The common denominator in the recent big problem banks: ESG

Silicon Valley Bank and Signature Bank both were multi-billion-dollar bank failures.  First Republic and Credit Suisse were multi-billion-dollar banks that required large cash infusions to avoid failure.  Writing in the Washington Examiner, Paul Tice points out that all four institutions followed P.C. prescriptions for enlightened corporate leadership, basically the recipe for ESG (and DIE).

As the current banking crisis continues to roll through the global financial system, one common denominator among all the bank failures to date has been corporate ESG policies promoting climate action, diversity, equity, and inclusion, and other progressive initiatives.

Silicon Valley Bank , the first bank to collapse, lent to more than 1,500 start-up climate tech firms, the majority of which had no cash flow or ability to service bank debt. Most of the directors on the bank's board had no banking experience but were instead chosen for the DEI boxes that they ticked.

Signature Bank, the second institution to be seized by federal regulators, prided itself on being "the first bank in the United States to have an openly gay man on the board" and held internal seminars on the use of proper pronouns in the workplace. The bank was also an official supporter of the Task Force on Climate-Related Financial Disclosures and had started to disclose its lending portfolio emissions as the first step toward a net-zero banking model.

First Republic Bank, which recently required a $30 billion bailout from its industry peers to stay afloat, became the first large U.S. bank to stop lending to the fossil fuels industry back in 2021, achieving carbon neutrality that same year

Even Credit Suisse, the most systemically important bank to fail thus far, believed in "sustainable finance for a better world" and did its part to direct capital toward the achievement of the United Nations' Sustainable Development Goals for 2030. The Swiss bank also actively promoted its transgender "allyship" by having a high-profile, non-binary, gender-fluid section head within its Global Markets Technology group.

The line connecting ESG policies to the bank failures is indirect, or, if you will, a dotted line.  The proximate cause of the SVB failure was not loans to politically correct environmental startups, but rather too many long-term Treasury securities in its portfolio of assets.  But the fact is clear, at least in the case of SVB, with which I am most familiar, that management took their eyes off the ball of risk management.  Risk management roles remained unfilled for a time, and some risk managers clearly prioritized ESG over actually, you know, managing risk.

It's very clear to me that ESG is an abomination, an excuse for management to substitute their personal values for the interests of the shareholders being guarded, as fiduciary responsibility requires.

It should surprise no one when managers most concerned with demonstrating their virtue fail to carry out their fundamental responsibilities.  So, in that sense, ESG is at the root of these troubles, and if more companies, especially banks, fail to learn to reject ESG, there will be more trouble ahead.

Photo credit: Minh NguyenCC BY-SA 4.0 license.

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