Politicians Face Off over ESG Investing

ethical investing, corporate citizenship, corporate social responsibility

March 5, 2021

New Orleans      Free marketeers are caught in a crisis of contradictions. They want to pretend that market forces exist independent of any interference from government or other factors, but they also want to put their fingers on the scale based on their political ideology. A good example might be the current gyrations around ESG investments.

ESG stands for Environmental, Social, and Governance. What in means in practice is that investors and institutions review whether there are material risks in putting money into some companies and projects based on risks in any of these areas. Such screens on social and governance sometimes include labor practices, gender equity, questions of leadership accountability, diversity in hiring and leadership, and other issues. Environment these days would seem to be a no-brainer as climate change is an unavoidable issue that touches on everything from the smallest farmer to giant oil companies. What may have started as a niche concern for certain social conscious wealthy investors thirty or forty years ago has now become a hot item with scores of funds and reportedly exploding levels of total investments.

Yet, in the way that politics, especially in the United States, seems to color everything, conservative politicians are tripping over themselves trying to make ESG investments and screens controversial. They may claim this is free market capitalism, but its really a form of protectionism for locally favored interests, particularly around resource extraction companies in coal, oil, gas, and others. Efforts are bubbling in Congress to try and tie the hands of the Security and Exchange Commission, the key corporate regulator, to insist that the only standard that should exist is profit and return on investment.

Read another way, if Exxon is paying its dividend now, investors shouldn’t be informed or cautioned that climate may kill the company in ten or twenty years. This kind of interference has always been a problem for union pension managers who, naturally, want to invest in companies that have good labor records, pay fairly, and, even as importantly, employ their members. Now in our polarized politics – and economics – some would tighten the reins even more.

Maybe it’s just us. Germany has recently announced that it is moving to require investments to include ESG screens. They aren’t Americans of course, but they do have the biggest economy in Europe. The Biden administration to their credit has claimed that the climate catastrophe is going to be part of their yardstick on policies across the board.  That’s past due and just common sense. The cow is out of the barn, and conservatives need to decide if they are capitalists or not before they keep trying to control the market. Consumers want to know what companies are doing before they support #MeToo abusers, corruption, climate avoidance, conspiratorialists, and leadership tone deaf about race and workers’ rights. Facing the facts, investors want to be able to follow those consumers rather than lose their shirts. Wising up is different than getting hip, and conservatives need to learn the difference when these culture wars infect the economy.


Housing Shortages and Rental Squeezes

housing crisis, home owner, gentrification, rent increase

March 4, 2021

New Orleans      One story after another in the mainstream media is now focusing on the shortage of homes for sale in city after city.   The curious American dream of homeownership is another endangered species it seems, while at the same time the corporate and private equity grip on rental properties as cash cows with manageable risk is accelerating. Families may not be able to buy affordable houses, but the big whoops is sweeping them up still in huge tranches.

The reasons or rationales for the shortage of homes for sale are numerous. Some point to the delays still lingering from the 2007-2008 housing bubble collapse. The pandemic is a popular culprit. Older home owners, normally a source of homes for sale as they transition to smaller properties or other forms of care are hanging on in fear of nursing home morbidity and resistance to strangers, including real estate agents, tramping through their houses. Others are staying put because they are unsure whether more remote work is here to stay, or this is all temporary, but either way they are standing pat. The moratorium on foreclosures and increased forbearance also may mean that houses even with nonperforming loans are also not coming on the market.

Less often cited, but invariably a huge factor, is the capture of more than five million homes by bottom feeders and private equity after the Great Recession and, after a splash of paint and minor repairs, repurposed as rentals. These companies have made billions, spun off their creations, and now are even consolidating. This area of investment is now seen as so lucrative that recent reports saw a merger of sorts between Roofstock, a rental agency, and a giant commercial real estate company to take the phenomenon internationally.

Needless to say, the shortage of affordable homes, available to low-and-moderate, working class families is even more intense. Companies with various intentions are trying to see if they can reverse the trend and flip rentals into home ownership, even though some of these schemes are flatly predatory.

This is a situation that is way too close to home. We see prices hitting ridiculous levels in our own neighborhood in New Orleans, already under intense gentrification pressure. Simple shotgun doubles are going for $5 – 600,000, the same houses that fifteen years ago before Katrina would have raised eyebrows with even a $150,000 price tag. In Little Rock, friends put their house up for sale and had a half-dozen offers within hours, including one for more than they had asked. A year ago, the contract to buy had failed, but now, there’s a line.

Meanwhile, rents are going up along with home prices and for all of the discussion of eviction moratoria and foreclosure delays, no one seems to have a clue on where people are going to go. There also seems to be no plan on the national level to see these circumstances as linked, nor is there any loud drumbeat to create more affordable homes and apartments for families who are increasingly desperate to find them. Talk is cheap, but these programs will be costly. Nonetheless, now is the time to move forward, while interest rates are low and before big whoops drain the housing market dry.