Recently, Senate Republicans introduced legislation to curb Wall Street’s biggest asset managers’ woke capitalist activism.
BlackRock, Vanguard and State Street are the leaders in passive investment index funds. They have amassed more than $20 trillion combined assets. This has made them some of America’s largest shareholders in public companies. They have the power to leverage millions of index fund investors to become the dominant voting bloc at investor meetings due their enormous control over American companies.
Toomey stated that the bill would give the power back to the average American who is not tied to Wall Street.
A few large index fund managers have been using a peculiarity in securities law to vote shares bought with other people’s funds over the past several years. The INDEX Act gives voting power back to real shareholders, retail investors who risk their money. Both parties should support the idea of further decentralizing investing and reducing corporate voting power consolidation.
The INDEX Act would require passively managed funds’ investment advisors to vote proxy according to instructions from fund investors and not at the discretion or the asset managers. Toomey’s office claims that the INDEX Act would remove asset managers’ activism and promote a more democratic and competitive corporate system.
Sullivan stated that Americans should have the right to vote for their investments, even those in index funds. The voting power of large Wall Street firms should not allow them to control the entire public market. The three largest investment advisors currently vote almost one-quarter of all annual shares and hold the largest stakes in more than 90 percent of S&P 500 companies. This extreme market distortion would be corrected by the INDEX Act, which simply requires that fund investors have the right to vote shares and not advisers. This would democratically govern corporate governance and eliminate the influence these firms have at shareholder meetings, where they often push political agendas. This would also eliminate these firms from being a conduit for special interests groups that push radical agendas through corporate Governance. They could not achieve this through traditional political processes.
BlackRock stated that it would press companies to reveal the racial and ethnic makeup of their employees in December 2020. It also said they would push them to take steps to promote “diversity and equity and inclusion”.
Fink also promoted environmental, social and governance (ESG), investing to press public companies to adhere to climate change policies and divert investment funds away from fossil fuel industries to green companies.
John Carney, Economics Editor noted that ESG mandates have been a boon for the green industry and made fossil fuel production more expensive. As oil prices have risen to over $100 per barrel, this has resulted in lower oil rig production.
These funds shun fossil fuel investing. According to Deliote’s Center for Financial Services in the United States, professional managed assets with ESG mandates increased to $46 trillion worldwide by 2021. This represents nearly 40% of all assets under management. It has been extremely difficult to raise funds for fossil fuel production. Even oil prices over $100 per barrel aren’t enough to attract capital.
