Why Wall Street is beginning to ditch ESG

After years of investing in and touting sustainability, three of the largest financial asset owners in the world are taking their ball and going home. A global task force that aims to phase out fossil fuels and boost renewable green fuels will be forced to seek upwards of $14 trillion in backing elsewhere.

State Street and JPMorgan Chase are pulling out of Climate Action 100+, “an investor-led initiative to ensure the world’s largest corporate greenhouse gas emitters take necessary action on climate change,” according to the group’s webpage.

Black Rock isn’t bailing on the group altogether but is withdrawing all of its American business interests. Black Rock transferred its international arm to the coalition.

Climate Action 100+ promotes zero-carbon goals for companies and governments. Its members are required to disclose investment choices to remain in the coalition. Black Rock and its peers balked at this requirement as it threatened their fiduciary responsibilities to its investors.

Time to reevaluate ESG goals?

So why are Black Rock, State Street and JPMorgan Chase backing away from their environmental, social and governance (ESG) commitments?

For various reasons, all of which are warning signs for the ESG movement:

1. American consumers don’t want electric cars and trucks. Car makers are getting the hint.
2. Nearly half of Republican state governments won’t do business with pension funds that discriminate against coal and oil. That’s costing Black Rock, State Street, Vanguard and others money.
3. Wind, solar and other renewables are useful for electricity generation. But electricity is just 20% of the total energy pie.
4. Traditional energy stocks like Exxon and Chevron are winners both in the long term and in this decade. Bitcoin miners are bullish on coal and it’s helping to keep the sector afloat.
5. Most polls show fewer than 5% of U.S. voters rank climate change as a top concern. The ESG movement hasn’t made much of an impact on most people’s voting or buying habits.
6. These days, Americans are considerably more worried about inflation. Their home lighting, heating and cooling bills are contributing to financial woes.

ESG assets have plunged from a peak of $17.1 trillion in 2020 to $8.4 trillion in 2022. As a result, Black Rock and State Street closed some of their least lucrative ESG funds over the last 12 months.