Finance giants BlackRock and Vanguard seem to be changing their approach to Environmental, Social, and Governance (ESG) investment strategies, increasingly rejecting shareholder proposals that focus on environmental and social issues.
Vanguard Group says it has only approved 2% of the environmental and social resolutions brought by shareholders in 2023, down from 12% last year, joining BlackRock in rejecting a significant number of climate and social items.
The firms’ strong support of ESG investing in recent years has led some financial advisory firms and a segment of the public to question whether financial institutions should concentrate on financial performance rather than other considerations.
BlackRock and Vanguard have a reputation for backing ESG initiatives. Yet it's worth asking if this commitment was ever about ideology or simply a response to market demand. With recent statements from Blackrock CEO Larry Fink indicating a move away from controversial ESG terminology and a reported loss of approximately $4 billion in managed assets tied to ESG backlash, it's clear that they're feeling some heat. Though the loss may seem trivial for a company with over $9 trillion in assets under management, it’s far from pocket change.
The reconsideration by these two financial titans of their ESG commitments comes amidst increased attention from state-level financial authorities. Officials have questioned whether financial investment strategies should intersect so closely with environmental, social, and governance criteria. It appears these strategic shifts are being driven by a combination of public backlash and a focus on their bottom lines.
As an investor, your primary concern is the performance of your portfolio. Any factor that introduces increased volatility or lowers returns is something to be wary of. ESG, despite its intended social and environmental benefits, can add complexity that investors generally prefer to avoid. What you want as an investor is an appropriate risk-based investment strategy–one that is streamlined for delivering robust financial performance.
Financial institutions serve a critical role in managing clients' portfolios–that should remain the central focus. It is of paramount importance that financial organizations stick to their core mission rather than diversify into complex societal debates.
While it may appear that BlackRock, Vanguard, and similar firms are shifting their attention toward traditional financial performance metrics, it's still crucial to observe their actions carefully because they are industry leaders. Transparency is essential to ensure these major players are genuinely committed to the primary need of their investors: to focus on maximizing the returns and growth of their clients’ portfolios.
As industry leaders often set the trend, their actions may well indicate a broader shift in focus back to core financial strategies. Major financial firms have adopted ESG to keep up with the times–but they also saw it as an opportunity to make lots of money.
We can be cautiously optimistic that BlackRock and Vanguard are reverting to what they do best–optimizing client investments for financial growth.
Bob Rubin is the Founder and President of Rubin Wealth Management. He can be reached at Bob@rubinwa.com
