The Environmental, Social, and Governance (ESG) movement is facing another setback. Yesterday, the Net-Zero Asset Managers (NZAM) initiative—a group of international asset managers committed to aligning financial goals with net-zero emissions by 2050—announced it was suspending activities following BlackRock’s departure from the group.
“Recent developments in the U.S. and different regulatory and client expectations in investors’ respective jurisdictions have led to NZAM launching a review of the initiative to ensure NZAM remains fit for purpose in the new global context. Signatories will be consulted throughout the review process and informed of any updates in a timely and transparent fashion,” the group said in a January 13th statement. “As the initiative undergoes this review, it is suspending activities to track signatory implementation and reporting. NZAM will also remove the commitment statement and list of NZAM signatories from its website, as well as their targets and related case studies, pending the outcome of the review.”
NZAM launched in 2020 to “mitigate financial risk and to maximise long-term value of assets.” The initiative lists itself as a “formal partner” of the United Nations Framework Convention on Climate Change (UNFCCC)’s Race to Zero Campaign. The initiative says it’s committed to the Paris Accord’s goal of staving off global warming by 1.5 degrees Celsius by 2050.
Earlier this month, major banks pulled out of another UN-backed ESG initiative: the Net-Zero Banking Alliance (NZBA). As I explained earlier this month:
Morgan Stanley, Citi, and Bank of America (BofA) recently announced their exit from the United Nations (UN)-backed coalition of banks that have committed to net-zero finance practices. Goldman Sachs and Wells Fargo formally exited NZBA last month. This development is largely attributed to the successful Republican-led pushback to ESG efforts and a renewed interest in fossil fuel investments ahead of the second Trump administration.
Despite dismissing opposition to ESG, the private sector is souring on the acronym and reprioritizing investments in coal, oil, natural gas, and nuclear energy. ESG funds deliver a poor return on investment—often being a cover for poor business performance—and don’t perform better than non-ESG funds.
Recently, American Airlines has been scrutinized for its ESG investing policy after a judge ruled the company’s strategy violated federal law for letting BlackRock “weigh environmental factors in 401(k) funds.”
The ESG-adjacent carbon offset market, with its emphasis on biodiversity, isn’t doing well either. These offsets are revealed to be “worthless environmental” or “phantom” credits companies buy to inflate their ESG records and scores.
Not only is the private sector pivoting away from ESG posturing, the incoming Trump-Vance administration is expected to steer clear of this controversial practice. This is good news for Americans and their investment portfolios.
To learn more about the downsides to ESG investing, go HERE.