ESG Will Power Capitalism to Solve Humanity’s Problems, Says Ackman

It’s common to hear billionaires proclaim that free enterprise is the best means to solve society’s troubles. But hedge fund potentate Bill Ackman thinks that only environmental, social, and governance (ESG)-oriented capitalism can do the job.

To Ackman, chief of Pershing Square Capital, “capitalism is likely the most powerful potential force for good in addressing society’s long-term problems.” But this economic system has some drawbacks, rendering it hard-hearted and even toxic to the greater good, he added.

Thus, the necessary corrective, he wrote, is for companies to adopt an ESG mindset. In a letter to his investors, he maintained “that good ESG practices are fundamentally aligned with running a successful business.”

By employing ESG precepts, he went on, a “successful business operating ethically and sustainably can create many thousands of high-paying jobs.”

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The hedge fund sachem spotlighted a quartet of companies, whose stocks his firm holds, as good examples of ESG-mindedness: coffee chain Starbucks, real estate player Howard Hughes, home improvement chain Lowe’s, and Mexican fast food seller Chipotle.

For instance, he said of Chipotle, “for years, the company has earned accolades for sustainably sourcing its food and for reducing its environmental impact over time.” What’s more, he noted approvingly, this month the company announced that 10% of its officers’ annual incentive bonus would hinge on the company’s progress toward achieving ESG objectives.

In 2020, Ackman’s Pershing Square Holdings, the hedge fund firm’s publicly traded component, posted its best year ever, with its shares generating 70.2%, far better than the benchmark S&P 500. So far this year, the stock is essentially flat. Last year, Ackman pulled off a coup by betting that the corporate bond market would take a dive last spring.

His hedge fund company manages more than $13 billion and has long been an activist investor, although it’s typically been focused more on what he saw as operating and financial shortcomings of companies he targeted, most notably Herbalife, the nutrition supplement firm, which he deemed a pyramid scheme.

But Ackman is adopting a view that is spreading throughout corporate America and Wall Street, that ESG principles are crucial to a company’s future. The goal is to ensure a viable future for a climate-threatened planet, a just society where all can prosper, and a corporate structure free of corruption and other weaknesses that can decimate stock performance.

The chief exemplar of this C-suite trend is Larry Fink, founder and CEO of BlackRock, the world’s largest asset manager. Fink has urged fellow corporate chiefs to adopt ESG goals and said BlackRock will weigh companies’ adherence to those ideals before buying their stock.

Failure to meet ESG standards, Ackman wrote in his missive, is increasingly a no-no among investors. These folks, he warned, “have begun to avoid companies that contribute to climate change or do not treat their employees well.”

Capitalism, leavened with ESG thinking, is the best vehicle, he said, to “deliver high, long-term returns for pensioners, long-term savers, and other investors, and provide goods and services that materially increase its customers’ quality of life.”

By letting ESG ideals guide them, corporate leaders can avoid what Ackman called “negative externalities” that can kneecap their companies, whether through legal challenges, sales shortfalls, or other business disasters.

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Tags: Bill Ackman, BlackRock, capitalism, Chipotle Mexican Grill, Climate Change, ESG, Herbalife, Howard Hughes, Larry Fink, Lowe’s, Pershing Square, Starbucks

A plan proposed by Vermont lawmakers to bolster the state’s pension systems, which are facing nearly $3 billion in unfunded liabilities, has been resoundingly panned by state teachers and public employees who said they felt abandoned and betrayed.

According to a draft of the pension reform plan released by the state’s House lawmakers, teachers and state employees would be required to pay more in contributions to the fund, stay in the workforce longer, and get less in monthly benefits when they retire. Additionally, cost of living adjustments (COLAs) would apply only to the first $24,000 of the retirement benefit, and to be vested in the program, employees would have to work twice as long—a minimum of 10 years from the current five.

“We’ve urged state leaders to seek a dedicated source of revenue for the pension’s obligations by raising taxes on those Vermonters who have done exceedingly well both before and during this pandemic,” Don Tinney, president of the Vermont National Education Association (NEA), a union representing 13,000 members, said in a statement. “Unfortunately, the speaker [of the House] seems to prefer taking money out of the pockets of teachers rather than ask the most fortunate among us to pay more. This is a particularly cruel way to thank teachers for their hard work supporting students during a pandemic.”

The union also said the plan was hastily prepared “by a small group of House committee chairs and vice chairs” and that state teachers and employees were given very little time to review it.

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“If the speaker and her team were legitimately interested in hearing from teachers whose pension is being cut, they would not have devoted only two hours on a Friday afternoon to take testimony on a proposal that has serious financial implications for thousands of Vermonters,” Tinney said, referring to a March 26 hearing before the House Government Operations Committee in which teachers and state employees panned the proposal.

“Where is the dignity in this proposal?” said Jen Zoller, a health department employee, who added that she would have to work another 11 years if the plan is enacted, according to the Bennington Banner. “You should be ashamed of yourselves. … How do you thank the health department for tireless work on COVID and then tip away our pensions in the same breath? It’s disrespectful.”

The draft said the unfunded liabilities for both the Vermont State Employees’ Retirement System (VSERS) and the Vermont State Teachers’ Retirement System (VSTRS) are projected to significantly increase in fiscal year 2022 due to factors such as “historic underfunding,” lower-than-expected investment returns, changes to demographic assumptions, and revised economic assumptions. For VSERS, the unfunded liability is projected to increase by $225 million to $1.04 billion, and for VSTRS, the unfunded liability is projected to increase by $379 million to $1.93 billion in 2022.

The proposal comes just a couple months after Vermont Treasurer Beth Pearce released a report that recommended cutting pension benefits for state employees and teachers, a move she acknowledged would be “painful” for workers.

“These recommendations are painful, and this report is not submitted lightly, but action is needed to continue to provide retirement security for all our employees,” the treasurer’s office said when it released the report.