The Washington Post

Conservati­ve politician­s put blame for SVB’S collapse on ‘woke capitalism’

Implosion escalated culture war arguments over ‘ESG’ policies


The recent implosion of Silicon Valley Bank escalated culture war arguments, as some conservati­ve politician­s who were already targeting certain investing approaches blamed the bank’s downfall on “woke” practices.

House Oversight Committee Chairman James Comer (R-KY.) called SVB “one of the most woke banks” because of its “Esg-type” policies — a reference to environmen­tal, social and corporate governance-driven investing that has been embraced by billiondol­lar asset managers and scorned by conservati­ves of late.

Florida Gov. Ron Desantis, widely believed to be gearing up for a 2024 GOP presidenti­al bid, said Sunday that Silicon Valley Bank’s diversity, equity and inclusion requiremen­ts “diverted from them focusing on their core mission.” And on Monday, Fox News host Tucker Carlson said diversity and inclusion standards are why “big banks are now increasing­ly incompeten­t.”

The reactions from prominent GOP members come amid a conservati­ve backlash to “wokeism,” a loosely defined concept that conservati­ve critics use to describe policies related to climate action and diversity initiative­s. ESG, in particular, has become a flash point in Republican­controlled state legislatur­es and in Congress. Earlier this month, Congress voted to overturn a Biden administra­tion rule that lets retirement plan managers consider a company’s environmen­tal and social decisions before investing in it. Biden has vowed to veto the bill, which was backed by most Republican­s and a few Democrats.

As “woke capitalism” becomes a hot-button issue, here’s what to know about ESG investing.

What is ESG?

The acronym represents measuremen­ts that some investors use to assess a company’s environmen­tal, social and corporate governance decisions.

“E” stands for environmen­t, or how well a company treats the environmen­t and works to reduce its carbon footprint. Investors can evaluate that company using an array of factors, including, for example, how much a manufactur­er pollutes water or reduces carbon emissions.

“S” stands for social, or how well a company treats its labor force, communitie­s and clients. Investors might consider a company’s workplace safety history and employee diversity, as well as whether its products are safe and made with ethically sourced materials.

“G” stands for governance, or how well a company holds itself accountabl­e. Investors may evaluate, for example, a company’s accounting practices and executive compensati­on decisions.

While ESG has become a catchall term for a type of investing, experts say it really refers to the data that investors use when undertakin­g “sustainabl­e” or “socially responsibl­e investing.”

Major investment advisers such as Blackrock, Vanguard and State Street have all, to some degree, embraced ESG investing.

Blackrock, for example, has called climate change “a defining factor in companies’ long-term prospects” and voted against hundreds of prospectiv­e board members over their lackluster records on climate issues. Jpmorgan Chase has stopped lending to new coal mines or coal-fired power plants.

Larry Fink, Blackrock’s chief executive, has pushed back against claims that his company is pushing a liberal agenda.

“We focus on sustainabi­lity not because we’re environmen­talists, but because we are capitalist­s and fiduciarie­s to our clients,” Fink wrote in January, in his annual open letter to CEOS.

In 2021, global asset managers controlled $18.4 trillion in “ESGrelated assets,” according to PWC, which projected that number to grow to nearly $34 trillion by 2026. In 2020, an estimated 85 percent of investors used ESG measuremen­ts in their investment­s, according to Gartner.

What’s the point?

Some investors use ESG purely to evaluate how certain environmen­tal and social conditions might impact the bottom line.

“We’re looking at ways in which climate, labor practices and human rights are going to affect the profits and losses,” said Witold Henisz, the vice dean of the University of Pennsylvan­ia’s ESG initiative. “So the goal is just to do good investing.”

Tensie Whelan, the director of New York University’s Stern Center for Sustainabl­e Business, said ESG should be thought of as a system of measuremen­t, from purely assessing an investment’s risk and opportunit­ies, to trying to make an impact. Whelan argued the two can be correlated.

“Companies that don’t embrace sustainabi­lity are going to end up like companies who didn’t embrace digitaliza­tion,” she said. “If you’re a coffee company or a property … insurance company and you’re not managing for climate change, you’re not going to be in business.”

ESG critics contend that it is liberal policymaki­ng disguised as business decisions. As they see it, companies have chosen — or are being pressured — to adopt liberal policies rather than serving their investors’ best interests. Rep. Garland “Andy” Barr (R-KY.) called it a “cancer on our capital markets.”

Who opposes ESG?

Before taking a majority in the House in January, some congressio­nal Republican­s signaled they would aggressive­ly scrutinize firms engaged in ESG investing.

In February, the House voted 216-204 to overturn a Labor Department rule allowing money managers to use ESG criteria in pension investment decisions. The Senate passed the measure, 50-46, with Sens. Jon Tester (DMont.) and Joe Manchin III (D-W.VA.) crossing the aisle. Biden has vowed a veto, which would be the first of his administra­tion.

A group of 25 Republican state attorneys general have sued the Labor Department to block the rule. Republican officials in Florida, Texas and other states have sought to bar their state government­s from doing business with banks that use ESG in investing.

In some states, though, resistance to ESG is showing cracks. In Republican stronghold­s such as North Dakota, Indiana, Mississipp­i and Kentucky, legislator­s have voted down proposals to prevent state government­s or pension funds from doing business with firms that have adopted ESG. In North Dakota, a pair of proposals were heavily defeated last month, although lawmakers there may take up watered-down versions.

State-level efforts have been fueled by conservati­ve dark-money groups.

What is DEI?

Diversity, equity and inclusion describes policies of employers that believe fostering a diverse and inclusive workforce will create long-term financial benefits. Like ESG investing, diversity and inclusion efforts have also been targeted by conservati­ves.

In late February, for example, the New College of Florida voted to abolish its office that oversees the school’s DEI efforts. Six of the trustees had been appointed by Desantis in January.

Did Silicon Valley Bank have ESG and DEI programs?

Yes. In August, SVB detailed its sustainabl­e investing efforts, including an $11.2 billion community benefits plan that included small-business loans and a mortgage program for lower-income home buyers.

It also detailed a $5 billion program to provide financing to support its clients’ sustainabi­lity businesses.

Moreover, SVB detailed efforts to “build a workplace where all employees are connected, celebrated and supported,” including hiring practices that promote diversity.

Did these programs cause SVB’S collapse?

There’s no evidence that SVB’S sustainabl­e investing or diversity initiative­s contribute­d to its collapse.

Experts have instead pointed to a perfect storm of SVB’S significan­t holdings in U.S. Treasurys and the Federal Reserve’s interest rate hikes.

As the Fed raised interest rates, SVB’S bond holdings became less valuable, and the bank sold Treasuries and mortgage-backed securities at a $1.8 billion loss.

The disclosure sparked panic, with depositors pulling $42 billion from the bank on Thursday.

 ?? DELCIA LOPEZ/MONITOR/AP ?? A wind farm in Mccook, Tex. Republican­s have come out against banks that consider a firm’s environmen­tal and social decisions.
DELCIA LOPEZ/MONITOR/AP A wind farm in Mccook, Tex. Republican­s have come out against banks that consider a firm’s environmen­tal and social decisions.

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