimaginably woke. 

Under the umbrella of Environmental, Social, and Governance (ESG) activism, corporations have become unimaginably woke. They are weaponizing capital, and it is promoting nearly every left-wing policy issue they care about. So what does it mean to say the Left is weaponizing capital, what are the implications? On this episode Heritage Visiting Fellow (and former CEO of CKE Restaurants) Andy Puzder joins us to examine the consequences of ESG activism, what it’s doing to American culture/401k’s, and the awesome pushback that's happening!

Tim Doescher: From The Heritage Foundation, I'm Tim Doescher and this is Heritage Explains.

Andy Olivastro: If you're a share owner of a corporation, you literally own the company and it's your property in the form of capital, which has made the production of useful products and services possible and it's now available in the marketplace for consumers. That capital is now being diverted to causes and purposes that you never intended to support, but it's all because of this great reset that there are people that believe so much about how things should be done that they're using your money to advance their own initiatives.

Doescher: That's Heritage VP, Andy Olivastro on an Explains episode last year discussing how the left is using boardrooms all around the world to impose woke policies on us without passing laws.

>>> Woke Corporate Capitalism

Doescher: I'm sure we've all heard terms like Woka-Cola and go woke, go broke to describe traditional American companies shifting to the Left. Now we remember the Major League Baseball All Star Game moving from Georgia to Colorado to protest a voting law. Or how about anti-fossil fuel activists gaining seats on major energy company boards. And of course the massive censorship of conservatives happening throughout big tech.

Doescher: This activism/ideology is commonly referred to as environmental, social and governance or ESG. I'm sure you've heard of it. Man, it all just seems so helpless. We're getting fed left wing ideology from every institution in our culture. Where is the pushback? Well, here's an answer on Fox News.

Clip: Strive Asset Management launched yesterday with a mission to remove politics from business and this is your company.

Vivek Ramaswamy: That's right. So I've been talking about these issues for a couple of years. I decided it was time to actually translate this into action because one of the problems in this country, Steve, is that the three largest asset managers in the world, that's BlackRock, State Street, and Vanguard, these three firms basically control nearly every public company in corporate America in an indirect way. You think of competitors like Exxon and Chevron or Disney and Paramount Pictures or even Coke and Pepsi, turns out the upstream owners of these firms, some of their top shareholders are the same people and forcing this ideology. Many of them were the top shareholders of Twitter before Elon Musk. And what we're doing is representing actually the voices of the actual shareholders, not the institutions who claim to be the shareholders, but their clients, the everyday citizens of this country.

Doescher: Vivek Ramaswamy is a successful entrepreneur and author. He's also a friend of the Heritage Foundation. His recent announcement of starting a firm that will buck the ESG investment trend and focus solely on maximizing returns is making waves. He continues on CNBC.

Vivek Ramaswamy: It's the money of everyday American citizens that's being used to advance this ideology that most of them actually disapprove of. And that's a disconnect that we have to address. And one way to look at it, Joe, is if you've got the CEOs of Exxon, Shell Chevron and ConocoPhilips in a room say, and they coordinated to say, "We're going to reduce gas production" and gas prices spike as a result, that'd be the stuff of movies. There'd be handcuffs. People would be locked up on antitrust violations. Yet today when the largest owners of those firms effectively direct them and mandate them to do the same thing, somehow that gets celebrated as ESG instead.

Doescher: Man, now that's very encouraging toward fighting this woke ESG mentality poisoning our culture. But more needs to be done. Andy Puzder is the former CEO of CKE Restaurants. He's a man familiar with the corporate boardroom. He's also helped many of us enjoy delicious cheeseburgers at their famous brands, Hardee's and Carl's Jr. President Trump also nominated him to be his labor secretary, but now he's a visiting fellow here at The Heritage Foundation, focusing on the consequences of ESG activism and the impact of shareholder resolutions.

>>> Larry Fink’s Crusade Runs Into Resistance

Doescher: On this episode, we dig deeper into shareholder activism, what it's doing to American culture, and of course what it's doing to our 401ks. We also discuss the pushback and examine more ways we can all ensure that our success and wellbeing doesn't suffer because of ideological asset managers in boardrooms.

Doescher: More after this.

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Doescher: Andy, we've talked about ESG before on Heritage Explains, but it has been a while. So I was hoping you could just give us a quick definition so we just have we're on the same point that we're jumping from.

Andy Puzder: Sure. Well, a lot of people don't even know what it stands for. It stands for environmental, social and governance. What it means is radical environmental policy, progressive social policy, such as critical race theory HR programs like they put in a Coca-Cola American Express that teaches people that they're either oppressors or oppressed, which what a terrible thing to teach anybody. And then governance is policies such as hiring people based on their race or their sex, putting somebody on your board because of their race or because they're female, rather than judging them on their character and their merit.

Doescher: Let me just stop you. Okay, so these are the things that corporations are factoring in to how they run their corporation. Is profit anywhere in there? Is making the company grow anywhere a part of this?

Puzder: I'd say the bigger part of it is isn't, I don't know, I think there are probably some CEOs who want to do this, that are ideologically committed to this. The real problem is that the people that run the largest financial asset funds and the people that run these financial funds own, I mean, if you take the largest three financial firms in the country, BlackRock, State Street and Vanguard, if you combine their ownership, they're the number one shareholder in 80% of the companies in the S&P 500.

Puzder: So they use this criteria to force CEOs to focus on these progressive agenda items as opposed to focusing on profit. In his latest letter to the country CEOs, which Larry Fink seems to think he needs to send every year, he sent a letter to all CEOs and he admitted in it that green policies, if you pursue these environmental policies, they're not as profitable as if you don't pursue them. They have a cost. And I don't think we need Larry Fink to tell us that high cost, low return environmental policies weren't going to increase your profits.

Puzder: But no, the answer to your question, the simple answer is no, these policies do not encourage profits. There are very good studies out there from very reputable sources proving that ESG investing is a negative for profits, it's a negative for investor returns. It's only a positive if you're one of these progressive crusaders who's trying to get these issues through and force them down American's throat without going to the ballot box.

Doescher: Okay. So let me just take it from here. We're in wonk world here in think tanks and things like that. We're not in the boardrooms coming up with this stuff. Are these left wing groups approaching board members and approaching CEOs saying, "Hey, you should do this. This is your thing." Is this them at cocktail parties getting this? How is this organized? This has only really come up in the last few years. How is it all of a sudden coming to this?

Puzder: Yeah, it really came down quickly. It really permeated our lives and our economy faster than I thought. I didn't even know what it was maybe 18 months, two years ago and now it's like everywhere. But yes, what happens is you've got an [inaudible 00:09:05], for example, last year with Engine No. 1 and Exxon. You may require Engine No. 1 is a small hedge funnel, owns very little stock in Exxon, decided that it wanted to put environmentalists on Exxon's board, which is ridiculous. Well, guess what happened? State Street, Vanguard and BlackRock decided to vote with Engine No. 1. They owned about 21% of the company, which is a huge percentage of a public company. And they, I guess what today, those environmentalists are sitting on Exxon's board. Now, if you're running a public company and Larry Fink calls you up and wants to have a meeting, or somebody from BlackRock calls you up and wants to have a meeting. Well, first of all, you're going to take the meeting.

Puzder: I can tell you having run a public company that you listen to your shareholders, particularly your large shareholders. Now we can sit down in a meeting and I'm not in these meetings so I can't tell you what's said, but it could be that these individuals go into the meetings and say, "Look, we want you to adopt these critical race theory HR policies, or we want you to expand the number of people on your board that are racially or sexually acceptable, not based on their merits or their qualifications, or we want you to adopt some zero carbon emissions goal of 2030" or whatever they're trying to ridiculously set the goal at.

Puzder: And if you're the CEO, you say, "Well, I really don't think that's going to help my profits." And I guess he would say, "Well, we're a major shareholder and remember what happened to Exxon." You may find people on your board that you don't want on your board. Well then you got to try and find a way to either comply, do what they're asking you to do, or find a way to make it look like you're doing what they ask you to do.

Doescher: Let's get into how they are legislating. Most people think, hey, the House writes the bill, they debate it, pass it on to the Senate, Senate debates it, passes it, pass it on to the governor or the president, signs it into law. That's what it is. It's a big process. It's a tough process on purpose. How is this legislating?

Puzder: Well, what they do is they go out and threaten these companies with adverse votes on director nominees or adverse votes on shareholder proposals unless they adopt these radical policies. So you've got not only the elites in the financial community driving this, and they are leftist elites that run these companies, but now you've got under the Biden administration, you've got the government teaming up with them. It's almost, it's dystopian. You've got the SEC talking about climate disclosures. You've got the Department of Labor wanting to make it so that 401k plans can have these investments that don't focus on returns, they focus on politics. They're doing everything they can to empower these financial elites to take advantage of this incredible power they've acquired investing our money to force these companies to pursue this progressive agenda. And by doing that, you don't have to get anything passed in Congress. It's a shortcut around our political process. It's a shortcut around our democratic process to accomplish goals that they can't otherwise accomplish because they're not popular.

Doescher: I wanted to ask you specifically about Florida HB 1557, which the left calls the don't say gay bill, which of course it has nothing to do with that.

Puzder: Which it doesn't. It doesn't say gay.

Doescher: No, it doesn't say that at all, but that's their messaging and it has caught on. I did a Google search of it and you can hardly find the name of the bill. It literally is, they're calling it, don't say gay bill. And this of course has resulted in share owners telling Disney that if you don't take a stand against this bill, which Governor DeSantis pushed, which passed through the legislature, they signed it into law said, "We're going to make you rue the day that you didn't avoid this."

Doescher: Now they are, I think their stock is maybe like down 40% since the start of the year, Disney stock is down that way. First, this can't be good for share owners. People that have put their hard earned money in Disney stock or like you said, through index funds, this is hurting a lot of people, the fact that Disney is taking a moral stance on legislation. I want you to talk about that, but then I also want you to talk about Governor DeSantis, is this a model for how to stand up to ESG, to how to stand up to this kind of thing?

Puzder: First of all, I think this was a huge mistake by Disney. And it's not a huge mistake for every company to get political. For example, let's take Starbucks or Patagonia or Nike even with their Colin Kaepernick ad. They're appealing to sort of this leftist crowd, this youthful leftist crowd. So maybe in that case, maybe this being woke is more of a marketing tool than it is a political tool. Like you get out there, you know, when they announce the results of the Colin Kaepernick campaign with respect to Nike, the CEO of Nike didn't stand up and tell the investors, "Hey, look, we were a good guy, the Colin Kaepernick ad, we lost some money, but we made a point and we're really good people. Your stock's going to be worthless, but we're really good guy."

Puzder: No, he stood up and said, "Hey, this ad was great. We sold more Nikes. People came in, they loved it. This was real positive for us." So in that sense, that kind of woke, it becomes a more of a marketing tool. But with Disney, Coke, American Express, you got to look at who your customer base is. Their focus isn't on this leftist group of young Americans who follow these leftist policies and think that Bernie Sanders has any idea what he's talking about or AOC has some idea what she's talking about, which it's hard to believe that even they think that.

Puzder: But that's not who you're marketing to. You're marketing to American in general. And with Disney, you're marketing to families and kids. You don't want just teenagers in there. It's the families and kids that bring in the big bucks. And if you offend them, they're going to react. And they did react. And I did have some people say, "Well, I sold my Disney stock." Do not sell your Disney stock. Buy every share you can of Disney and vote against every one of these guys and vote against every policy they propose. You can take that power back.

Doescher: Because as a share owner, you have that power to do that.

Puzder: But don't go there. If you object to the policy, don't go.

Doescher: We've talked about corrupting capitalism. And now obviously one of the biggest quandaries we find ourselves in is how in intertwined we are with China, with communist China who uses the market for their communist purposes. They take a tremendous benefit from being "open." My question here is if Exxon goes carbon neutral, that's clearly going to be more expensive for all Americans, energy prices are going to skyrocket, we're going to be paying that. Are those CEOs who are probably doing significant business in China, are they holding China to the same standard?

Puzder: No. BlackRock has big investments in China now. Larry Fink went over and was meeting with Chairman Xi. Look, they're not trying to impose these ESG requirements on Chinese, even though it's a company that actually literally has slavery. Talk about having it 200 years ago, they literally have it now. But they're not trying to enforce these standards. I guess the Chinese government won't let them do business there if they do. The hypocrisy here is excessive and I think Americans are starting to react. People are beginning to understand what's going on. They may not understand the details of what's going on, but I think we're going to see in this next election that they do understand how this is impacting them.

Doescher: Take us to the states. Is this something that state legislators can take on? Is this something that state treasurers can take on with pension funds, that kind of a thing. How can we continue to push back other than buying our one share at Disney and going up to the share owner meetings and causing a stir there?

Puzder: Well, we didn't talk about this before, but I'm really glad you asked that question. During the Trump administration, Secretary Scalia, who was Secretary of Labor, drafted a regulation that said with respect to private pension funds, that you couldn't invest private pension fund assets based on an ESG investment criteria because it was not in the best interest of the beneficiaries of those funds. And private pension funds would be like the Teamsters or the UAW, something like that. But the ERISA, the law he enacted this under, doesn't cover state pension funds. So you've got pension funds for the state of Florida, Texas, Tennessee, where I'm from, Missouri, they're all the BlackRock, State Street and Vanguard invest funds for those pension funds with respect to this ESG criteria, which is against the economic interests of the people that hold it and it's against the values of the people, the state of Texas, for example, to put environmentalists on Exxon's board.

Puzder: So I took what ERISA says about fiduciary duties and I took what Secretary Scalia said about fiduciary duties in that regulation and put them together in a state law that basically says the pension assets of this state will not be invested based on ESG criteria. And ALEC adopted it about a month ago as a model-

Doescher: The American Legislative Exchange Council. They do model policy for state lawmakers around the country to then adopt as their own. And you helped write one.

Puzder: And ALEC adopted this legislation about a month ago as model legislation. So there are a number of states that are considering this legislation and looking at ways to adapt and adopt it for their state.

Doescher: That would be a huge accountability.

Puzder: It would, and it doesn't make, again, it doesn't make the financial markets a battleground for the culture war. It just focuses on the responsibilities of the people that are investing our money. The people that invest our money should invest it for our benefit and not for their political goals. And as much as they try and convince us that their political goals are in our interest, that's a decision we should make. It's not a decision that the CEOs of these financial firms should be making. It's the wrong thing to do. And really it's an attack on our founding principles.

Doescher: Andy, thank you so much for being with us on this episode.

Puzder: Thanks Tim. It was my pleasure.

Doescher: And thank you again to Andy Puzder for being our guest. It was so great to have him in the studio. What a dynamic voice. If you want to read his work and other Heritage work on ESG and woke capital, head over to the show notes. We've linked to some stuff there for you. Also, rate us five stars, leave us a comment, and most of all, share us, share us, share us with your friends, your family, whoever you think would enjoy Heritage Explains. Michelle's up next episode, we'll catch you then.

Heritage Explains is brought to you by more than half a million members of The Heritage Foundation. It is produced by Michelle Cordero and Tim Doescher, with editing by John Popp.