Until the start of 2023, only a small but spirited chorus of critics had been raising the alarm about the unobjectionably named Environmental, Social, and Governance (ESG) investment movement. All the while, investors turned a blind eye to the concentration of quasi-political power in the hands of unelected investment bankers and Davos-jetting bureaucrats. Exhibit A for the pervasiveness of the ESG agenda was investing giant BlackRock and its CEO Larry Fink, who prioritised Net Zero emissions, board diversity and “purpose-driven” commerce, and in doing so took the decision-making power in American capitalism away from shareholders.
At that point, ESG remained a long-term trend. Global assets under management (AUM) in ESG had grown from $10 trillion in 2007 to more than $30 trillion. As late as November 2022, PricewaterhouseCoopers was predicting “exponential” growth for the initiative over the years to come.
But last year everything changed, and this week it was reported that BlackRock would be laying off 600 employees as it looks to de-emphasise its ESG activities. The firm had lost 10% of its $10 trillion AUM. How, then, was the behemoth finally felled?
After eight out of 10 ESG funds underperformed the S&P index in 2022, many explained it away through that year’s tech slump. But when the same thing happened in 2023, and Morningstar announced that sustainable equity fund returns trailed indices last year by more than a percentage point, ESG funds’ chronic underperformance became undeniable.