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[0] Major corporations, including Disney, Apple, and Coca -Cola are increasingly risking their reputations with consumers to wade into political fights, leading many observers to wonder why.
[1] What's driving these Fortune 500 companies to take divisive stances on polarizing issues?
[2] In this special episode of Morning Wire, we unpack how the financial system is being leveraged to push big business to the left on issues ranging from climate change to transgender bathrooms.
[3] I'm Georgia Howe with Daily Wire Editor -in -Chief John Bickley.
[4] It's Sunday, April 10th, and this is your special edition of Morning Wire.
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[16] In the past few years, we've seen major corporations make headlines for their political activism.
[17] For example, PayPal boycotted North Carolina over a transgender bathroom bill.
[18] Coca -Cola denounced a Georgia election bill.
[19] And, of course, Disney famously opposed a Florida law that bans public schools from instructing on sexuality and gender identity with kids in kindergarten through third grade.
[20] The explanation we often hear is that activist employees, typically millennials, are just running the roost.
[21] But it turns out that's not the full story.
[22] Activist investment firms and an investing approach known as ESG are also driving the trend behind the scenes.
[23] Here with me today to explain all of this is culture reporter Megan Basham.
[24] Megan, thanks for coming on.
[25] Absolutely.
[26] Thanks for me. So ESG is a really buzzy topic lately, and I think a lot of people feel overwhelmed by it.
[27] Can you break down exactly what ESG is?
[28] Sure.
[29] So first off, I think the thing to know is that ESG stands for environmental, social, and governance.
[30] Used to be known as SRI, socially responsible investing.
[31] And it's essentially like a social credit score for businesses.
[32] So, for example, a company may improve their ESG score by committing to lower carbon emissions or hiring a diversity manager, or, say, donating to a political cause.
[33] And that score has financial implications?
[34] Yes, it does.
[35] So the first thing to realize is that this movement is incredibly pervasive.
[36] It's really just thoroughly baked into the financial system at this point.
[37] Right now, books are being written about how it's revolutionizing the corporate world.
[38] So, like I said, ESG is a metric that scores businesses based on their political positions and activities, but this is the key.
[39] the so -called correct positions are almost exclusively left -wing.
[40] So who issues the score?
[41] But, you know, that's a somewhat murky topic because it's not totally centralized at this point.
[42] There's some very large fund managers like BlackRock, the world's largest asset manager, who have their own in -house scoring departments that set their priorities.
[43] But then there's also some financial analyst companies that provide scores based on their own priorities.
[44] So the biggest of these companies is ISS, institutional shareholder services.
[45] But here's the issue.
[46] ISS is also what's known as a proxy service.
[47] And what that means is that hedge funds, mutual funds, etc., any of those investors that own shares of multiple companies pay ISS not only to provide these scores, but also to vote at shareholder meetings.
[48] So a lot of experts say there's just a ton of inherent conflict of interest here.
[49] Okay, so these third -party scorekeepers who generally have left -wing priorities are deciding what priorities are important, and then they're voting on behalf of shareholders at these shareholder meetings.
[50] Correct.
[51] Okay, so these scores aren't coming from an official regulating body.
[52] This is all happening outside of the democratic process.
[53] But because they're voting in the place of investors, it puts companies in a position where they have to do what these firms say.
[54] Right.
[55] And I want to reinforce a point you just made there, Georgia.
[56] this movement is profoundly affecting the direction of society, but it's all happening outside of the legislative process.
[57] So these priorities are being set by a small group of people clustered in a handful of very elite organizations.
[58] So Morning Wire interviewed Investor Vivek Ramoswamy for another segment recently.
[59] And here's what he said about how those three biggest asset managers are using ESG to manipulate companies.
[60] What the ESG movement, BlackRock and State Street and Vanguard have done over the last 20 years, is that they've actually bought up shares of over 20 % ownership in every company in the S &P 500, I believe.
[61] And what they say is, no, no, no, we are the shareholder and we're telling you the company what you need to be doing.
[62] Well, that's actually false in a lot of ways.
[63] One of the ways it's false is it's not actually their money.
[64] It's the money of everyday citizens who are the actual shareholders who disagree with the voice they're bringing to the boardroom.
[65] So just for some added perspective on that, BlackRock alone oversees almost 10 trillion in assets of investors' money.
[66] That's more than the GDP of every country in the world except for the U .S. and China.
[67] So to kind of paint a picture of what that looks like in practice, services like ISS or investment firms like BlackRock might, for example, vote for a banking company to not lend money to fossil fuel companies as part of their climate change priorities.
[68] To give you one very specific stark example, last June, Vanguard, BlackRock, and State Street combined forces to oust a quarter of the Exxon Mobile Board that was standing in the way of their climate change priorities, and they replaced them with environmental activists.
[69] Now, similarly, BlackRock has pressed companies like Home Depot not to donate to pro -life politicians and political organizations.
[70] So the takeaway here is that very powerful investment organizations create priorities, and then companies feel strong pressure to conform, even if those priorities aren't endorsed by actual shareholders or even customers.
[71] Exactly.
[72] And in part, it's because regular individual shareholders usually aren't even aware that this is going on and so they don't show up at the meetings.
[73] Instead, these firms are voting on their behalf.
[74] So what you're describing in terms of pushing companies to prioritize social goals sounds a lot like the term stakeholder capitalism.
[75] It is.
[76] You are exactly on target there.
[77] So ESG is basically the pragmatic implementation of the philosophy of stakeholder capitalism.
[78] Here's author Mariana Mazakado comparing shareholder capitalism to stakeholder capitalism for a Harvard Business Review video.
[79] Shareholder capitalism starts with the idea that only business creates value.
[80] And second, that business creates value best when it's maximizing share prices and values for shareholders.
[81] Stakeholder capitalism starts with the idea that wealth is actually created collectively by different types of organizations, not only within business.
[82] The second point is, how do we make sure also that wealth is redistributed between all these different value -creating stakeholders?
[83] And that means, you know, to workers and improving working conditions, it means serving our communities and definitely our planet, so it is more sustainable.
[84] So proponents of the idea argue that all of society contributes to the success of high -earning businesses, so therefore businesses have a responsibility to redistribute that wealth or otherwise use their influence for social good, even if it means becoming involved with social causes that have little or really nothing at all to do with their businesses.
[85] So on its face, I can see why it might be appealing to some people that big business would be forced to do good in the community.
[86] But the idea of doing good in the community is also very subjective, especially when you're talking about stances on social issues.
[87] So you said these scorekeepers generally prefer left -wing positions?
[88] Yes, almost exclusively.
[89] and that's really the crux of why this issue is so controversial.
[90] Now, some experts did tell me that the G part, governance, can be politically neutral, as that might relate to something like making sure too much power isn't centered on the CEO.
[91] But the E and the S, environmental and social, well, that's where the political focus really lies.
[92] So Nathan Estruth, a Fortune 20 global executive, who was also an officer in mega corporation, Proctor and Gamble, for many years, told me this.
[93] stakeholder capitalism really means whatever the left defines it as on that particular day.
[94] And so on one day, it's if you don't bow the knee and give money to BLM, then you are not being responsive to your stakeholders.
[95] So Vanguard and BlackRock are financial managers.
[96] So they're creating their funds for everyday investors based on the social positions of companies rather than the company's actual performance.
[97] But I would assume they want their funds to perform well.
[98] So what's the financial motivation for doing this?
[99] Well, they do want their funds to perform well to a point.
[100] And they claim that while this approach to investing may not yield the highest returns in the short run, they'll be more profitable in the long run.
[101] So for example, they might say that it's a good decision to sell off stock in fossil fuels because someday governments will so heavily regulate that industry that they won't be profitable.
[102] So they'd argue that it's a good idea to ditch those shares now, even though they're currently earning a lot of money.
[103] Now, that said, the financial experts I spoke to said that all of that is really more of a theory, because right now, ESG funds tend to have a lower rate of return than those that adhere to the old model of simply maximizing financial returns for shareholders, which is why all of this is really coming from what you might call the elite financial class and not your everyday investors.
[104] So here's how investment manager and finance author, Jerry Boyer, explained it for me. It's very top -down.
[105] I've talked to hundreds of financial advisors.
[106] Clients are not asking for this.
[107] The media is obsessed with it.
[108] The industry's talking about it.
[109] But for the most part, some millennial clients are talking about it, but millennials don't have a lot of money.
[110] So in terms of actual assets, this is astro -turk.
[111] And so you'll hear some of these investment firms openly stating that shareholders just need to adapt to earning lower returns on their investments in exchange for that greater social good.
[112] Here's BlackRock CEO Larry Fink speaking at a conference hosted by the New York Times in 2018.
[113] We added four more points in terms of diverse employment this year.
[114] You have to force behaviors.
[115] And if you don't force behaviors, whether it's gender or race, or just any way you want to say the composition of your team, you're going to be impacted.
[116] And that's just not recruiting.
[117] It is development, as Ken said.
[118] We're going to have to force change.
[119] So how much of this vision has percolated down at this point?
[120] Oh, I'd say it's percolated down quite a ways.
[121] To give you one example, in 2019, 181 CEOs of some of the biggest and most influential companies in America think Goldman Sachs, Bank of America, Apple, Walmart, AT &T, Amazon.
[122] just a whole host issued a joint statement pledging that they would operate by the stakeholder rather than shareholder model.
[123] Now, let's say you're an average person and the only real investing you do is through your 401k or your pension.
[124] And let's say you would prefer to get the highest possible return and you don't really want your money being used for politics.
[125] Or maybe you even oppose the agenda these firms are pushing.
[126] Are you forced to participate?
[127] Essentially, yes.
[128] Boyer told me that unless you have no 401k, no mutual fund, it's pretty likely that investment firms are voting on your behalf on these social issues.
[129] Let's say that they're investing in Vanguard, right, or BlackRock, which is the largest asset manager in the world, $10 trillion.
[130] You know, they're putting their pension money there.
[131] They're putting their IRA money in these funds of their 401K money.
[132] And they don't know that votes are being cast on their behalf.
[133] Votes against fossil fuels.
[134] They don't know that these companies might be pushing abortion policies by threatening to boycott states with heartbeat bills.
[135] They just think that they're invested in their 401 cases for the retirement.
[136] Okay, so what are your options if you'd like to opt out?
[137] I actually had that question myself, and I put it to Boyer like this.
[138] If I'm, say, your average suburban mom at home, who really has very little expertise in this stuff, what do I do?
[139] And he told me there's two different strategies depending on whether you own full shares of a stock or if you're talking about mutual funds.
[140] So Boyer says if you own even one share in a company, you're entitled to attend virtual shareholder meetings and voice your opinion.
[141] And he says that it's not that hard to do and it can be surprisingly effective because not many people bother to do it.
[142] Now, if you have a 401k or IRA or pension, then Boyer says the thing to do is to call your financial advisor.
[143] So rather than just boycotting a business, he says talking to the company managing your investments and letting them know that you're not interested in supporting the ESG model and that you don't want them using a proxy service to cast votes that conflict with your values is the better way to go.
[144] So he likened it to being a voter.
[145] If you don't like who wins an election, you don't tear up your voter registration card.
[146] What you do is you make sure to vote the next time and maybe you organize other voters to get to the polls.
[147] So he believes that while this takes a little more legwork, ultimately going to be much more impactful.
[148] What I'm seeing is that investors are going to financial advisors, and that's mainly who I talk to is financial advisors, and saying, I don't want to own Coca -Cola because they threaten to boycott a state over an election reform law or a heartbeat bill, okay?
[149] And then the advisor, like advisors that I've been talking to and educating, will say, well, we can certainly throw that out of your portfolio, but do you know that we can actually talk to Coca -Cola?
[150] about this.
[151] Every single time they say, first, I didn't know that.
[152] And second, yes, that's what I want to do.
[153] I didn't want to sell it.
[154] The only reason I wanted to sell it is because I didn't know that I had a voice.
[155] Now that I know I have a voice, I want to use the voice.
[156] And some financial managers, like Boyer, are starting to offer services that are going to make this pushback process a little easier for investors.
[157] Now, what about the legality of this?
[158] Is it legal to use investors' money to push political agendas without them even being aware of it?
[159] You know, that's a really good question, and it's a question that a lot of Republican lawmakers are starting to ask.
[160] We're also starting to see some red states pull state pension plans out of firms like Black Rock and Vanguard because they push ESG.
[161] So, for example, West Virginia pulled out of Black Rock in January, and so did the Arkansas Teachers' Retirement Funds.
[162] other states are rewriting their state laws so that asset managers are required to put financial returns ahead of partisan social goals.
[163] So here's Estruth, who also ran for a lieutenant governor of Ohio talking about that.
[164] It's all about, honestly, protecting teachers and firefighters and government workers' retirements.
[165] And what's happening is BlackRock is driving down their return rate while advancing the woke agenda using Red State public pension funds well that's a classic example one of several strategies of when you say what do you do well when you show up as a coalition of 10 states let's just call it okay and you say by the way we have 300 billion dollars in assets at black rock together and i start with black rock even before you get to the corporations and you say it's all coming out if you're going to continue to drive stakeholder capitalism over shareholder capitalism over shareholder capital Because it's not in the fiduciary interest of our retirees.
[166] Interesting.
[167] So this is becoming a campaign platform.
[168] Yeah, it's starting to be.
[169] And I expect that we're going to see more of that as voters start to realize how much this is something they need to care about.
[170] All right.
[171] Well, Megan, thanks so much for coming on and breaking that down for us.
[172] Absolutely.
[173] My pleasure.
[174] That was Daily Wire Culture reporter, Megan Basham.
[175] And this has been a special edition of Morning Wire.
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