Exclusive—Derek Kreifels: SVB’s Collapse Serves as the Canary in the Coal Mine for ESG investments

Managers of the failed Silicon Valley Bank (SVB) and President Biden share something in common: a fundamentally flawed mindset that prioritizes woke politics above the financial wellbeing of those whom they serve. That commonality was typified in their mutually misplaced devotion to Environmental, Social, and Governance (ESG) policies.

The president’s first use of his veto authority on March 20 to kill a bipartisan congressional resolution reversing ESG policies promoted by his Department of Labor means that maximizing retirement account holders’ returns will play second fiddle to progressive policy goals and that retirement portfolios are being placed in jeopardy. In SVB’s case, this distorted sense of priorities was a major factor in the bank’s collapse. As state financial officers have been warning for years, placing left-wing political considerations ahead of sound financial or business decision-making is a recipe for a disaster.

Most Americans are still not familiar with ESG, which is a highly subjective political score that woke fund managers who control trillions of dollars in retirement assets are using to force progressive policies on everyday Americans—typically without their knowledge or approval. It’s a radical environmental and social agenda that the self-anointed elite behind it know they could not force through the courts and which they could never get enacted through the democratic process. The result is higher prices at the gas pump and at the store.

Instead of placing an emphasis on hiring qualified candidates for critical positions within the company and making prudent financial decisions, SVB focused on ESG, particularly climate and diversity, equity, and inclusion (DEI) initiatives. So dependable was SVB for left-leaning initiatives that SVB was referred to as “the Democratic ATM bank.” Even as it was struggling in January 2022, SVB boasted that it had committed to “at least $5 billion” to support green investments initiatives. But even more telling and most outrageously irresponsible of all, SVB left its chief risk officer position open for eight months.

SVB should have concentrated on safeguarding their depositors’ money and making sound investments, but as evidenced by their “A” ESG rating, the failed bank was too narrowly focused on pushing a progressive agenda. That political focus did nothing to help it avoid calamity.

ESG’s defenders have argued against those who push back by saying that it’s really about mitigating risk. Clearly SVB’s ESG advocacy didn’t aid them in understanding financial risk from over-investing in government treasuries when interest rates were rising. The bank’s financial malpractice is the inevitable outcome when fiduciary responsibility is crowded out by politicized agendas. And contrary to what Biden is pretending, the American people will ultimately be left to foot the bill for the incompetence of SVB’s leadership. Our country’s largest banks, which are too big to fail and have been working together to push their progressive ESG agenda, will benefit and grow even larger.

To make matters worse, SVB built strong ties to China and reportedly worked as a key funding bridge for groups operating between China and the United States. It even ran a joint venture in China with Shanghai Pudong Development Bank. This is especially troublesome because it means that the United States could potentially be bailing out our biggest adversary in the process of rescuing a bank whose officers’ risky ESG push guided them straight over a financial cliff.

ESG is a racket built on a weak foundation of political activism. Asset management firms, banks, and proxy advisers must shift their focus to maximizing returns and safeguarding financial assets instead of playing politics, or SVB’s tab won’t be the last one the American people end up having to cover.

Biden’s abject servility to woke political priorities has allowed him to ignore the obvious: SVB’s collapse serves as the canary in the coal mine for ESG investments. And while his veto sustains the ESG investment scheme for now, state treasurers, auditors, and other state financial officers have been pushing back on the woke scam being perpetrated on the backs of American investors.

The American people should also take notice and be vocal; this is the kind of financial freewheeling that puts their investments at risk.

Derek Kreifels is the co-founder and Chief Executive Officer of the State Financial Officers Foundation.