A former White House official has formed a group to help individuals fight back against institutional investors’ growing focus on environmental, social, and governance considerations.
The Main Street Investors Coalition, which announced its formation on Tuesday, intends to represent retail investors who use passive products from institutions like BlackRock and Vanguard, those who are investing in 401(k)s, and those who expect to benefit from a public pension fund one day.
“There aren’t many people who understand this outside of the Wall Street circles,” George David Banks, executive director of the coalition, said by phone. “I think it’s important to have an education campaign.”
According to Banks, as activists increasingly become frustrated with slow-moving policy changes in Washington, D.C., they turn to corporations and their institutional investors backers. “There’s been a recent development with political activists coming in and focusing on a political and social agenda,” he said, pointing to BlackRock’s move to offer firearm-free investment products and New York City’s decision to divest from fossil fuels as recent examples.
“Asset managers need to be focused on the value of the stock, not on political considerations,” Banks said. “They’re swerving over into the lane of activism that I don’t think is in the interest of the average retail investor.”
Some institutional investors and researchers have argued that investors can still deliver competitive returns while incorporating ESG beliefs. A 2017 report from TIAA subsidiary Nuveen, for instance, showed that investors that incorporated ESG criteria achieved long-term performance similar to that of benchmarks, and took on no more risk than the benchmark investments did.
At BlackRock, stewardship and proxy activities are intended to enhance the long-term value of client assets, according to a statement from firm spokesperson Ed Sweeney.
“How well a company is governed, including how it manages its material environmental and social risks, gives us insights into its ability to respond to changes in the business environment and the quality of the management team,” he said via email. “Our activities in this area are aimed at maximizing shareholder value, not at implementing social values.”
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The Main Street Investors Coalition isn't the only group to launch in response to the growing institutional focus on ESG. The Institute for Pension Fund Integrity, which launched in April, is also calling for public pensions to focus more on returns than on divesting.
The Main Street Investors Coalition, for its part, will focus on four key issues, according to the group statement. These include ensuring that retail investors who own passive investments have a say in proxy contests; asking for more transparency from third-party proxy advisory firms; advocating for public pension funds to adhere to the same standards as private pension funds; and demanding that institutions focus on maximizing investment returns, rather than “playing politics with other people’s money.”
Right now, the focus of the Main Street Investors Coalition is more on education than policy, but that will eventually change, Banks said. At some point, the group will turn its focus to the promotion of legislative measures that can promote its main tenants.
The Main Street Investors Coalition is a group made up of members of the American Council for Capital Formation, the National Association of Manufacturers, the Equity Dealers of America, the Savings & Retirement Foundation, and the Small Business & Entrepreneurship Council.
The American Council for Capital Formation, which Banks has been a part of since leaving his post at the White House as a special assistant on the National Economic Council and National Security Council, has issued multiple reports about the mix of politics and finance at public pension funds, including those in New York and California.